Federal Perkins Loan Program

What is the Federal Perkins Loan Program ?

A federal Perkins loan is a type of federal student loan program based on financial need. This program provides college or school funding for students with financial need. A federal Perkins loan was a type of educational financial aid provided through the US government's Perkins Loan Program. Under this, the government used to bear the interest part till the schooling period. This loan was available to students who demonstrated exceptional financial need. This requirement was set by the educational institution's own guidelines and student-provided information on the Free Application for Federal Student Aid to apply for all government loans.

The right to create new Federal Perkins Loans for Schools expired on September 30, 2017. The Perkins loan is a subsidized loan, which means the federal government pays interest on the loan while you are in school. Under federal law, this program has been abolished and is no longer available to students. Beginning in 1958, the Perkins Loan Program was providing loans to approximately 500,000 students and 1,400 schools when it ended in September 2017, and the final disbursement of funds occurred in June 2018.

How a Perkins Loan Worked ?

The loan was either paid directly to the student or the loan amount was applied towards institutional fees and eligible educational expenses. Technically, Perkins loans were only subsidized by the government.

When a student applied to the Perkins Loan Program, there were borrowing limits based on the student's financial need and the school's funding level. Aside from interest, there were no other fees or charges associated with the Perkins loan. But like all loans, if a borrower missed a payment, or a payment was sent late, they will most likely be charged a late fee, or collection cost, depending on the educational institution of the lender that issued the loan. .

Loan repayment began nine months after the student graduated, dropped out of school, or dropped below half-time status. The federal government ended the loan program for budgetary reasons because the federal government funded the loans. Those in favor of ending it were concerned about the expense of the loan, but also those who wanted a more streamlined federal student loan program.

Features of Perkins Loan Program

  • The Perkins loan program ended at the end of September 2017 and is not replaced by another form of low-income, need-based credit.
  • The interest rate on the now-defunct Perkins for borrowers was 5%.
  • US The government offers other types of federal loans to students, including direct subsidized and non-subsidized loans, often called Stafford loans.
  • Parents can take out PLUS loans for their undergraduate children, but there are downsides to this type of program.
  • The Perkins loan program ended due to budgetary cuts, but the distribution of funds continued through June 2018.

Benefits of Federal Perkins Loan

Benefits available under Perkins Loan:
  • It was a subsidized loan. Therefore, the government was responsible for the payment of the interest portion during the school term.
  • Students get a grace period of 9 months after leaving school before the loan repayment begins. Most other types of federal loans come with a grace period of 6 months.
  • This loan had an easier loan cancellation policy than other federal loans.
  • For some public service sectors (teachers, nurses, volunteering, and others), there was a provision for 100% of loan cancellations. Since this loan was for financially needy students, it was at the top in terms of loan waiver.
  • There are no other charges other than interest on this loan. But, there was a late fee if the borrower made late payments and if the borrower did not make any monthly payments.

Perkins Loan Program

Who is Eligible for Perkins Student Loans ?

Eligibility for a Federal Perkins loan is somewhat complicated, and can vary on a case-by-case basis. Factors that affect your eligibility include:
  • Your enrollment (full or part-time) in undergraduate, graduate, or professional school.
  • Your ability to demonstrate exceptional financial need.
  • Your enrollment in a school that participates in the federal Perkins Loan Program.
  • Other possible criteria (amount previously borrowed, other assistance received, and other factors).
Financial need is determined using the information in your FAFSA. This is based on the difference between the cost of attending that school and your expected family contribution. The exceptionality of your need may be influenced by how expensive your school is, your family's income, and how your level of need aligns with other potentially eligible students at your school.

Repayment of Federal Perkins Loan

Repayment starts 9 months after the student graduates from school or goes below half-time enrollment. The maximum repayment period of this loan could go up to 10 years. Regarding the monthly repayment amount, it depended on the loan amount, repayment tenure etc. This type of loan was also eligible for "deferment" or "forbearance" under certain conditions. However, the loan should not be in default. The deferment allows the borrower to temporarily defer payments, and no interest accrues for that period. To get the adjournment one had to fill a deferment request form with their respective school.

The point to be noted is that the student must continue to make payments until the authorities approve the request for adjournment or forbearance. If someone stops paying, it could push the loan into default. There are also scenarios when this loan can be discharged, or the borrower will not have to pay it back. These scenarios are death, complete and permanent disability, bankruptcy, and if the school closes before the completion of the course.

Perkins Loan Forgiveness

Because Perkins loans are only available to financially needy students, these loans have the most opportunities for loan forgiveness. If you meet the loan waiver criteria, your entire or part of the loan is repaid. Perkins loan may be partially or fully forgiven if you do one of the following:
  • Military
  • Volunteering, such as with the Peace Corps or AmeriCorps
  • Teaching in a low-income area
  • Legal act that serves the public
  • Practicing medicine in an underserved area

How much can I borrow?

You can borrow up to:
  • $5,500 for each year of graduate study. The total amount allowed for graduation is $27,500.
  • $8,500 for each year of undergraduate/professional study. The total amount allowed for graduate/professional students is $60,000, which includes federal Perkins loans that you borrowed as an undergraduate.

How to Apply for Perkins Loan ?

To apply for Perkins loans, complete a Free Application for Federal Student Aid (FAFSA). By completing this application, you will also know whether you are eligible for other types of federal financial aid such as Stafford loans. You can also apply for PLUS loan or private education loan if you are not eligible for these loans or if they do not cover all your educational costs. Or you can obtain FAFSA papers from your high school, local library, post-secondary school, or the federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).

Perkins Loan FAQs

Will I have to pay back the Perkins loan?
Yes. You must pay back your Perkins loan. Even if the loans were closed by the federal government, the money you borrowed will still be paid off as long as you meet specific criteria to qualify for student loan forgiveness.

What is Perkins Loan vs Stafford Loan?
A Perkins loan was a federal student loan with low interest available to undergraduate and graduate students who demonstrated financial need. Unlike federal direct subsidized and non-subsidized loans, the government no longer provides Perkins loans, known as Stafford loans. Like Perkins loans, these are low-interest student loans, but these loans do not depend on specific income, unlike Perkins loans.

If I change my mind, can I cancel the loan even if I have signed a promissory note agreeing to the terms of the loan?
Yes. Your school must notify you in writing when your account is credited. Your school must notify you no earlier than 30 days before and no later than 30 days after your account has been credited. You can cancel all or a part of your loan within 14 days from the date of notification, or on the first day of the payment period (whichever is later). To decline a direct check, return the check.

Is there any tax credit available to pay off these loans?
Yes, there are tax incentives for certain higher education expenses, including interest deductions on student loans for some borrowers. This benefit applies to federal and non-federal loans that are used to pay for post-secondary education costs. The maximum deduction is $2,500 per year. IRS Publication 970, Tax Benefits for Higher Education, explains these credits and other tax benefits. You can get more information by calling the IRS at 1-800-829-1040. TTY callers can call 1-800-829-4059.

Why Did the Federal Perkins Loan Program End?
Due to budgetary issues, the federal government began eliminating the Perkins loan in 2015, but later extended the program until 2017 in the hope that a more permanent solution would be created.

Who was eligible for the Perkins Loan?
Undergraduate and graduate students who demonstrated exceptional financial hardship were eligible for Perkins Loans as of September 30, 2017. As with other forms of federal financial aid, students were previously required to fill out the Free Application for Federal Student Aid, or FAFSA.