Department Urges Campuses To Make Perkins Loans; Sends Letters Cautioning About Excess Cash

Prepared by: Harrison Wadsworth (hwadsworth@wpllc.net)

August 2, 2013

Editor’s Note:  This article appears on todays The Torch, but we thought it should be sent separately due to its immediate importance.

The Department of Education sent letters to several institutions this week on excess cash in their Perkins Loan revolving funds.  There was some confusion regarding the intent of the letters, including whether they were a demand for excess cash transfers to the Department.  In fact, as COHEAO has been assured by the Department, the strongly worded letters were meant to encourage schools to make Perkins Loans to their students and are not a request or demand for money.

Proposals have been made for several years by the Obama Administration to close the traditional Perkins Loan Program and replace it with a version of the Direct Unsubsidized Stafford Loan Program, but Congress since 2010 has shown little interest in the idea.  That means the current program continues to operate as usual.  In addition, comments have been made that law requires the return of the federal share of Perkins Loans starting October 1, 2014.

In fact, despite reports of public comments made by certain Department of Education officials, the Department itself ruled that the program will continue as usual until at least October 1, 2015, unless Congress changes the Higher Education Act before then.  Congress has not decided what to do about the Perkins Loan program for the long run, and the process of reauthorizing the Higher Education Act has barely started.  If the Act is not reauthorized by October 1, 2015, all of its programs would expire, meaning Congress will have to pass an extension of all programs, a step taken about 20 times from 2005 through 2008 during the last reauthorization process.

In the meantime, campuses should make loans.  If the program is closed after 2015, campuses would get to retain their institutional funds so there is no risk in making Perkins Loans.

Speaking at the COHEAO Mid-Year Conference this week in Chicago, Gail McLarnon of the Office of Postsecondary Education strongly encouraged campuses to make Perkins Loans as usual.

In response to questions raised at the Conference, a Department official followed up with this message: “The letter reminds schools that the HEA requires schools to return excess cash, when it exists, and asks schools to review their cash on hand to make a determination on whether a school has excess cash. If a school plans to lend out its excess cash, the school is under no obligation to return it. If the school wants to increase its level of expenditure to capture excess cash, schools can call the Campus-Based Call Center.  The letter also contains contact information if schools have any questions about the letter.”