Perkins Loan: What It Was, How It Worked, Repayment Rules

What Was a Perkins Loan?

A Perkins loan was a type of financial aid for higher education provided by the U.S. government, starting in 1958. The federal Perkins Loan Program made low-interest loans available to undergraduate and graduate students who demonstrated exceptional financial need. This need was determined both by the educational institution's own guidelines and by information provided by the student on the Free Application for Federal Student Aid (FAFSA) form.

The Perkins Loan Program was providing loans to about 500,000 students and 1,400 schools when it expired in September 2017. The final disbursement of funds was made in June 2018. However, many Perkins loans still remain outstanding and borrowers continue to make payments on them.

How Perkins Loans Worked

Perkins loans were granted through the financial aid office of the educational institution the student was attending. The money was paid either directly to the student (usually by a check) or applied toward institutional charges and qualified educational expenses. Technically, Perkins loans were only subsidized by the government—that is, the government paid the interest that accrued on them while the student was pursuing a degree. The school was the actual lender, and therefore the loan was repaid to the school.

The Perkins Loan Program had borrowing limits depending on when the student applied, the student's financial need, and the school's funding level. Students could borrow up to $5,500 per year for each year of undergraduate study—up to $27,500 in all—and $8,000 for each year of graduate or professional study—up to $60,000, including any undergraduate Perkins loans. The interest rate on Federal Perkins Loans was 5%, with a 10-year payback period.

Other than interest, there were no additional fees or charges associated with a Perkins loan. But like all loans, if a borrower missed a payment, or paid one late, they would most likely be charged a late fee or collection costs.

Repayment on the loan began nine months after the student graduated, left school, or dropped below half-time status. The federal government ended the loan program for budgetary reasons and because of calls for a more streamlined federal student loan program.

How to Repay a Perkins Loan

Because the loan program was discontinued only in 2017, there are still outstanding Perkins loans. These loans make up part of the $1.635 trillion in federal student loan debt held by 43.5 million borrowers.

Perkins loans must be repaid within a 10-year period. If you hold a Perkins loan, your school's financial aid office or loan servicer can explain your options. If you are employed in a public-service-related job, such as a public school teacher or a nurse, you may be eligible to have your loans canceled after a certain number of years of service.

Another option is loan consolidation. If you consolidate all of your student loans, including your Perkins loans, then you will have more repayment options based on your income.

On their own, however, Perkins loans do not qualify for the same repayment options as more recent types of loans. If you want to pay off your Perkins loans, you must contact your school directly.

Perkins Loan Forgiveness

As mentioned above, if you have a Perkins loan, you may qualify for a student loan forgiveness program if you work in a public service job. Examples include certain types of teachers, early childhood education providers, employees at a child or family services agency, instructors at a tribal university or college, librarians with a master's degree at a Title 1 school, firefighters, people serving in the military or working in law enforcement, nurses or medical technicians, early intervention services providers, lawyes working as public defenders, speech pathologists with a master's degree at Title 1 school, or volunteers with AmeriCorps VISTA or the Peace Corps.

The amount that's eligible to be forgiven varies, depending on the job and how long you have been in it. For example, you may qualify for 100% forgiveness if you are a special education teacher, or if you work in a school serving low-income families and their children, or if you teach a subject, like math or science, where the education agency in your state has determined that a shortage of qualified teachers exists.

The Federal Student Aid Office in the U.S. Department of Education provides online information about the percentage of funds that can be "discharged" (that is, forgiven) based on the specific job, years of service, and other criteria. From there, the school that issued your Perkins loans can provide applications and instructions specific to the type of loan forgiveness you are requesting.

Perkins Loans vs. Other Federal Student Loans

Although the Perkins Loan Program was allowed to expire, the U.S. Department of Education continues to help students pay for higher education through the William D. Ford Federal Direct Loan Program. Unlike the Perkins program, where educational institutions served as intermediaries and lent the money, the government makes loans directly to borrowers; hence the name "direct loans."

Four types of federal direct loans are available as of 2023: direct subsidized loans, direct unsubsidized loans, direct plus loans, and direct consolidation loans.

Direct Subsidized Loans

Direct subsidized loans are made to eligible undergraduate students at a college or career school who demonstrate financial need. The size of the loan increases with each year of school, starting at $3,500 and rising to $5,500 for the third year and beyond. "Subsidized" refers to the fact that the federal government covers the interest charges for a period of time.

Direct Unsubsidized Loans

Direct unsubsidized loans are loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. The size of the loan increases with each year of school, starting at $5,500 and rising to $7,500 for the third year and beyond for dependent undergraduate students. Independent students, a category that includes all graduate and professional students and those over the age of 24, have higher borrowing limits.

Direct Plus Loans

Direct PLUS loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other types of financial aid. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify.

Direct Consolidation Loans

Direct consolidation loans allow borrowers to combine all of their eligible federal student loans into a single loan with a single loan servicer.

The Bottom Line

Perkins loans are no longer offered, but if you have one you still need to pay it back. Depending on your occupation, however, you may be eligible to have some of that debt forgiven.