Preparing for the Future of Perkins
Updated 12/18/15: This week, Congress passed H.R. 3594, the Higher Education Extension Act of 2015, which allows current and new undergraduate borrowers to receive new Perkins Loans through September 2017 and additional disbursements of loans through the 2017-2018 school year. For current borrowers, Perkins Loans are available only after exhausting their subsidized Federal Direct Stafford Loan eligibility. New borrowers may receive Perkins Loans after exhausting all their Direct Loan eligibility (subsidized and unsubsidized). NACUBO will provide additional guidance as it becomes available.
Authorization for the Federal Perkins Loan program expired at the end of September, and as yet, has not been extended. NACUBO recently joined more than 50 associations and 535 colleges and universities in a letter to congressional leadership urging a one-year extension of the program while Congress takes up the reauthorization of the Higher Education Act. Lawmakers engaged in serious negotiations last week, but the outcome is still uncertain.
In the meantime, the Department of Education has provided additional guidance to institutions with Perkins Loan funds. On November 23, ED posted answers to several new questions in its Perkins Wind-Down Q&A, clarifying the grandfathering rules for providing continuing loans to existing borrowers. Schools may continue to award loans to students who received Perkins Loans prior to June 30, 2015, and remain enrolled in the same program for up to five years.
ED also offered two sessions on Perkins at its recent Federal Student Aid training conference. Session #6 addressed ending a school's participation in the Perkins Loan program, providing details on procedures and timelines. Session #7 explains the new electronic process for assigning loans to ED. PowerPoint presentations of the sessions are available without charge on the conference website.
At the conference, ED officials stressed that participating schools have until December 31, 2015, to calculate and return any excess liquid capital (ELC) in their Perkins Loan revolving fund. ED believes that as many as a third of institutions have ELC that needs to be returned. The federal government's share of ELC must be returned to ED, and the institution will keep its portion (but remove it from the revolving fund) based on their historical share of contributions to the fund. The excess cash requirement is long standing and is not directly tied to the wind-down of the program, but institutions may find it more challenging to estimate future loans when only grandfathered students are eligible.
NACUBO recommends that institutions hold off on taking steps to end participation in the Perkins Loan program until its fate is more certain. Colleges and universities face losing significant institutional resources if they close out their revolving funds and assign the loans to ED. When loans are assigned, ED keeps all monies collected and does not reimburse the institutional share. If an institution keeps operating the program and remits excess cash annually, on the other hand, the institution can keep its share and repurpose the funds.
However, circumstances will vary. For some institutions, the cost of servicing the program may outweigh the benefits of continuing it.
Institutions should begin analyzing their options and reviewing their loan portfolios. Steps to take might include:
- Asking the National Student Loan Data System (NSLDS) pull a reconciliation report of all Perkins Loans to compare to your FISAP.
- Beginning to review loans to check their status and documentation, since the institution will be required to purchase any loans that are not eligible for assignment to ED.
- Projecting future loan needs under the grandfathering provisions and the cost of loan collections.
Note that once a school notifies ED that it intends to liquidate its Perkins portfolio, the clock begins to tick and institutions will be required to meet deadlines for assigning all loans, notifying borrowers, and engaging in a close-out audit. Timing therefore is important, especially if the institution wants to incorporate it in its annual single audit.
NACUBO plans to provide more specific recommendations to institutions in the coming months.
Vice President, Policy and Research
Director, Student Financial Services and Educational Programs