Legislation enacting the Federal Perkins Loan Program — which provides 500,000 low-income students with need-based financial aid to pay for college — expired Wednesday.
The Perkins legislation originally expired in September 2014, but included a one-year extension period so colleges and universities could continue to award loans after its expiration. Wednesday marked the end of that extension period.
A bill aiming to reinstate the program for one more year passed in the U.S. House of Representatives on Monday, but no similar bill has made its way through the Senate thus far.
Sens. Debbie Stabenow (D–Mich.) and Gary Peters (D–Mich.) sponsored a resolution on Sept. 24 expressing support for the continuation of the Federal Perkins Loan program, along with several other senators.
In a press release Tuesday, Sen. Peters said Perkins loans give low-income students the chance to earn a degree.
“The Perkins Loan Program has helped make higher education a possibility for millions of students by providing affordable, low-interest loans,” he said. “I strongly support continuing this program to ensure that students in Michigan are not priced out of the opportunity to get an education, and I will be working with my colleagues in the Senate to ensure that the Perkins Loan Program is extended.”
However, until the Senate passes a version of the House bill, colleges can grant Perkins loans to students who applied before July 1 for the current school year, but will not grant new loans to new students.
Institutions can continue awarding Perkins loans to students who had been offered those loans in the 2014-2015 school year. These students are eligible for ongoing Perkins loans until Sept. 30, 2020, or until they graduate if that date is sooner, so long as they remain in the degree programs in which they were enrolled when offered their most recent loan.
Under the program, these 500,000 students are awarded a total of approximately $1 billion a year at about 1,500 colleges and universities nationwide. Program advocates argue that the funds, which are only a small portion of the $150 billion the federal government awards in student loans and grants each year, have made higher education possible for millions of students in the U.S.
However, Mark Kantrowitz, publisher of the college financial planning website edvisors.com, argued the Perkins program has a less significant impact than other federal student loan programs, namely the Federal Stafford loan program, which he said accounts for about $100 billion in federal financial aid.
Kantrowitz said the average Perkins loan is relatively small: usually between $1,000 and $2,000.
According to Margaret Rodriguez, senior associate director at the University’s Office of Financial Aid, the federal government subsidized the cost of Perkins loans when the program began. However, it has not allocated funds to the Perkins program since 2004.
“When the program started, the federal government provided funds to the institutions to make loans,” she said. “And then the institutions had to match those funds with some of their own money.”
Rodriguez said the lack of federal funds has not stopped colleges from awarding Perkins loans. The University, she said, has been using repayments from previously awarded loans to offer new loans to current students. She also noted eligibility for Perkins grants is based upon demonstrated need, which is determined by the information students provide on the FAFSA.
“We have a certain amount of money available — and that depends on how much is collected in any particular year — and we use those funds to help needy students, both graduate and undergraduate, meet their costs of education,” she said. “So we look at our applicant pool every year and determine how much we can offer (to each student).”
Rodriguez said 4,500 undergraduate and graduate students at the University receive Perkins loans, and that last year the University had approximately $12 million available last year to award in Perkins loans alone.
In total, according to the University’s Office of Budget and Planning, the University awarded more than $200 million in financial aid to its students in 2014.
“The Perkins loan is part of what we call an aid package — put together with grants, scholarships, work study in some cases, and federal direct loans to offer a variety of sources of aid students can use to meet their need,” Rodriguez said.
Kantrowitz said colleges are typically attracted to awarding Perkins loans to students because they are associated with greater flexibility. Perkins loans, he said, are a form of campus-based aid, and individual schools are able to choose which students receive them.
“Colleges often use the Perkins loan money to fill in gaps in their financial aid packages,” he said.
Students who receive these loans pay no interest while they are in school, and when they graduate, their loans will carry a 5-percent fixed rate. Additionally, if borrowers commit to certain public service jobs after graduation for between one and five years, they are eligible to have all or part of their Perkins loans forgiven.
Kantrowitz said he, too, is not optimistic the Senate will act to continue the program. However, he argued this is a positive: it would be cost-effective to eliminate the program, and expand the Federal Stafford Loan program instead.
He said Perkins loans were created for those with the highest need, but in practice they are awarded to any student with financial assistance, regardless of their relative need.
“There is a feeling in Congress that the Perkins loan program is redundant,” he said. “It overlaps with the existing loan programs, doesn’t add a lot of value.”
Kantrowitz said if Congress decided to extend the program to new borrowers for one more year, it would incur avoidable costs. To account for those costs, he said, Congress would eliminate the portion of the program called “grandfathering” — which is what guarantees students who previously received Perkins loans will get more in the future.
“The thinking of opponents of the Perkins program is that eliminating the grandfathering makes it a lot easier to kill off the program entirely,” he said.
Kantrowitz also noted that some in the Senate are proponents of simplification and won’t see value in extending the program.
“Especially considering that for a longer term extension, Congress would have to spend money, and Congress is in a budget-cutting mood, not an increasing spending mood,” he said. “And where would they get the money?”
Colleges will fight for this program he said, because they’re focusing on promulgating their existing policies and not considering what is best for financial aid policy in the future.
“A much better approach would be to get rid of the Perkins Loan program and instead somehow expand the Stafford Loan program — maybe expanding the loan limits or adding some additional flexibility to the program, loan forgiveness, or something,” he said.
Though colleges would lose some leeway in their financial aid budgeting processes, Kantrowitz said, the amount would be manageable. The expiration of the program, he said, would not be terribly significant and colleges could devise their own loan programs to replace the Perkins program if they wished.
Though Rodriguez said she is unsure if the Senate will approve the House bill to reinstate the program, she is not hopeful. She also said the University remains committed to satisfying the financial needs of its students, despite the expiration of the Perkins loan program.
“Of course losing an aid program that provides $12 million is significant, but the University is looking for ways that it can continue to meet the full need of Michigan residents and offer competitive aid packages to nonresidents,” she said. “We’ve been studying the issue for a while: we knew that there was always a possibility that the program would go away.”