President Obama's Speech Gives Details on College Affordability Plans, Continues to Call for "Direct Perkins"

January 27, 2012

Good morning.   At the time of this message, President Obama is currently in the midst a speech at the University of Michigan detailing his proposals for higher education, which will be detailed in the Administration’s proposed budget for Fiscal Year 2013. The budget will be made public in full on Feb. 13, 2012 although much of it will be divulged by the Administration in the time between now and then.

As expected, the proposals will include the now three-year old “Direct Perkins Loan” proposal as a component of the ways the Administration says it will encourage colleges to hold down tuition costs. The Administration’s fact sheet is attached. The proposals in the past have suggested that Congress establish a new direct loan program with terms and conditions for borrowers exactly the same as the unsubsidized Stafford Loan Program. Campuses would apply for a share of $8 billion a year in loan funds. The funds would be allocated in part based on the ranking of the campus in how much its net tuition increased in the previous year. Previous proposals also called for part of the allocation to be based on how many Pell Grant recipients the campus graduated, with the rest based on need.

As you will see in the fact sheet, the President is proposing other changes, including somehow keeping the subsidized Stafford Loan interest rate at 3.4% after July 1, 2013, when it will otherwise rise to 6.8%, and an increase in funding for work study. We note that the Higher Education Act permits transfer of Work Study funds to Perkins Loan revolving funds.

Congress did not enact the direct Perkins proposal in 2009-2010 when Democrats controlled the House of Representatives, and Republicans have not shown any interest in the proposal since they took the majority in 2011. Meanwhile, the Department of Education has issued guidance saying that campuses should continue to fully operate their Perkins programs, making loans to students with financial need. The program like other student aid programs is authorized though September 30, 2015. (See the Dear Colleague letter GEN11-02 from February 2011 for confirmation of that.)

If you have any questions or comments, please contact Wes Huffman or Harrison Wadsworth: whuffman@wpllc.net or hwadsworth@wpllc.net.