At midnight, on Wednesday, September 30th the Perkins Loan, age 57, died unexpected on the floor of the U.S. Senate. Born in 1958, Perkins had a six decade life of assisting high need students with its subsidized low interest rate of 5%, extended 9 month grace period and flexible repayment terms. Perkins is survived by its siblings the Direct Unsubsidized and Grad Plus loans. In lieu of flowers, condolences should be offered to any of the 500,000 present recipients of the loan, as well as to future generations of student loan borrowers.
An obituary for the now deceased Perkins loan seems absolutely appropriate. Perkins loans were unique in that loan funds were actually awarded and managed by the educational institution themselves and, as such, could target and benefit specific students of high need identified by that institution. In the case of YLS, our Perkins funds were directed to 1L students with the highest institutional scholarship need. We allocated these loan funds for the first year of enrollment, so that the interest subsidy would benefit students over their full three year enrollment.
So what happened that caused the demise of the Perkins loan program? The Perkins Loan program had been close to death for a while since it was originally slated to sunset in 2014 and was on life support since then through annual renewals. But last month, in one of its 11th hour moments, the House passed the Higher Education Act of 2015- a bill that would have extended the Perkins Loan Program for an additional year. Then on September 30th a bipartisan (yes I said bipartisan!!) group of Senate members took to the floor to discuss adopting the House passed bill. But (in a “no one saw this coming” moment) Senator Lamar Alexander (R-TN) chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee objected under a “unanimous consent” procedure which requires unanimity to advance issues forward. And with that objection, the Perkins Program was left to expire at midnight.
Senator Alexander’s rationale in letting the Perkins loan program end was based on his contention that extending the program would simple perpetuate an overly complex federal student aid system. Senator Alexander has been advocating for his bipartisan “Financial Aid Simplification and Transparency Act (FAST) which calls for a streamlined federal aid program of one grant and one loan for all eligible students (undergraduate or Graduate level).
So who are the real losers in the loss of the Perkins Loan option? Certainly Graduate students are high on that list since the Perkins Loan was the last subsidized loan option available to them (after Grads lost the Direct Subsidized Loan in 2012). What does that subsidy translate to … here is the math:
If in your 1L year you had a $6,000 Perkins but now have to borrow and additional $6,000 in Grad PLUS loan (at the present Grad PLUS interest rate of 6.84%)- you would have accumulated $1,124 in interest on that Grad PLUS borrowing during your enrollment and subsequent 6 month grace period. That’s interest that if unpaid (during enrollment or grace) will then capitalize into your loan principal when you go into repayment (and then you’re paying interest on interest). So on a 25 year schedule, that $1,124 in interest just amounted to an additional $2,341 in repayment.
Let’s also add that the Perkins loan had no origination fee.. so of that $6,000 you borrowed in Grad PLUS- you really only receive $5,744 to use after the 4.272% fee of $256 is taken out. (Yet you pay back the full amount of the $6,000 loan in repayment).
Could the Perkins Loan suddenly pull a Walking Dead zombie moment and come back to life? There is the possibility that the program could be reconsidered as part of the reauthorization of the Higher Education Act )HEA) but having the program formally expire has made the option less likely.
For now take solace that the Perkins Loan has gone to a better place (a heaven with debt free higher education perhaps?)