Fundamental Reasons for Schools to Continue to Manage their Perkins Portfolio

March 28, 2018 · by mlivolsi · Spark Notes

Dear COHEAO Members,

Thank you for your dedication and persistence in advocating for the continuation of the Perkins Loan program. Unfortunately, we were not successful in our recent push to have an extension of the loan program included in the final 2018 Omnibus spending bill. While this is disappointing, COHEAO still has much to do and much to advocate for, including a continued push for extending the program and promoting a new Perkins proposal in the pending Higher Education Act reauthorization.

As we continue the fight in Washington for Perkins, we want to be sure schools across the nation remain committed to the program and, most importantly, are aware of the negative consequences of liquidating their Perkins portfolio right away.

There are many fundamental reasons to continue managing your Perkins portfolio and many areas to review prior to making a decision to liquidate:

1. Guidance from the Department of Education – The Department of Education (the Department) has consistently communicated to schools that they may continue to service their Perkins portfolio for as long as they choose by following the same procedures as when the program was active. A school that chooses to continue servicing may decide to liquidate at any point in the future and can assign loans to the Department at any time.
2. Loss of Institutional Capital Contribution (ICC) – Upon liquidation, your school forfeits its capital investment for any outstanding loans. With ICC percentages ranging from 10 to 30 percent of a schools’ portfolio, this could amount to a substantial financial loss to your institution. Additionally, your school would also sacrifice any future ICC from reimbursements for forgiven loans if they are funded. For additional information on calculating your ICC, please see the attached formula.
3. Additional Costs on top of ICC – When liquidating a portfolio, a school is required to reimburse the Department for any loans that are rejected during the assignment process. If documents were not properly maintained or a loan was not properly serviced, the school is financially liable. These rejected loans could add up to thousands of dollars in additional costs to the school. Liquidation can also be a very time-intensive process, different from the individual loan assignment process, with significant human capital required to complete it appropriately. This human capital is another cost for already taxed administrative offices.
4. Disruption for Borrowers – Liquidation could also prove to be incredibly disruptive for borrowers, particularly those recently entering repayment. If the assignment process is
not completed in timely manner at the Department’s servicer, loans could become delinquent and possibly impact a borrower’s credit profile and ability to qualify for benefits.
5. Administrative Cost Allowance (ACA) – COHEAO has already begun conversations with the Department and Congress about funding for schools to continue to service and maintain their Perkins portfolio in the absence of new originations. We are hopeful that the Department will recognize the benefits of schools continuing to service their loans directly and compensate schools for doing so.
6. Assignment vs. Liquidation – As a best practice for maintaining a healthy loan portfolio, schools should be evaluating their loans, particularly older loans, to determine the best course of action. Assigning older loans that have been deemed uncollectible is perfectly reasonable, less labor-intensive, and a much less costly strategy than liquidating your institution’s entire portfolio. This approach will also provide a smoother process should a school decide to liquidate in the future.

Thank you again for your dedication to your students and the Perkins Loan program. If you have any questions, please contact the COHEAO staff at Bose Washington Partners or any COHEAO Board members.

Harrison Wadsworth Executive Director

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