The Federal Perkins Loan is a low-interest subsidized loan. Interest does not accrue during the in-school and grace periods and during other periods of authorized deferment. Federal Perkins Loans are awarded by the college or university financial aid office to undergraduate, graduate and professional students with exceptional financial need, as defined by the school.
Revolving Loan Fund
The Federal Perkins loan is a made from a revolving loan fund, which was originally established by matching capital contributions from the colleges and the federal government. Not every college participates in the Federal Perkins loan program.
The loan fund is supposed to be replenished when current borrowers repay their loans. However, the available funds are depleted by borrowers qualifying for loan forgiveness and by borrowers who default on their loans. There have been no new federal capital contributions to the Federal Perkins loan program since 2009.
The Federal Perkins loan is a campus-based loan program, where the college’s financial aid administrator decides which students receive the loans. The loans are supposed to be awarded to students who demonstrate “exceptional financial need,” but this term was never defined by Congress. As a result, decisions concerning which students receive the Federal Perkins loan are left to the discretion of the college’s financial aid administrator.
In practice, the distribution of the Federal Perkins loan is similar to the distribution of the subsidized Federal Stafford loan. In the 2011-12 academic year, 70% of Federal Perkins loan recipients had an adjusted gross income (AGI) under $50,000, compared to 71.7% of subsidized Federal Stafford loan recipients and 91.7% of Federal Pell Grant recipients. Nearly three quarters (73.6%) of Federal Perkins loans went to Federal Pell Grant recipients, with 29.2% going to students who received a full Federal Pell Grant. But, still, only 3.8% of Federal Pell Grant recipients received a Federal Perkins loan, compared with 1.0% of non-recipients. 11.4% of Federal Perkins loan borrowers had an expected family contribution (EFC) of $10,000 or more.
Interest Rate and Fees
The interest rate on the Federal Perkins loan is fixed at 5%. There are no fees.
The Federal Perkins loan has an annual loan limit of $5,500 for undergraduate students and $8,000 for graduate students. Cumulative loan limits are $27,500 for undergraduate students and $60,000 for graduate and professional students. The cumulative limit for graduate and professional students includes any undergraduate Federal Perkins loan debt.
Actual Federal Perkins loan amounts are usually much lower than the annual loan limits, due to limited funding. In the 2011-12 academic year, 2.2% of undergraduate students received an average of $1,824 in Federal Perkins loans and 1.9% of graduate and professional students received an average of $2,747 in Federal Perkins loans. The average cumulative Federal Perkins loan debt at graduation is $4,070 for undergraduate students and $4,072 for graduate and professional students.
Repayment begins 9 months after the student graduates or drops below half-time enrollment. Interest remains subsidized during the 9-month grace period.
The Federal Perkins loan is repaid over a 10-year repayment term with equal monthly payments. There is a $40 minimum monthly payment. The monthly payment for $4,000 in Federal Perkins Loans is about $42.
Longer repayment terms may be obtained by consolidating the Federal Perkins loans into a Federal Direct Consolidation Loan. However, borrowers who consolidate the Federal Perkins loan will lose the remainder of the grace period, the subsidized interest benefit during deferment periods and the loan program’s favorable forgiveness and cancellation options.
Federal Perkins Loans are eligible for the student loan interest deduction.
Proposed Changes in the Federal Perkins Loan Program
There have been federal budget proposals to expand the Federal Perkins loan program from about $1 billion in loans a year to $8.5 billion. Funding for the expanded Federal Perkins loan program would come from the U.S. Department of Education’s direct loan program. The new Federal Perkins loans would be unsubsidized, with interest rates, grace period and other terms similar to the unsubsidized Federal Stafford loan. Colleges would have loan funding allocations based on their success in enrolling and graduating Federal Pell Grant recipients and their success in restraining tuition increases. Colleges would still control who received Federal Perkins loans, subject to packaging rules that targeted the Federal Perkins loans at replacing private student loans. None of these proposals have been enacted.