Information Guide on Assignment of Perkins Student Loans

March 22, 2021 · by COHEAO · Spark Notes

Institutions frequently ask whether to assign their Perkin Student Loans to the Department of Education and when they are required to do so.  This document is designed to provide insight and information for institutions struggling with these questions.

 

Assigning Loans to the Department of Education

Process of transferring to the Department of Education (ED) Perkins Loans you no longer wish to service and wish the Department to perform this function.  You may select some loans or assign all of them to ED.

  • Schools that assign their Perkins Loans forfeit the right to recuperate their institutional investment.
  • ED may reject some of the loans, which may require the institution to buy the loan.

 

When Is the Institution Required to Assign Loans

  • The Department has consistently communicated to institutions that they may continue to service their Perkins portfolio for as long as they choose. Institutions may assign loans to ED at any time.
  • The Higher Education Act states that if an institution knowingly failed to maintain an acceptable collection record for a defaulted Perkins Loan, the Secretary may require the institution to assign the loan without recompense.
    • ED has determined loans that have been in default longer than two years without acceptable documentation shall be assigned from the institution to ED.
    • To that end, last year, ED sent letters to institutions that had more than 75% of their Perkins Loans two years or greater in default, which was based on the June 30, 2019, FISAP.
  • It is anticipated that ED may send the next round of letters to institutions soon. Although we do not yet know the default percentage threshold for this year’s notices, we do know that the Department expects to notify more institutions of the obligation to begin assigning these loans as compared to the 75 institutions selected last year.
  • Institutions do not need to do anything until receiving a letter from ED. Those wishing to continue servicing still may.
  • Institutions receiving a letter will have to satisfactorily demonstrate to ED that each loan they wish to retain has an acceptable or promising future repayment record. If an institution can demonstrate this and it is acceptable to ED, it may continue to service loans more than two years in default.

 

What Should Institutions Do Now

  • Review your portfolio, especially older loans
  • Develop a plan and put it in writing
    • Assign your oldest, non-performing loans to ED.
    • Strategically examine loans that are 5-7 years in default as historically they prove to have successful repayment opportunities.
    • Do not neglect loans that are 2-5 years in default – they can also be fruitful.
    • Think about how to attack younger loans in default. There are many successful strategies for returning borrowers to repayment status before getting close to the 2-year default mark.
    • Utilize your third-party collection agencies to assist with getting borrowers into a successful repayment plan, rehabilitation or consolidation.
    • Perkins Borrowers who consolidate are eligible for the Direct Loan payment moratorium and zero percent interest until September 30, 2021, as well as being eligible for Income Repayment Plans not offered to Perkins Borrowers.

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