Last year the federal government spent $150 billion providing student loans and grants. More than $1 billion of that budget was spent on the 500,000 college students that received Perkins Loans. Because each college is given a limited loan fund to distribute to students, the loans themselves don't usually reach the annual loan limit per student but have nonetheless made a difference to the deserving and usually low-income borrowers who have received them. As Congress today is spending more and more time looking at ways to cut back on government spending and the way they dole out higher ed financial aid, they have chosen to shut down this funding. On October 1st of this year, the Federal Perkins Loan program expired, resulting in students at over 1,700 private and public colleges losing Perkins funding.
What Were Perkins Loans?
A federal Perkins Loan is a fixed 5 percent low interest loan with a standard 10 year repayment period offered by the United States Department of Education to assist both undergraduate and graduate students afford higher education. The loan is made up of a combination of government funds and funds from your school, carries a nine-month grace period before beginning repayment and does not begin to accrue interest until repayment begins. This is different than most standard loans that offer six-month grace periods and accrue interest from the moment the money is borrowed. The loan amount was limited per year at $5,500 for undergrads and $8,000 for graduate students with a lifetime maximum loan of $27,500 and $60,000 respectively.
What Does It Mean That It's Lapsing?
The main concern with this program is that the federal Perkins Loan fund is being depleted and not repaid as borrowers qualify for student loan forgiveness or fall into student loan default. By ending the program, the money that was contributed by the schools and the Federal government will be able to be returned as the loans are repaid. The lapse of this program benefits the government and schools, but we here at Student Debt USA think it is a travesty to dissolve a program that has helped over 30 million needy students in the 57 years it has been around.
How Does This Affect Borrowers?
Allowing this program to lapse has consequences to low-income Americans who want to pursue higher education. President Obama recently proposed to replace the federal Perkins Loan program with an unsubsidized loan program instead, which would allow colleges to control a significantly larger amount of annual loans. The problem with this program is that unlike the original Perkins Loan, an unsubsidized loan program will begin accruing interest immediately instead of at the time of repayment, putting borrowers significantly further into student loan debt. The federal Perkins Loans provides support to students with economic hardship and offered low-interest loans and forgiveness options for those entering the public-service sector.
As a company that is focused on increasing awareness about Public Service Loan Forgiveness, Student Debt USA believes this type of funding is crucial to students who may not qualify for other financial options and the end of this program will further push borrowers into not completing their education or choosing more costly private loans; whose terms do not offer any sort of loan forgiveness.