Responding to the Department of Education’s Electronic Announcement on Assigning Federal Perkins Loans in Default for Two Years or More

COHEAO recommends that all institutions review their Perkins loan portfolio and confirm that procedures are in place to ensure all defaulted accounts receive at least a yearly attempt to collect the debt.  If during this review, institutions identify accounts that have not been worked adequately, immediately begin collection activity either internally or via a third-party firm.

The Department of Education published an Electronic Announcement on September 16, 2019, stating it may require the assignment of defaulted Federal Perkins loans that are two years or more past due. (To read the entire Electronic Announcement, please click here.)  Schools will be individually notified and will be able to avoid assigning the defaulted loans if they can document they did the minimum collection actions required by regulations.  The Department will notify schools after the October 2019 FISAP filing deadline.

In this announcement, the Department reminds institutions and references collection regulations 34 CFR 674.45.  These regulations state that all participating Perkins Institutions are required to:

• Report the account as being in default to  one national credit bureau; and
• Use its own personnel to collect the amount due, or engage a collection firm to collect the account.
  • If the institution, or the firm it engages, pursues collection activity for up to 12 months and does not succeed in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the institution shall—
    • Litigate in accordance with the procedures in §674.46
    • Make a second effort to collect the account
    • or Submit the account for assignment to the Secretary
  • If the institution is unable to place the loan in repayment, the institution shall continue to make annual attempts to collect from the borrower until
    • The loan is recovered through litigation;
    • The account is assigned to the United States; or
    • The account is written off.

Currently, it is unknown what type of documentation the Department will require for proving collection activity.  COHEAO has asked the Department for clarification as to what proof the Department will accept and a response is expected soon.

COHEAO notes that the Higher Education Act in section 463(a) prohibits the Department from requiring assignment of defaulted loans unless “the institution has knowingly failed to maintain an acceptable collection record with respect to such loan, as determined by the Secretary in accordance with criteria established by regulation.”

COHEAO will continue to monitor this issue, and if additional information becomes available, we will provide details to our membership.