Perkins Loans Explained
The federal government offers a number of loan programs to college students in undergraduate or graduate programs that are based on financial need. In most cases, such as a PLUS loan, the government – specifically the Department of Education – is the lender. These loans are administered by federally-contracted servicing companies and so their rates and terms reflect the added costs of third-party involvement.
Loans from the Federal Perkins Loan Program, however, are a bit different, and the resulting rates and terms might be more affordable for some students in the long run.
Perkins loans are known for their low fixed interest rates and manageable repayment terms. Perkins Loans allow in-need students to finance the rapidly rising costs of a higher education. Similar to other types of federal loans, Perkins Loans can be used to cover education-related expenses such as tuition, textbooks, and educational housing costs.
The federal government sponsors the Perkins loans program, and the allocation of loan funds. Perkins loan funds are disbursed for students directly to the education institutions themselves. The educational institution is responsible for matching a certain percentage of the funds. If you qualify for a Perkins loan, your lender will effectively be the school your are attending! Because the institution acts as a lender with match federal funds, the institution plays a role in the determination of funds. The institution has influence over loan amounts and criteria.
What is a Federal Perkins Loan?
Where most federal student loans have the government itself as the lender, under a Perkins loan the school itself is the lender. Your payments get made to the school directly – or to their own servicing company. The loans are specifically geared toward students with “exceptional financial need,” which is why they’re somewhat less expensive, but amounts available are also dependent on how much the school can lend. Even if you find a school participating in the program, not everyone who applied for a Perkins loan can get one.
Who Can Get a Perkins Loan?
Perkins loans are designed for low-income students enrolled in an undergraduate, graduate, or vocational program at an institution that participates in the Perkins Loan Program. Not every school offers Perkins loans to its students, so you should consult with the financial aid office to find our if the program is in place. Students who qualify for Perkins loans are able to demonstrate financial need.
In comparison to other federal loan programs, like the Direct PLUS and Stafford Loans, very few Perkins loans are issued to students each year. According to the New America Foundation, only $500,000 in new Perkins Loans were issued in 2014, with an average loan amount of $1,700. In comparison, approximately $8 million in new Stafford Subsidized Loans were issued to students.
Advantages of Perkins Loans
All in all, the Perkins loan can be an excellent choice for those who can get approved. The lower interest rate and longer grace period make this an attractive option for many students who take advantage of the Perkins loan. The lack of fees and dealing directly with the school as the lender also make it more convenient than some of the other loan programs; with the consistently low customer satisfaction rates, corruption, and even legal troubles that federal servicers historically have, it can be a huge benefit to have the school as the lender. There are, however, a few drawbacks to a Perkins Loan, and we’ll take a look at that now.
What are the Terms of a Perkins Loan?
Perkins loans are typically smaller than your average student loan. For an undergraduate student, the maximum amount is $5,500 per year, for a total of $27,500. As a graduate student, that limit is raised to $8,000 per year for a total of $60,000 – but that total maximum also includes any Perkins loans you took out as an undergrad as well.
Terms start at 10 years, and you don’t have to start paying it back until nine months after graduation, which means three extra months longer than other federal loans. The interest rate is lower than some other loans as well, currently at 5 percent. There aren’t any origination or other fees associated with getting the loan, but if you miss a payment you’ll be stuck with a late payment fee, plus any collection costs.
Repaying Perkins Loans
Here’s where the benefits of the Perkins Loan can also be a bit difficult. Because the Perkins Loan isn’t administered by the federal government or the Department of Education the wide variety of repayment plans and income-driven programs aren’t applicable to it.
Each school has its own repayment schedule, and if you need to deviate from it, you’ll need to talk to the financial aid office at your school to work out an arrangement if possible. Unfortunately, options for repayment may be fairly limited outside of their standard repayment schedule, so you’ll need to make sure you’re aware of exactly what’s expected before signing the promissory note.
How Do You Apply for a Perkins Loan?
The first step is completing a FAFSA, or Free Application for Federal Student Aid. It can be done online at the FAFSA website, and the form is used to determine your individual level of financial need – including your eligibility for a Perkins loan. Since funds are limited, applying early is recommended.
Once your FAFSA is complete you should check with your school’s financial aid office to find out their process of applying for the Perkins Loan. Again, do this as early as you can; the school will only be able to provide Perkins Loans for a limited number of students.
Federal loans have some standard criteria for consideration; you must be a U.S. citizen or legal resident, and you must be attending an eligible school at least half-time. For a Perkins loan your credit score isn’t a factor; you can be accepted even with little or bad credit since it’s based on extreme financial need.