Questions & Answers on Updates to the Perkins Loan Program
April 6, 2009

President Obama's Fiscal Year 2010 budget proposes that the current Federal Perkins Loan Program be dramatically changed so that its benefits can be shared by more students attending more schools.

This proposal would restructure and expand the Federal Perkins Loan Program to ensure that all colleges and universities can take part in the program. The revamped Perkins program would provide $6 billion in loans every year, a significant increase from the current $1 billion in funding. As now structured, the formula for distributing Perkins loans is weighted by a decades-old formula that favors particular schools while actual funds available to students is contingent upon the collection activity of those schools. Under the President's proposal colleges and universities participating would increase from 1,800 to 4,400. Funds would be distributed to reward schools that provide more need-based aid to students and that maintain reasonable student costs relative to other schools in their sector. To relieve schools (especially those coming into the program) of the burden of making, servicing, and collecting on the new Perkins Loans, the Department, using its existing systems, including the Common Origination and Disbursement (COD) System, would be responsible for these activities.

Under the proposal, while the interest rate on the new Perkins loans would remain at 5%, the loans would be "unsubsidized". Most of the terms and conditions of the new Perkins loans would be similar to those that apply to Stafford Loans made under the Direct Loan Program.

Has the FY 2010 Budget been approved?
No. On February 26, President Obama submitted the Administration's proposed budget for FY 2010 to the Congress, which must act on the President's proposals.

When will Perkins Loans made under the current law end and new Perkins Loans be available?
The budget proposal states that new Perkins Program would be effective for all loans disbursed on or after July 1, 2010. Thus, the latest a Perkins Loan could be disbursed under the existing program would be June 30, 2010.

Why didn't the Administration just propose higher loan limits in the other federal student loan programs?
Restructuring and expanding the Perkins loan program allows campus financial aid administrators to target help where it is needed most. The budget's approach gives schools the discretion to target loan funds to address the problem of students who need to rely on additional borrowing. In addition, while the proposal would provide for more than $6 billion in new Perkins Loan funds each year, to provide loan limit increases for all Stafford borrowers would be cost prohibitive.

Won't ending in-school interest subsidies for these new Perkins loans hurt students?
Congress could decide to maintain the current in-school subsidy but doing so would require a much smaller program because of the cost to the government. The Administration supports using limited resources to serve more students rather than target more generous benefits to a limited population.

How will the program ensure loans are made available to the students who really need them?
Much like the current program, the proposal gives schools discretion to allocate Perkins loans awards. The Administration believes schools are in the best position to assess the needs of individual students.

Will schools currently in the Perkins Loan Program lose funding under the proposed program?
No. The dramatically increased amount of funding available - from approximately $1 billion to $6 billion - should mean that no schools would lose its ability to provide Perkins loan funds to its students. In fact, depending upon a number of factors, many of these schools will find that they will have more Perkins Loan funds for students.

How will the amount of new Perkins loan funds available to each college be determined?
The expected $6 billion in Federal Perkins Loans funds would be allocated annually to schools under a method, as yet to be determined and in consultation with Congress and higher education finance experts. The formula could reward schools that have kept their tuition and fees low and/or that provide need-based grant assistance to their students. It could also reward those schools that have, as compared to their peer institutions, high graduation and retention rates.

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Last Modified: 04/08/2009