The Student Loan Ranger writes a lot about federal student loan programs, but tends to focus on the big ones, such as Stafford and PLUS loans. This week, we will shine the spotlight on a lesser known, but no less important, federal program -- the Perkins loan.
Depending on what Congress does in the next few weeks , one might consider this our eulogy to a program that's helped around 30 million needy students in its 57-year history.
Perkins Loan Basics
About 1,700 higher education institutions participate in the federal Perkins Loan program. Only students with exceptional need may receive a Perkins loan. As every school has a different amount of revolving Perkins loan funds available, the income threshold defining eligibility will vary.
Funding for new loans comes in part from federal budgetary appropriations, collection of existing loans and funds from the participating schools. For the last few years, the program has made loans to about 500,000 undergraduate and graduate students per year, with an average amount of about $2,000 .
Undergraduate students may receive up to $5,500 in Perkins funds per year with an aggregate maximum of $27,500, while graduate students are potentially eligible for up to $8,000 per year with a maximum, including undergraduate amounts, of $60,000.
To be eligible for a Perkins loan, a student must be attending a graduate or undergraduate program on at least a half-time basis as defined by the school. Some less-than-half-time students are eligible for Perkins loans, but they are not eligible for an in-school deferment.
These loans have a low fixed rate of 5 percent with no interest accruing while the student borrower is at least half time in school, in deferment or in their grace period. In most cases, the grace period is nine months from the time the student becomes less than half time in school, and the repayment term is ten years.
Perkins loans are eligible for various deferments for things such as unemployment or illness -- but these policies vary by school . Repayment schedules are set up to ensure the loan is paid off within 10 years, and payments can be required monthly, bi-monthly or quarterly depending on the school. One of the reasons these loans are so important to needy students is the generous and varied forgiveness programs that are unique to the Perkins program.
[Check out these additional methods of student loan forgiveness.]
So now that we've explained all the benefits of the Perkins program, let's talk about why it's -- maybe -- going away. In short, it's a budget issue.
For a few years now, there's been a lot of talk about how complicated the federal aid programs are, both to families and to college aid administrators. Many feel that the Perkins program serves roughly the same student populations as other programs, such as the subsidized Stafford loan or Pell Grants.
Ceasing new funding for Perkins would free up federal appropriations and overall operational costs that could be funneled to other programs. Those against the termination of the program argue that Perkins provides the extra funds needed for these exceptionally needy students to pay for college, and that to date there is no legislation that would repurpose those funds to fill the gap.
The statutory authority to use appropriated funds for the Perkins l oan program expires on September 30, 2015. This means that unless Congress does something between now and then, which is close to impossible as of the writing of this blog, schools will be prohibited from making new Perkins loans to students who have not received them prior to Oct . 1, 2014.
This means that if you've never received a Perkins loan in the past, and don't receive at least a disbursement before the deadline, you won't be able to receive them at all. If you have received them in the past, you'll be allowed to continue to do so until you complete your program at your existing school .
Those with existing Perkins loans, however, can rest assured that existing repayment, deferment and forgiveness options will not change, although the loan holder may change to a Department of Education servicer at some point in the future.
It's Not Over Until It's Over
Thanks to significant activity from school and student groups, it's still possible the program could be saved or at least extended. Last week, House Rep. Mike Bishop , R-MI , and Rep. Mark Pocan , D-WI , introduced the Higher Education Extension Act of 2015 , which passed the House on Monday and extends the program for another year.
A bipartisan group of senators from the Senate Health, Education, Labor and Pensions Committee quickly followed the introduction with a resolution showing support for the program's extension .
We're guessing that the late Rep . Carl Perkins , the program's namesake, who before his sudden death had a significant impact on both education and the needy, is watching and hoping his legacy will continue.
Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.