Crunch Time for Perkins Loan Program

The federal student loan program expires Sept. 30, and it’s unclear if an extension will go through -- despite backing from colleges and bipartisan support.

September 28, 2017
 
Senator Lamar Alexander, chair of the Senate education committee

​As the expiration date for the Perkins Loan program approaches this week, it's unclear whether the program will survive to the next financial aid cycle -- despite bipartisan support for legislation in both chambers of Congress that would extend the program to 2019.

The Perkins programs allows participating colleges and universities to fill the gaps between the full cost of attendance and the amount of aid low-income students get through sources like Pell Grants, work-study and federal direct loans. The loans come with an interest rate of 5 percent that only begins to accrue when a borrower enters repayment. Congress hasn't put new money into the program since 2004. New loans are funded instead by the repayment of older loans.

In the 2014-15 academic year, about 528,000 students used the loans, with an average award of around $2,200.

Many student financial aid advocates and higher ed groups say it's important to maintain the program to fill gaps in need at colleges that do participate. Without it, they say students would struggle to afford costs associated with college enrollment, such as housing, food and transportation, or would be forced to take on private debt with worse terms.

Critics of the program, among them Senator Lamar Alexander, the Republican chairman of the Senate education committee, say it adds to a needlessly complex financial aid system. Perkins has different repayment plans and loan forgiveness opportunities than direct loans do, they say, and students must make a separate payment to another lender (their college) on top of the one for their federal loan.

Jason Delisle, a resident fellow at the American Enterprise Institute, wrote in The Hill this month that complexity in the financial aid system causes students to waste time and resources.

"It also obscures prices, making it difficult for families to know ahead of time what college costs them," Delisle said.

Critics also say Perkins, like other campus-based aid programs, is poorly targeted and disproportionately benefits wealthier institutions that have been in the program for many years.

Advocates for maintaining the program, among them student financial aid organizations and colleges themselves, say that eliminating Perkins wouldn't reduce complexity -- it would just mean students have to find some other way to cover those costs. And they argue that Perkins was extended for two years in 2015 with the understanding that Congress would reauthorize the Higher Education Act within that time frame. That, of course, hasn't happened, and defenders of the program say such a significant change should happen in the context of a broader discussion about financial aid.

"The plan two years ago was that [HEA] would be reauthorized in two years and that Perkins would be part of that discussion," said Harrison Wadsworth, executive director of the Coalition of Higher Education Assistance Organizations, which lobbies for Perkins. "Here we are two years later and that hasn't happened."

Wadsworth said without Congress taking up Perkins in the context of a reauthorization debate, which would allow for a broader examination of how financial aid is awarded, colleges would see students lose a program without a clear alternative to fill the gap.

Cyndy Littlefield, the vice president for federal relations at the Association of Jesuit Colleges and Universities, also argued that her group's membership includes many small and medium-size institutions that would not qualify as "elite" colleges.

"Those are the ones who will find it extremely difficult to replace Perkins in one shape or another," she said.

The message from colleges still has traction with many in Congress, to judge by the broad support for keeping the program. In the House, a bill drafted by Representative Elise Stefanik, a New York Republican, to extend Perkins two additional years has 226 co-sponsors, including nearly 40 GOP members. This week, Stefanik and Representative Mark Pocan, a Wisconsin Democrat and original co-sponsor of the bill, called for a vote on the legislation and warned that a half million students would lose access to aid if the program is allowed to expire. Absent from the list of House supporters is Representative Virginia Foxx, the North Carolina Republican who chairs the House education committee.

Maneuverings on the Hill

In the Senate, a bipartisan group of lawmakers led by Wisconsin Democrat Tammy Baldwin and Ohio Republican Rob Portman has introduced identical legislation to extend Perkins.

But Alexander, a proponent of streamlining financial aid programs, said in 2015 that the two-year extension then would allow for a wind-down of the program. And he hasn't changed his tune despite the long wait for a reauthorization of HEA.

"In 2015, Congress passed a bipartisan law to phase out the Perkins Loan program as a part of a longer-term effort to simplify federal student aid," Alexander said in a statement. "The Senate education committee will begin this fall to reauthorize the Higher Education Act, and my hope is that we can move toward a simplified student aid system of one grant, one loan and one work-study program."

Alexander said after the last extension was passed, students and institutions were notified Perkins would be phased out. But supporters in the Senate are still hopeful they can get an extension done. In 2015, that didn't happen until the beginning of December.

A Baldwin aide said she will continue pushing this week to get the Health, Education, Labor and Pensions Committee, which Alexander chairs, to take up the legislation. She's also looking at following a similar path to that taken in 2015, when the House passed legislation and the Senate approved that bill on the floor. And backers of the bill may explore the option of making a unanimous-consent request on the Senate floor, the aide said.

On Wednesday, a coalition of higher ed groups called on congressional leaders to hold a floor vote on legislation for a Perkins extension this week.

If an extension does happen at all, it's likely to drag into later this fall -- congressional Republicans just announced a new tax reform push and will have priorities to tackle in the coming weeks, including confirmation hearings. That will create added headaches for financial aid offices on campuses as they sort out what award packages they can offer students for the next academic year. But a final expiration of the program would create additional uncertainties for colleges and the Department of Education. In a June letter to the department, Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, spelled out the questions that would arise.

"While it is our strong preference that the program continue until Congress can conduct a comprehensive review of the Title IV aid programs during reauthorization of the Higher Education Act, we must take steps now to ensure a smooth and equitable close-out process in the event that the program ends," Draeger wrote.

NASFAA's concerns include potential costs involved in close-out audits of college lending programs and whether institutions would assign existing loans to the government or keep servicing responsibilities for those loans.

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