Assignment of Perkins Loans

On Friday, August 27, the Department of Education issued a notice regarding the assignment of Perkins Loans that have been in default for more than two years.  As you know, over the past several years, the Department through Federal Student Aid (FSA) has stepped up their efforts to require schools to assign defaulted Perkins Loans to the Department.  COHEAO has continually provided guidance on the FSA announcements to assist institutions with compliance.  The FSA efforts initially focused on those schools that had a large percentage of Perkins loans in default – first reaching out to institutions with 75% or more of their loans in this status, followed by those with 50% or greater in default for more than two years.  The August 27th announcement pertains to all schools and establishes a deadline that all Perkins loans more than two years in default be assigned by June 30, 2022.

The COHEAO Board of Directors discussed the recent announcement and raised several questions, which were sent to the Department of Education.  Please find the questions with the Department’s answers below:

1. In the past, ED identified those schools with a particular percentage of loans (75% in 2020 and 50% in 2021) that are in default status for two or more years and required these loans be assigned to ED. The 8/27 notice is a substantial departure from this policy so would you please explain why this change has occurred?  

There has not been a policy change as it has always been the intent of the Department to ultimately require all schools submit their 2+ years defaulted loans for assignment.  The Department began the process of notifying institutions with the highest percentage of their total portfolio in default, we then decided to publish an Electronic Announcement informing institutions of their obligation to assign loans that have been in default for two or more years, and the deadline of June 30, 2022 that the institution should assign these loans.  

2. Under the policy of identifying schools referenced in the previous question, the Department would send a letter to the institution requesting the loans.  Why has this policy changed?

The Secretary has required all Perkins Loans that have been in default for two or more years be assigned to the Department.  The process of providing a deadline in stages, on the basis of the highest percentage of defaulted loans, was an operational implementation of the policy. This August 27, 2021 Electronic Announcement serves as updated guidance on operational implementation as well as notification to all schools to fulfill the assignment of the defaulted loans as indicated.   

3. The 8/27 notice indicates that ED will assess schools situations early in 2022. When exactly will this occur? Schools will be more successful in complying if they have sufficient time to try to meet the Department’s requirements.

The Department will assess each school’s activity and determine if a good faith effort is being made to assign their loans by the deadline.  We will be monitoring progress and will be reviewing cumulative reporting information of defaulted loan activity as reported on an institution’s FISAP.  This is an on-going requirement and an on-going process.  Therefore, we will communicate specifically with institutions should we determine an institution is not assigning defaulted loans as required.  Since our assessment is data driven and every institution is different, there is not a specific date.  We believe that by notifying schools in August 2021 to assign by the end of June 2022 is sufficient time for an institution to begin this process and show a good faith effort of complying with the Secretary’s directive.     

4. The 8/27 announcement refers to the term “insufficient effort” by institutions during this process.  Would the Department please define what “insufficient effort” is or define what “sufficient effort” would be?

We believe every institution is unique and will determine each institution’s progress on a case-by-case basis.  We fully anticipate working with our institutions in this effort and strongly encourage institutions to make a concerted effort to comply with this requirement. 

5. Many schools servicing a large number of Perkins Loans will have significant difficulty complying with the June 30, 2022 assignment deadline due to the ongoing pandemic. Many have thousands of loans that will need to be assigned. In some states, schools will need to engage the office of the Attorney General for release of judgments which can take a significant amount of time. The Department has indicated in the past that a school would be in compliance if it had developed a plan and was following that plan. Will that still be the case moving forward? If a school is following a developed plan for assignment, will they still be in compliance?

Any institution with questions or concerns about this process may contact the Department.   The Department will consider each institution’s circumstance and communicate directly with them on a case- by-case basis. 

6. In developing the timing in the 8/27 notice, to what extent did the Department take into account the delays that the COVID pandemic has caused? In many instances, litigation ground to a halt, Attorneys General stopped the collection process, and institutional staff have been working from home, all factors which have hampered collection processes.

The Department will consider each circumstance on a case-by-case basis to determine if an extended period is needed for assignment.  It is the Department’s belief that schools have adapted to the COVID pandemic through operational implementations ensuring their students are well served.  The Department believes that sufficient time is given by providing notification in August 2021 to have loans assigned by the end of June 2022. 

7. In the past, ED has taken a good faith approach by working with schools and assisting them in compliance. However, this recent notice seems to imply a more punitive approach going forward, is that the case?  

The Department will continue to work with institutions  on a case-by-case basis.  It is our expectation that schools will make a good faith effort to assign these loans by the June 2022 deadline.  The Department will consider each institution’s individual situation  to determine if an extended period is needed for assignment. 

8. Would you please provide the statute and regulatory cite for the legal authority that ED relies on to justify the call for assignments and in determining the two-year non-payment status?  

As noted in the August 27, 2021 Electronic Announcement, Section 463(a)(4)(A) of the Higher Education Act of 1965, states that if an institution knowingly failed to maintain an acceptable collection record for a defaulted Federal Perkins Loan, the Secretary may require the institution to assign the loan to the Department of Education without recompense. The Secretary has determined that defaulted Perkins loans that are in a non-payment status for more than two years meet these conditions.  Unless a borrower is actively making payments, in a deferment or forbearance, the loan is required to be assigned if it has been in default for two or more years.   

Please be assured that COHEAO will continue to actively monitor the development of this announcement and will continue to converse with the Department.  In addition, members will be updated with any additional information as it becomes available.  Should you have any questions, please do not hesitate to contact COHEAO Executive Director, Robert Moran, by email at rmoran@bosepublicaffairsgroup.com.