Issue 1: Authorization for Federal Perkins Loan Program [Section 461]
Recommendation: Increase the authorization level for the Federal Perkins Loan Program.
Rationale: The Federal Perkins Loan Program allows participating institutions the flexibility of offering needy students low interest loans to meet their educational needs. Annually the need for funds exceeds the allocation.
Issue 2: Allocation of Funds [Section 462(e)(3)(a)]
Recommendation: Allow schools that wish to terminate participation in the Federal Perkins Loan Program the opportunity to continue to collect outstanding loans and use the collections to establish a federal endowment fund and to use the proceeds from that endowment for Federal SEOG or Federal Work Study awards to students.
Rationale: For many years schools have received a minimal amount of new money for the Federal Perkins Loan Program (based on available appropriations and the funding formula), and rely on repayment funds to lend to new borrowers. Some schools may find that the needs of their students may be satisfactorily met through Stafford loans but that need still exists for SEOG and FWS.
Under current provisions, should a school determine that they no long wish to participate in the Federal Perkins Loan Program it must assign all of its loans to the U.S. Department of Education and return the federal share of the cash balance in the fund.
Under this recommendation, schools that terminate participation in the Federal Perkins Loan Program would be allowed the option to collect its outstanding loans, retain the funds to establish a Federal SEOG/FWS endowment, and use the proceeds from the endowment solely for FSEOG and/or FWS awards. Schools would maintain a vested interest in the collection of the loans issued, and a vested interest in keeping collection costs down. Schools would have an incentive to invest the endowment funds at rates equal to or greater than the current 5 percent interest rate. [Currently schools are required to lend out the repayment funds as soon as possible] The earnings from the fund would expand the amount of federal grant and work-study funds for students without any additional federal appropriations. Since these schools would no longer qualify for an annual federal Perkins allocation, increased FCC would be available to those schools that wish to remain in the Federal Perkins Loan Program. The federal government would not have to expand its collection operations to absorb reassigned loans.
Issue 3: Federal Perkins Loan Limits [Section 464(a)(2)(A)]
Recommendation: Increase the Federal Perkins Loan annual undergraduate maximum to $5,500 and $10,000 for graduate/professional students. In addition, increase the cumulative undergraduate limit to $27,500 and the cumulative graduate/professional limit to $67,500.
Rationale: Raising the annual and aggregate limits would allow participating schools additional flexibility in matching need-based programs to the specific needs of their students. By increasing the limits schools would have a greater ability to help the neediest students limit their educational borrowing to just one loan program.
Issue 4: Perkins Loan Interest Rate [Section 464(c)(1)(D)]
Recommendation: Maintain the interest rate for the Federal Perkins Loan program at the current level.
Rationale: The RTF reviewed this issue and believes the current rate is appropriate.
Issue 5: Forbearance [Section 464(e)]
Recommendation: Delete the words "upon written request."
Rationale: Borrowers are not required to submit written requests for forbearance under the Federal Stafford Loan Programs. This same provision should also be available to the Federal Perkins Loan borrowers.
Issue 6: Cancellation of Loans for Certain Public Service [Section 465]
Recommendation: Retain these benefits.
Rationale: Current cancellation benefits are incentives, which encourage graduates to enter into low wage professions that provide benefits to society at large.
Issue 7: Regaining Title IV eligibility after default [Section 465]
Recommendation: Allow a defaulted borrower who voluntarily makes all past and currently due payments to regain eligibility for all Title IV programs.
Rationale: Currently a defaulted Perkins borrower who voluntarily makes all past and currently due payments due regains eligibility only for Perkins loans. This is inconsistent with all other provisions relating to regaining eligibility and makes administration of the programs unnecessarily complicated. It is also illogical to allow a previously defaulted borrower to regain eligibility for another loan but not for work or grants.
[Return to main article on NASFAA's Reauthorization Task Force Preliminary Recommendations]
Posted October 11, 2002 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2002.
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