Perkins loan

What Is Perkins Loan?

A Perkins Loan was a type of federal student loan provided by institutions of higher education to students demonstrating exceptional financial need. Falling under the broader category of Student Finance, these low-interest loans were subsidized by the federal government, meaning interest did not accrue while the borrower was enrolled in school at least half-time, during a grace period, or during periods of deferment³⁶, ³⁷. Perkins Loans were part of a group of federal financial aid programs designed to make college more accessible and affordable for a wide range of students. Unlike grants, which do not need to be repaid, the principal amount and accrued interest on a Perkins Loan had to be repaid over time, though specific cancellation provisions existed for certain public service occupations³⁵.

History and Origin

The origins of the Perkins Loan program trace back to the National Defense Education Act of 1958, enacted during the Cold War era to boost U.S. education in science, mathematics, and foreign languages. This act initially established the National Defense Student Loan (NDSL) program. The program was later incorporated into the landmark Higher Education Act of 1965, signed by President Lyndon B. Johnson as a key part of his "Great Society" domestic agenda³⁴. The Higher Education Act significantly expanded federal funding for universities, created scholarships, and provided low-interest student loans, aiming to strengthen educational resources and provide financial assistance to students in postsecondary education³³.

For decades, the Perkins Loan program served as a vital source of funding for students with high financial need. However, facing debates over the complexity of federal student aid programs and legislative changes, the authority for institutions to make new Perkins Loans ultimately expired. The program was officially terminated on September 30, 2017, with no new loans permitted to be disbursed after June 30, 2018³¹, ³². While no new Perkins Loans are being issued, existing loans continue to be serviced and collected by the schools that originally made them or their designated servicers³⁰.

Key Takeaways

• Perkins Loans were federal student loans administered by colleges and universities, specifically for undergraduate and graduate students with exceptional financial need.
• They were subsidized loans, meaning the U.S. Department of Education paid the interest while the student was in school, during grace periods, and during deferment²⁹.
• The Perkins Loan program officially ended on September 30, 2017, and no new loans have been issued since²⁸.
• Borrowers of existing Perkins Loans are still responsible for repayment, and the loans may offer specific cancellation or discharge options for certain public service professions²⁶, ²⁷.
• Interest rates on Perkins Loans were fixed at a low 5%²⁵.

Interpreting the Perkins Loan

The Perkins Loan was unique among federal student loan options due to its campus-based nature. This meant that funds were allocated directly to participating schools, which then served as the lender, disbursing the loans to eligible students and subsequently managing their repayment²⁴. The eligibility for a Perkins Loan was primarily determined by a student's demonstrated financial need, assessed through the Free Application for Federal Student Aid (FAFSA). Students who qualified were typically those with the highest need, often from lower-income families²³.

The low fixed interest rates and subsidized nature of the loan made it a highly desirable form of aid. The fact that interest did not accrue while the student was in school significantly reduced the overall cost of borrowing compared to unsubsidized alternatives, which begin accruing interest immediately upon disbursement²². This structure was designed to alleviate the financial burden on students during their studies, allowing them to focus on their education rather than accumulating interest debt.

Hypothetical Example

Consider Maria, an undergraduate student attending a university in 2016. Her family's income and assets indicated exceptional financial need. After completing her FAFSA, Maria's university financial aid office determined she was eligible for a $4,000 Perkins Loan for the academic year, in addition to other forms of federal aid. She signed a promissory note outlining the terms and conditions.

Since the Perkins Loan was subsidized, no interest accrued on the $4,000 while Maria was enrolled full-time. She used these funds to cover a portion of her tuition and living expenses. After graduating in May 2019, Maria entered a nine-month grace period during which repayment was not required, and interest still did not accrue. Her first payment on the Perkins Loan was due in February 2020. Had Maria decided to pursue a career in public service, such as teaching in a low-income school, she might have been eligible for partial or full loan cancellation on her Perkins Loan.

Practical Applications

Historically, Perkins Loans played a significant role in enabling students with the greatest financial need to access higher education. Universities used their allocated federal funds to provide these loans, making them a direct link between federal policy and student access. Beyond initial funding, the program offered specific benefits such as deferment, forbearance, and notable loan cancellation provisions.

For instance, individuals working full-time in certain public service fields—such as teaching in low-income schools, special education, certain law enforcement roles, nursing, or early childhood development—could have a portion or even 100% of their Perkins Loan principal and interest canceled over a period of qualifying service. Th²⁰, ²¹is incentivized careers in underserved areas or professions. Borrowers typically applied for these cancellation benefits directly through the school that originated their loan or its designated loan servicer. Wh¹⁹ile no new Perkins Loans are available, existing borrowers continue to manage their loans under these terms, highlighting the long-term impact of such federal programs on both individual financial planning and the broader workforce.

#¹⁸# Limitations and Criticisms

The primary limitation of the Perkins Loan program for prospective students is its termination. The authority to issue new Perkins Loans ended on September 30, 2017, meaning new students cannot apply for or receive them. Th¹⁷is decision was part of a broader effort by Congress to simplify the federal student aid system, consolidating various loan programs under the William D. Ford Federal Direct Loan Program.

For existing borrowers, while the program offered favorable terms like subsidized interest and cancellation options, the decentralized nature of its administration (where schools were the lenders) sometimes led to inconsistencies in servicing and communication compared to more centralized federal programs. Additionally, the program's cap on loan amounts was relatively low compared to the rising cost of tuition, meaning it often only covered a small portion of a student's overall financial need, requiring them to seek additional student loans or other forms of aid. Th¹⁶e program's expiration also highlighted concerns about the federal government's commitment to campus-based aid programs, which some argued allowed institutions more flexibility in addressing the unique needs of their students.

#¹⁵# Perkins Loan vs. Pell Grant

While both the Perkins Loan and the Pell Grant were forms of federal financial aid aimed at students with financial need, they differed fundamentally in their nature. A Perkins Loan was a type of federal student loan that required repayment. It was a low-interest loan provided directly by the college or university, with the federal government subsidizing the interest during in-school periods and other qualified times.

C¹³, ¹⁴onversely, a Pell Grant was a form of "gift aid" or "free money" that did not need to be repaid. Pe¹²ll Grants were also awarded based on exceptional financial need, as determined by the FAFSA, but they are grants, not loans. The amount of a Pell Grant varied based on factors like the student's financial need, cost of attendance, and enrollment status, and it was primarily available to undergraduate students. Wh¹⁰, ¹¹ile both aimed to make higher education more accessible, the key distinction lies in the repayment obligation: a Perkins Loan incurred debt, whereas a Pell Grant did not.

FAQs

Who was eligible for a Perkins Loan?

Perkins Loans were available to undergraduate and graduate students who demonstrated exceptional financial need, as determined by their Free Application for Federal Student Aid (FAFSA). El⁹igibility was also dependent on the student's school participating in the Perkins Loan program.

Are Perkins Loans still available?

No, the Federal Perkins Loan program officially expired on September 30, 2017, and no new loans have been disbursed since June 30, 2018.

#⁷, ⁸## What was the interest rate for a Perkins Loan?
The interest rate on Perkins Loans was a fixed 5%. Th⁶e federal government subsidized the interest, meaning it did not accrue while the borrower was in school at least half-time, during grace periods, or during periods of deferment.

#⁵## Can I get my Perkins Loan forgiven or canceled?
Yes, certain public service occupations may qualify for partial or full Perkins Loan cancellation or discharge. Common eligible professions included teaching in low-income schools, nursing, law enforcement, and certain early childhood education roles. Bo³, ⁴rrowers with existing Perkins Loans should contact their loan servicer or the school that made the loan for details on eligibility and the application process.

Who services my existing Perkins Loan?

Existing Perkins Loans are typically serviced by the college or university that originally made the loan, or by a third-party servicer contracted by that school. Th²e U.S. Department of Education also has a Default Resolution Group that handles some defaulted Perkins Loans.¹