Two-Year Extension of the Perkins Loan Program Would Bring Dramatic Changes
By Joan Berkes, Policy & Federal Relations Staff
The bill to resurrect the Federal Perkins Loan Program for two more years (H.R. 3594, the Federal Perkins Loan Program Extension Act of 2015), which was signed by President Barack Obama in December,changes dramatically the nature of the program. It would limit new loans to undergraduates who have remaining need after accounting for all Direct Loan eligibility (both subsidized and unsubsidized), likely making the pool of eligible borrowers smaller and probably eliminating most students at participating community colleges from eligibility. No new loans could be made to graduate students, although some current graduate borrowers would be grandfathered. Grandfathering for undergraduate students would differ from the conditions applicable currently, and their period of grandfathering would be curtailed.
The bill would prohibit on a final basis: (1) any new loans after September 30, 2017; (2) any future appropriations to the Perkins Loan Program; and (3) applicability of any future extensions of the Higher Education Act under General Education Provisions Act (GEPA) to Perkins.
Undergraduate Borrowers
The bill would provide that institutions could make loans to new undergraduate borrowers through September 30, 2017. A new borrower would be one who has no outstanding balance on a Perkins loan from that institution. However, a loan could be made to the new borrower under the proposed legislation only after awarding all Direct Loans for which that borrower is eligible, both subsidized and unsubsidized. This differs from the Department of Education’s (ED) interpretation of current law, under which a new borrower is a student who had never received a loan under the Perkins Loan Program before (regardless of whether any balance is still outstanding or where the loan was made), and only subsidized loan eligibility must be taken into account.
Under the bill, an institution could make a loan to a continuing undergraduate Perkins borrower (i.e., a current borrower with an outstanding balance on a Perkins loan made by that institution) through September 30, 2017. Only subsidized Direct Loan eligibility would have to be taken into account before awarding the Perkins Loan.
The bill does not seem to stipulate that the continuing undergraduate borrower must be at the same institution or in the same program as the last Perkins disbursement made on or before June 30, 2015, as is currently the case.
Under Perkins Loan regulations, a loan is considered “made” at the time of the first disbursement. Currently, ED is allowing a loan that was first disbursed by September 30, 2015, to be fully disbursed throughout the remainder of the academic year. It would appear the same interpretation could be made for H.R. 3594 with regard to the September 30, 2017 date, but the final word on that would have to come from ED.
The bill specifies that institutions would have to “award” Direct Loans first. Currently ED does not require a student actually to borrow the Direct loan, but if he or she turns it down, the amount of the Direct Loan must still be taken into account when determining the amount of Perkins Loan for which the student is eligible. We presume that the same interpretation could be made for the pending legislation, but, again, a final ruling on that question would come from ED.
Graduate Borrowers
For continuing graduate students, the grandfathering rules would differ from those applicable to undergraduates, and would maintain some of the current restrictions. A graduate student who received a loan under the Perkins Loan Program prior to October 1, 2015, could receive additional Perkins Loans at the same institution that made his or her most recent loan, in order to continue or complete the same academic program for which the last loan was received.
The text of the bill does not specifically address Direct Loan borrowing for graduate borrowers, but does use the same language as is found in current law, on which ED based its current interpretations. ED’s current interpretation only includes subsidized Direct Loans, for which graduate students are not eligible.
Loans to continuing graduate borrowers could be made only through September 30, 2016. However, as long as the first disbursement of a 2016-17 loan was made on or after June 30, 2016, and before October 1, 2016, subsequent disbursements to those continuing graduate borrowers could continue to be paid through June 30, 2017.
Disclosure Requirements
The bill would also add new elements to the annual disclosures that must be made to Perkins Loan borrowers. These new disclosures would have to:
- Explain that the Perkins program is ending and no additional loans will be available;
- Explain that repayment and forgiveness options for Direct Loans are not available for Perkins loans;
- Explain that borrowers may consolidate Perkins loans into a Direct Loan (and explain the benefits of doing so);
- Compare interest rates for Perkins to those for Direct Loans; and
- Inform a new undergraduate borrower that he or she has reached the maximum borrowing limit for subsidized and unsubsidized Direct Loans, or a current (continuing) borrower he or she has reached the maximum annual borrowing limit for subsidized Direct Loans.
Disposition of Institutional Perkins Fund
The bill updates certain dates associated with the liquidation of an institution’s Perkins Loan Fund. Otherwise, it makes no changes to the manner in which the assets of an institution’s fund are to be distributed. NASFAA and other associations continue to advocate for changes that would take into account institutional overmatching and loss of assets due to unreimbursed cancellations, as well as changes to rules that would cause an institution to lose its own investment in loans assigned to ED for collection.
Action on H.R. 3594 is expected today. NASFAA will continue to monitor and announce the progress of the bill.
NASFAA, along with several other members of the higher education community, sent a letter to Senate leaders expressing appreciation for efforts to continue the program, but concern related to the impact the multiple programmatic changes will have on students.
Publication Date: 12/16/2015
Tony T | 1/5/2016 5:38:14 PM
"The bill specifies that institutions would have to “award” Direct Loans first. Currently ED does not require a student actually to borrow the Direct loan, but if he or she turns it down, the amount of the Direct Loan must still be taken into account when determining the amount of Perkins Loan for which the student is eligible." So is this telling us that we are now supposed to include unsub loan in our "Remaining Need" calculation before being able to award Perkins? This would be a complete mess for systems to try to calculate if we are including non-need-based aid in the calculation of Need.
Denise D | 1/5/2016 11:47:13 AM
The information on graduate students seems incomplete. For instance, no new grad students can be added to the program for 16-17, but is there something specifically addressing adding more for 2015-16? I know the former rule was that the funds had to be disbursed by 9/30/15 for new grad students with first loans after 6/30/15, but does that rule still stand given the language of the new bill?
Heather B | 1/5/2016 10:37:17 AM
Do you have any idea when we will get guidance on what we should be doing right now as our new semester starts? Am I following new rules based on this bill?
Barbara B | 1/5/2016 10:12:29 AM
I too would like clarification regarding the cancellation clause since we are strictly a nursing program and our Perkins recipients would all be eligible for loan cancellation if they follow the appropriate protocol.
Barbara B
Daniel R | 12/18/2015 11:10:41 AM
Their tactics are working. I just want one loan now more than ever. Make is easy, it will cut costs and help families. Make it cheap, make it enough.
Denise D | 12/17/2015 1:1:30 PM
Addressing the loan forgiveness issue and consolidating Perkins--is there something changing in the Perkins law to change the Perkins Loans forgiveness/cancellation options? I would think that if the "benefits" of consolidating Perkins loans have to be disclosed, so should the negative issues, like loss of interest benefits during grace and deferment periods, increase in the interest rate to the next 1/8th of a percentage point, and the elimination of the cancellation/forgiveness opportunities of the Perkins loan for nursing, teaching, early childhood education, law enforcement, public defenders, etc.
Donna F | 12/17/2015 10:20:15 AM
I just cancelled Spring Perkins for students who changed their major. Will the feds please tell me what I should be doing for grandfathered students? I have never seen such a tangled mess with ending a program. KISS. Keep it Simple Sweety!
Jaime S | 12/16/2015 2:36:28 PM
This would be yet another blow to graduate students. With this plan, the grandfathered students would be limited to only one additional year of Perkins instead of a few years under the current plan. Why are these students always the red-headed stepchildren who are denied the options which will serve them best?
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