Posted: October 22, 2015
By: Jeff Megargell, HEAG Consultant
The Perkins Loan Program, a stalwart of the federal aid programs for over 50 years and servicing half a million students a year to the tune of $1.2 billion, is being phased out of existence. This means that new Perkins loans can only be issued to existing recipients as of October 2014, putting a hold on issuance to students who are entering school or who have yet to utilize the program. During the 2008 reauthorization of the Higher Education Act, a sunset of September 30, 2015 for the Perkins program was set, and no act of Congress passed to save the program from peril as the date came and went. Efforts almost came to fruition as a bill made it out of the House, but in the end it could not pass the Senate.
Louise Slaughter, a representative from New York, wrote, “Perkins loans provide necessary flexibility to colleges and universities, which can use Perkins loans in conjunction with other forms of financial assistance to help students afford the cost of higher education. Because they do not accrue interest while a student is in school and maintain a fixed 5% interest rate when repayment begins, Perkins loans often offer a much more affordable alternative to private student loans. Furthermore, the Perkins Loan Program encourages graduates to serve their country and communities by offering partial or full loan forgiveness to borrowers engaged in various types of public service.”
The program did have its critics within the financial aid community, with its outdated funding formula based on how long a school was in the program. Institutions that had been part of the Perkins program since its inception had a healthy allocation that had accrued over time, and and were therefore able to award more students. Schools just getting started or that had been in the program for only a few years, however, did not have the funding levels needed to service their student body appropriately.
While it may be too early to estimate the long-term impact on students now that the Perkins is no longer a loan option in a student’s financial aid package, one thing is for certain: costly private loan volume will likely increase to replace the lost funding. An effort should have been put forth by Congress to ensure that the neediest students had another federal option to fall back on, like an overall increase in Pell funding levels. Unfortunately, this was not the case. Time will tell if Congress will step up and assist these students either with an increase in current grant levels or by inventing a new federal loan program of some sort altogether.
Sources:
http://www.businessinsider.com/congress-let-perkins-loans-program-lapse-2015-10
http://www.fltimes.com/opinion/article_95048826-6a34-11e5-80f0-4f98e4ac3b22.html