The Federal Perkins Loan program expired on Sept. 30.
Over 2.6 million borrowers with the greatest financial need depended on this aid, found a Student Loan Hero study. The Perkins program was specifically helpful to low-income families and independent grad and undergrad students.
Luckily, members of Congress wee working to extend the Perkins program for another two years. Here’s why Perkins Loans are worth saving.
What is a Perkins Loan?
Named after late Kentucky Congressman Carl D. Perkins, Perkins Loans function much like other federal student loans. Borrowers must complete the Free Application for Federal Student Aid (FAFSA) before seeing what loans their selected schools can offer.
Also like other federal loans, a Perkins Loan doesn’t require a co-signer, and it can be canceled anytime before it’s disbursed.
More uniquely, Perkins Loans are school-based, and potential awards depend on your school’s budget. The loans are either serviced by the school itself or a servicer of its choosing.
The loan amount can be put toward tuition, fees, and room and board. If funds remain after covering those expenses, refunds are issued to students, who can use the money on additional school costs.
Eligibility requirements for Perkins Loans
Perkins Loans were designed for undergraduate, graduate, and professional students who can demonstrate dire financial need. That need is determined by the family income information you provide on your FAFSA.
About 30 percent of families who qualified for Perkins Loans during the 2012-2013 academic year had a household income of less than $30,000, according to the Coalition of Higher Education Assistance Organizations (COHEAO).
If you’re wondering whether you qualify for Perkins Loans, consider your Expected Family Contribution (EFC). That number tells your school how much you can pay out of pocket for your cost of attendance.
The EFC is based on a student’s independent or family income, plus three other factors:
- Assets, such as your home
- Benefits, like unemployment or Social Security
- Family size, plus the number of relatives attending school
Beyond that, you need to meet other requirements to be eligible for Perkins Loans:
- Attend an eligible school
- Enroll part-time or full-time
- Demonstrate financial need
- Meet your school’s criteria
At Drexel University, for example, students must meet its Satisfactory Academic Progress policy to maintain eligibility. A full-time Drexel undergraduate must maintain a 2.0 GPA and complete 80 percent of their courses to continue to qualify for Perkins Loans.
As with other loans, the Federal Perkins Loan program requires you to fill out the FAFSA and reapply each year.
4 pros of Federal Perkins Loans
If you’re still asking yourself, “What is a Perkins Loan?” looking at the program’s pros and cons should clear up any confusion.
Let’s see how Perkins Loans compare with other federal loans.
1. No origination fee or in-school interest
Aside from having a relatively low interest rate of 5%, the Federal Perkins Loan program has no origination fee.
For comparison’s sake, Direct Subsidized Loans have an interest rate of 4.45% for the 2017-2018 academic year. But they also come with a 1.069 percent origination fee. There’s some simple math involved in figuring out how this extra fee costs you over time.
Like Direct Subsidized Loans but unlike other federal loans, a Perkins Loan also comes with a big advantage: The federal government pays the interest that accrues on your loan while you’re in school.
Of course, you’ll still need to watch out for late fees for payments made after the due date.
2. Longer grace period
You’re responsible for the growing interest on your loan after you leave school, but you have a longer-than-average break before entering repayment. Perkins Loans come with a grace period of nine months; other federal loans allow you six months.
That’s an extra three months to land a good-paying job or sign up for deferment or forbearance to delay payments.
3. Your school is your lender and could be your servicer
When you take out a federal loan, you are handed off to one of the federal government’s nine servicers. These companies — Navient is the biggest among them — also handle your billing once you enter repayment.
Because the Federal Perkins Loan program is school-based, however, its loans could be serviced by your school. This makes it easier for you to communicate with your servicer; you can walk right into your financial aid office and talk to another human being.
It’s just as likely that your school outsources the servicing of your loan. The University of Massachusetts, for example, directs its Perkins Loan borrowers to repay their loans via Heartland ECSI.
Even this arrangement could be a slight upgrade. The school (not the federal government) is still your lender, making it easier for you to find your servicer and stay on top of your loan situation.
4. Access to loan forgiveness
Perkins Loan borrowers are not eligible for Public Service Loan Forgiveness, but they’re eligible for other, exclusive loan-cancellation programs.
In fact, there are 17 different ways you can get up to 70 or 100 percent of your Perkins Loans canceled, plus interest.
The professions that allow you to get Perkins Loan cancellation are listed below. Aside from No. 1, you can have up to 100 percent of your loans canceled by working in these professions.
- VISTA or Peace Corps volunteer (up to 70 percent forgiveness)
- Law enforcement or corrections officer
- Nurse or medical technician
- Librarian with a Master’s degree in a Title I school or public library serving Title I schools
- Attorney in a federal public or community defender organization
- Employee of a nonprofit child- or family-services agency
- Employee in a Head Start educational program
- Staff member in a state-regulated child care program
- Provider of early intervention services for people with disabilities
- Special education teacher in a public school or educational service agency
- Full-time teacher in certain subjects in a teacher shortage area or educational service agency serving low-income students
- Faculty member at a tribal college or university
Perkins Loans can also be canceled under these extreme conditions:
- Permanent disability or death of the borrower
- Bankruptcy, if the court rules that repaying loans would cause severe hardship
- School closing before you completed your program
- Service in armed forces in a hostile fire or imminent danger area
Like the loans themselves, forgiveness is applied for and granted one year at a time. A teacher who meets eligibility criteria — she teaches math in a low-income area, for example — would see the following Perkins loan forgiveness schedule:
|1||15 percent, plus interest|
|2||15 percent, plus interest|
|3||20 percent, plus interest|
|4||20 percent, plus interest|
|5||30 percent, plus interest|
You can apply for forgiveness through your school or its loan servicer. In your application form, you will include information about you, your loan, and your profession or reason for requesting forgiveness.
Be sure to ask your school or servicer for the details of your individual eligibility. After all, Perkins Loan forgiveness could demolish your debt.
4 cons of Federal Perkins Loans
For all the unique benefits of a Federal Perkins Loan, it doesn’t always measure up to other types of federal loans. Take these cons into account before maxing out your Perkins Loan allotment instead of, say, switching to a Direct Subsidized Loan.
1. Your school might not participate in the program
If you’ve already determined where you’re going to school, check with its financial aid office. The representatives there should be able to tell you if your school participates in the Federal Perkins Loan program.
If you’re choosing between two dream schools, for example, you might find that this aid (or lack of it) on one campus serves as the tie-breaker.
2. Your school might not be able to award you much
Even if your school is part of the Federal Perkins Loan program, it could have limited money to divide between you and your peers.
Because of that, it could be hard to predict what you’ll be given on your college award letter. You can estimate your eligibility for aid using the Department of Education’s FAFSA4caster. But you won’t be able to project how much your school (or top school choices) will be able to provide in Perkins Loans.
Fill out your FAFSA early and check in with your school’s financial aid office as soon as you receive your award letter. Also be sure to check in with your school late in the process. Some of your peers might turn down their Perkins Loan amounts, leaving money on the table.
Undergraduate students are allowed to take out a maximum of $5,500 annually for Perkins Loans and $27,500 over the course of their undergraduate career. But the average amount awarded for the 2013-2014 academic year was just $2,014, according to COHEAO.
Perkins Loan maximums:
- Undergraduate student per year: $5,500
- Undergraduate student total: $27,500
- Graduate student per year: $8,000
- Graduate student total: $60,000
With that said, a borrower who can prove financial need could always combine Perkins Loans with Direct Subsidized Loans.
3. Limited access to income-driven repayment plans
Like other federal loans, your Perkins Loan starts out on a standard repayment plan.
A $5,000 Perkins Loan repaid over a standard 10-year term, for example, would set you back $6,364 total. That’s after 120 monthly payments of $53.
Student Loan Payment Calculator
It becomes more complicated if you graduate with a handful of loans. The average 2016 graduate left campus with $37,172 in student loan debt.
Having access to an income-driven repayment plan can ease the burden. It would allow you to make more gradual student loan payments relative to your earnings.
Unfortunately, Federal Perkins Loan program borrowers don’t have the luxury of being able to switch to repayment plans like Pay As You Earn, Income-Based Repayment, or similar options. You’ll need to speak with your school to learn about repayment plans for Perkins Loans.
Consolidating Perkins Loans and Direct Loans, however, would qualify you for certain federal repayment plans. You would give up unique Perkins Loan benefits, such as loan cancellation, in the process. But the reward of a more flexible repayment schedule might be worth it for some borrowers.
4. The program is in jeopardy
The worst news comes last: The Federal Perkins Loan program could be going away for good. As of July 2017, no Perkins Loans will be approved after Sept. 30.
This is despite the best efforts of some members of Congress. New York Representative Elise Stefanik has gained sponsors from both sides of the aisle for her Federal Perkins Loan Program Extension Act of 2017. The bill, also known as H.R. 2482, was introduced in May.
Because 500,000 students and their families borrowed $1.1 billion in Perkins Loans in 2013-2014 alone, you can imagine why many people are hoping for a resolution.
One reason to be hopeful: The Federal Perkins Loan program was also revived on a similar two-year extension in December 2015.
Is a Perkins Loan right for you?
Although the Federal Perkins Loan program has its cons, it has helped pave the way to campus for many students. Since 1958, the program has provided over $28 billion in awards to borrowers attending college and graduate school.
Given its eligibility requirements, the program is not for everyone. Whether you think you might qualify, consider Perkins Loans among your federal student loan options.
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|* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of February 1, 2020,the one-month LIBOR rate is 1.66%. Variable interest rates range from 4.22% – 7.81% (4.22% – 7.81% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.36% – 7.95% (4.36% – 7.95% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown for eligible, creditworthy applicants with an undergraduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discount of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance,including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
|2.84% – 10.97%1||Undergraduate, Graduate, and Parents|
|2.75% – 10.65%*,2||Undergraduate and Graduate|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|4.22% – 7.81%5||Undergraduate and Graduate|