The New Perkins Loan

The Perkins Loan program, which is scheduled to expire in 2014 and hasn’t seen a funding increase in seven years, might have a new life ahead. College officials who spoke at a forum here Tuesday say the Obama administration deserves credit for trying to preserve and expand the program, but some of the reforms being sought are drawing objections.

Department officials said the changes would make the loans more efficient, as well as saving money that could be used to expand Pell Grants. Others at the panel said transforming the Perkins loan program was the only way to save it: Terry Hartle, vice president for government relations for the American Council on Education, said the proposed changes are the loan program’s "last best hope." That’s because small Education Department initiatives could be an easy target for budget-cutters looking to trim the deficit or pay for other priorities.

The Perkins program provides subsidized loans of up to $4,000 per year at a 5 percent interest rate for undergraduates. Individual colleges and universities administer the loans, meaning that students repay their colleges, not the government. The repaid funds are directed into making new loans. About 1,700 institutions currently participate in the loan program, which lends about $1 billion per year — compared to $116 billion for direct lending.

The Obama administration proposed expanding the program to 2,700 institutions and lending $8.5 billion per year. But the Perkins loans would closely resemble unsubsidized Stafford loans: interest would accrue while students are enrolled, the loans would be serviced by Education Department contractors rather than individual institutions, and the interest rate would increase to 6.8 percent. Institutions would still be able to decide how much money to lend to each student, but their total available loan volume would be determined by a formula that would “provide incentives for successfully graduating more low-income students,” according to an overview department officials provided at the panel.

The changes would turn the program into a “moneymaker,” Hartle said, and the increased revenue would be used to pay for expanding Pell Grants for needy students.


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