Availability of Federal Perkins Student Loans Is Dwindling

A growing shortage of funds in the federal Perkins student loan program could affect as many as 50,000 students in the upcoming academic year, according to a recent article in U.S. News & World Report.

Students who would have been eligible to receive a low-cost Perkins loan last year may not be offered one this year due to the limited availability of funds.

And the students who do manage to get a Perkins loan will likely see the size of their award shrink, writes U.S. News reporter Kim Clark (“Why Perkins Loans Are Harder to Get This Year,” March 25, 2008).
Schools Struggle to Replenish Limited Perkins Funding

Federal Perkins loans, which carry a fixed interest rate of 5 percent and are subsidized by the federal government, are reserved for undergraduate and graduate students who are considered to be “exceptionally needy.”

Financial aid officials at the nation’s colleges and universities are attributing the scarcity of Perkins loans to a combination of factors: the failure of federal funding for the Perkins program to keep pace with what has been a steady increase in college enrollment, and Perkins borrowers who are taking longer to repay their loans.

Schools are each assigned a fixed pool of Perkins funds from which to lend. Unlike other federal college loans, which are paid back directly to the government or to lenders in the federal education loan program, Perkins funds are payable to the school, with schools dependent on that repayment money to generate new Perkins loans for incoming and returning students.

The longer alumni take to repay their Perkins loans, the less money is immediately available to current students eligible for these loans.

Many Perkins borrowers, faced with rising interest rates over the last few years on everything from private student loans and federal consolidation loans to credit cards and home loans, have focused on repaying their higher-interest student loans and other debt, steering away from paying off their Perkins loan early and opting instead to take the full 10-year Perkins repayment term.

Adding to the problem, says Rick Shipman, director of Michigan State University’s financial aid office, is the fact that some students are able to discharge their Perkins loan if they go into the military or teaching.

“Their debts are forgiven by the federal government but the federal government doesn’t necessarily reimburse the school,” explains Shipman (“Credit Crunch Alarms Student Loan Lenders,” MSU State News, March 26, 2008).


Colleges and Universities Scaling Back on Perkins Awards

With less Perkins repayment money coming in and no government funds being added to expand the federal Perkins pool, schools are being forced to scale back their Perkins awards.

At Ohio University, Perkins funding is so limited, Clark writes, that officials anticipate a 12 percent decline in the number of Perkins student loans the school will be able to issue this fall.

Also expecting to make cuts to its Perkins student loans is the University of Maryland at College Park, which has seen its Perkins funding shrink this year to just half of the $2.3 million it had available last year.

At Michigan State University, where the Perkins pool has dropped from $7 million to $5 million in the last year alone, financial aid officials plan to eliminate over 2,000 Perkins awards in the fall and cut the average award from $1,200 to $1,000.

MSU expects to award about 4,400 Perkins loans to undergraduates in the upcoming academic year, down from the 6,600 it issued in 2007–08. The school already eliminated Perkins loans for its graduate students last year.