Pop Quiz – Can a School Accept a Lower Payment on a Defaulted Perkins Loan?

Question:

The school has a student in default on his Federal Perkins Loan. He has been granted previous hardship deferments and forbearance. In order to rehabilitate the loan, the student would need to make 9 consecutive, full, on-time payments. The student owes $6,000 and the monthly repayment amount would be $63.64, which the student cannot afford. Can we accept a lower amount?

Answer:

No, you would not be able to accept the $50. Per 34 CFR 674.39(a)(2), 

"(2) A loan is rehabilitated if the borrower—

(i) Requests rehabilitation; and

(ii) Makes a full monthly payment—as determined by the institution—within 20 days of the due date, each month for 9 consecutive months."

A full monthly payment for this student is $63.64. I confirmed with the U.S. Department of Education (ED), the lower payment of $50 would not be sufficient to get the student out of his defaulted status and eligible for any benefits or relief offered as a loan borrower in good standing.

However, another option which may be helpful to a student in this situation would be to consolidate. 34 CFR 685.220(d)(1)(i) eliminates the requirement that a student have a Direct or FFEL Loan to consolidate or “anchor” to and 685.220(b) allows loan types like Perkins and some HHS loans access to the consolidation option. Consolidation would restore the student’s Title IV eligibility and allow access to income-based repayment plans in which the student’s payment may be $0.

 

Publication Date: 4/22/2019

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