Two-year extension of the Perkins Loan Program is not business as usual

Most of you are now aware that the Perkins Loan Program—which provides low-interest loans to help needy students finance the costs of postsecondary education—was extended on December 18, 2015. However, the Federal Perkins Loan Program Extension Act of 2015 dramatically changes the nature of the program. It would limit new loans to undergraduates who have a 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 currently applicable conditions, 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 the General Education Provisions Act (GEPA) to Perkins.

Undergraduate borrowers

The bill states 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 when they received 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, the 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 the ED.

The bill specifies that institutions would have to “award” direct loans first. Currently the ED does not require a student to actually 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 the 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 the ED based its current interpretations. The 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.

What do institutions do?

ED will soon be issuing a Dear Colleague Letter that will provide details regarding this extension. They are also in the process of preparing a revised set of Perkins Loan Questions and Answers which will be posted as soon as possible. In the meantime, you may contact Tamy Garofano at Tamy.Garofano@ed.gov with any questions related to the newly enacted legislation.

The link for all the current guidance issued by ED whether your institution has already decided to liquidate or is going to continue disbursing under the extension can be found at here. All of the Perkins information is on the right hand side in the orange boxes.