Good for Taxpayers and Students

The Perkins Loan Program: Good For Students and Taxpayers

Perkins Loans are efficient, need-based, low-interest (5 percent fixed rate) loans that go to about 600,000 low-income college students at some 1,800 colleges and universities each year. Interest isn’t charged while students are in school, and borrowers can have all or part of their Perkins Loans cancelled if they undertake certain public service jobs for one to five years.

The Perkins Loan Program is the Nation’s longest running student loan program. In addition to offering low interest and well-crafted cancellation benefits, Perkins Loans also feature the human touch of campus-based servicing, which allows on-campus administrators to provide Perkins borrowers with one-on-one service to assist with the management of their student debt.

In addition to providing students with superior service and loan benefits, the Perkins Loan Program provides thousands of valuable jobs for the campus officials and the companies that work with them to administer the program.

Perkins Loan colleges and universities operate revolving loan funds. This means that current repayments fund future loans. They have contributed one-third or more of the available loan funds from their own resources.

Bottom Line: This program is a highly efficient way to provide low-cost financing to students. Federal contributions immediately grow by one third, and the loans are funded by past loan repayments. All Perkins Loans made this year will be made with recycled funds.

Perkins loans serve as a good alternative to private student loans because anyone with need is eligible for a loan at a low fixed-interest rate of 5 percent. Without Perkins Loans, students would be forced to borrow from higher cost alternative sources, even credit cards. Since these loans require good credit or a co-signer, many low- and some middle-income students are turned down.
Perkins Loans don’t duplicate Stafford Loans. They supplement Stafford Loans and are a better deal for students. The interest rate for Perkins Loans is fixed at 5 percent – significantly less than the 6.8 percent for unsubsidized Stafford Loans and the 7.9% for PLUS – making Perkins Loans a cost-effective way for students to finance their higher education.
Annual appropriations are needed to strengthen campus-based revolving funds in order for higher education institutions around the nation to continue to provide Perkins Loans to the students who need them the most. Providing the Perkins Loan Federal Capital Contribution with $100 million and Loan Cancellations with $125 million would significantly improve college access to hundreds of thousands of students across the nation.
Throughout the history of the Perkins Loan Program, $7.9 billion in federal contributions has been leveraged to award over $28.8 billion in loans to students through almost 26 million aid awards making it one of the most effective and efficient public-private partnerships in the federal government.
Federal funding for Perkins Loans is an appropriation that feeds on itself and builds, starting with a school match of at least one-third of the federal funds and continuing for years as the loans are repaid and re-lent. A $100 million annual Federal Capital Contribution for Perkins would result in at least $133 million in new capital for students because schools must match 25% of the federal dollars with their own funds. Many match more than the minimum.
Without the federal contribution and its minimum school matches, approximately 59,500 additional low-income students across the country won’t receive the loans they need for higher education. ($125 million divided by the average Perkins loan of $2,100).

The National Defense Loan Program was created in reaction to the launch of the Sputnik by the Soviet Union in 1957. It has served millions of Americans access the dream of higher education, including many members of Congress. It remains one of the key tools students can use to finance higher education in the 21^st Century.