Additional Information President’s FY2013 Budget Request: Current Program & “Unsubsidized Perkins” to Operate Concurrently? At Least Initially

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February 23, 2012 · by COHEAO · Spark Notes

COHEAO would like to provide some additional information to Monday’s Spark about the President’s Perkins Loan proposals in his FY2013 budget. Reading through more of the several detailed documents on the budget proposal, the Administration has actually made one change to its proposals of the past three years on Perkins Loans. The budget calls for continuation of the current Perkins Loan Program through the “statutory date described in the Higher Education Act,” which would under Department of Education interpretations of the law, mean the current program is authorized to continue until October 1, 2015 unless Congress acts to update the HEA sooner. If that date arrives and Congress has not completed the HEA reauthorization process, then it likely would be extended for long enough for Congress to complete its work, along with the other student aid programs in the HEA. This is what happened during the last reauthorization process in the 2000s, when Congress passed almost two dozen extensions of the programs before the reauthorization was completed in August 2008.
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This is a significant change from the Administration’s previous position and actually brings it close to the position COHEAO has been advocating: continuation of the current program remains important to students and is a separate issue from proposals to create a new supplemental Direct Loan Program, whatever its name. As we noted yesterday, the Administration’s proposal for a new supplement Direct Loan Program, which they are now naming “Unsubsidized Perkins Loans” in the budget documents, remains quite similar to what was suggested last year in the FY2012 budget, with $8.5 billion in new loan authority allocated to schools by the federal government based on how many low-income students they graduate and how well they hold down their prices.

Terms and conditions of the loans would be the same as with the unsubsidized Stafford Loan Program, a fact recognized in the new name. The budget proposes starting the new unsubsidized program on July 1, 2013. Interestingly, the White House has changed its estimates of future interest rates, apparently lowering them, so that the Unsubsidized Perkins Loan Program is projected to “save” more than predicted last year: $685 million in FY2013 and apparently similar amounts in future years. This savings (actually revenue earned from interest and origination fee payments by students) would apparently be used, under the Administration plan, to offset the cost of a one-year extension of the 3.4% interest rate on subsidized Stafford Loans.

We note again that the current Perkins Loan Program will continue without Congressional action, but that legislation creating a new Unsubsidized Perkins Loan proposal would have to be passed by Congress before it can take effect. Congress seems unlikely to do so this year, especially since the method of calculating the costs of federal credit programs favored by the House of Representatives projects that the Unsubsidized Perkins Loan proposal would lose money, not make it.

COHEAO will continue to keep you updated on this and other issues from Washington. We urge all schools with Perkins Loan Funds to continue making loans to their students.