An Introduction To Perkins Loans

By Ross Williams AAA

Perkins loans are accessed through what is called "campus-based aid." Together with the Federal Supplemental Educational Opportunity Grant (FSEOG) and Federal Work-Study (FWS) programs, they provide students with funding based upon extreme financial need. Each of these programs is administered through a school's financial aid department. There are over 1,800 schools that are affiliated with these federally funded programs so be sure to check with your particular campus.
TUTORIAL: Student Loans

Your institution's financial aid administrators have wide jurisdiction in determining who receives funding and how much. In 2010 there was over $1 billion dollars distributed to just under 500,000 applicants in total. Most of this money comes from federal coffers, but your school will also contribute money to the fund. The Department of Education determines how much each school has access to, but it is the school that actually loans the money and is the one that must be repaid. You must fill out the Free Application for Federal Student Aid (FAFSA) form to determine your eligibility for a Perkins Loan.

Students who go into teaching, public service or the military can have part of (or their entire) loan forgiven (i.e. cancelled). The schools will be reimbursed for this shortfall by the Federal government with the provision that the replaced funds be put in the school's revolving loan program. The size of the school's fund (the amount available for them to loan out to prospective students) is determined by government contributions and loan cancellation payments, the individual schools one third matching contribution, and loan collections from existing performing student loans. (Learn more in Student Borrowing: University Payment Plans Vs. Federal Student Loans.)

Eligibility
The U.S. Department of Education uses the information from the FAFSA form in conjunction with a standard formula (determined by Congress) to evaluate each students financial status. The formula includes the following elements:

  • the student's income
  • the student's assets (if independent)
  • the parents' income
  • the parents' assets (if student is dependent)
  • the household size
  • The number of household members attending post-secondary schools. Your family is also expected to contribute to your education expenses. This is called the expected family contribution (EFC) and is the sum of:
    • a percentage of net income (after subtracting a basic expense allowance)
    • a percentage of net assets (after subtracting an asset protection allowance)

Depending upon the student's status (dependent, independent, independent with dependents) different assessment rates and allowances are used in the calculation of the EFC.

Maximum Funding Levels
The following chart shows the maximum Perkins Loan amounts that can be allocated to individual students. The maximum amount will differ depending upon the student's status (undergraduate, graduate or professional degree student). It is important to remember that your school will determine the amount of the loan and that there are limited funds available. It is possible that you may qualify, but will not receive any funding help through a Perkins Loan. Be sure to submit your FAFSA form as early as possible so that you maximize your chances of receiving funding.

As of 2011-12
Source: Funding Education beyond high school. The guide to Federal Student Aid

Disbursement of Funds
Since it is your school that is actually lending the money, the school will either credit your tuition account directly or deposit the money in your account of choice (via a cheque). In most cases your loan will be disbursed in two deposits (or cheques) throughout the year. (Learn more in College Loans: Private Vs. Federal.)

Since most academic terms have more up-front costs at the beginning of the year (like text books for example) your loan disbursements will be unequal to account for these varying costs. Perkins loans have no fees, administration or otherwise, attached to them, and they are eligible to be consolidated after graduation should that be required.

Repayment Options
Upon graduation or if you leave school (or fall below half-time registration), you will be given a nine-month grace period during which you will not have to make any loan repayments. After this period, however, you will be required to pay the loan back with 5% interest.

If you cannot pay your loan back, you may be eligible to change your repayment plan to one that is linked to your income level. Forbearance or deferment of your loan is also a possibility. You may even qualify for a total loan cancellation under certain circumstances. These options are explained below:

  • Deferment means putting a temporary hold on payments (principal and interest) due to financial hardship or military service. There are other conditions that apply.
  • Forbearance also means a temporary hold on loan payments, but unlike deferment your interest will still accrue and you are responsible for the added interest.
  • Your Federal student loans will be cancelled upon your death or total permanent disability. There are other conditions that may qualify for a total cancellation of your debt.
  • If you are a teacher in a low income area you may be eligible for a loan cancellation.
  • Certain public service workers may also qualify to have their student loans cancelled. You can find additional information at www.studentaid.ed.gov.

To find out all the information on your specific loan, you can visit the National Student Loan Data System (NSLDS) which is organized by the U.S. Department of Education. Here you will find your loan type, your outstanding principle, amount of interest owed, disbursed amounts and the total of all your federal education loans. (You can also read Student Financial Aid Changes Implemented in 2009.)

The Bottom Line
If you are still having difficulty repaying your student loans, you may consider consolidating all your loans into one reduced monthly payment. However, extending the term of the loan up to 30 years will mean far more interest will be paid over the length of the contract. You will also give up any chance of forbearance, deferment or cancellation, so be sure to consider your options carefully before you decide to consolidate your loans.

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