What Is Really At Stake With The Debate Over Whether To Eliminate Perkins Loans

CREDIT: Charles Dharapak, AP

Rep. Louise Slaughter (D-NY) is defending the Perkins loan program from those who would like to eliminate it.

As the Perkins loan program comes back for reauthorization, 95 members of Congress, along with groups representing universities and colleges, are ready to defend it from Republican lawmakers who would like to eliminate it. Sen. Lamar Alexander (R-TN), chairman of the Senate Committee on Health, Education, Labor and Pensions, advocates for streamlining student loans by eliminating Perkins and combining the student loan programs into one student loan program. Alexander said he would like to see three buckets for aid: one federal loan, one work study program, and one grant. This means eliminating the Perkins loan program.

Perkins loans currently provide half a million students $1.2 billion in loans every year across 1,500 institutions and have many advantages, such as having lower interest rates and a 9-month grace period before repayment begins. The loans are supposed to go to students with exceptional financial need.

Cyndy Littlefield, vice president for federal relations at the Association of Jesuit Colleges and Universities, is one of many university groups lobbying Congress to save the Perkins loan program. Even though reauthorization ended last year, the General Education Provisions Act extended the deadline to this fall. If Congress does nothing, the program will end on September 30 and no Perkins loans would be disbursed to new borrowers.

“What is the point? Well because a few folks adopted rules of simplification, right? Why? Is it so necessary to adopt that? Is it because it’s a cute slogan?” Littlefield asked of Alexander’s push for streamlining student loans.

She said she is worried that if students don’t have access to Perkins loans, they may turn to private lenders, which often have worse borrowing terms and fewer options for students struggling to pay them back.

“This money is extremely important to preserve for needy students, and our concern is if we cannot extend or find the wherewithal to extend this program, many needy students will not be able to have access to these funds because they will have to secure funds for private lenders, and interest rates would vary,” Littlefield said. “We’re going to have a dialogue but if we are unsuccessful, which I hope we are not, then the point would be, ‘Okay, now how do we make sure that these students are not lost as part of the desire to eliminate this program?'”

The Perkins loan program is unique in many ways. Under it, the colleges decide which students qualify as having exceptional financial need. The program has not been provided any new money by Congress since as far back as 2004. The Higher Education Act authorizes discretionary appropriations for the secretary of education to make federal capital contributions to student loan funds, meaning $300 million in appropriations has been funded each year through fiscal year 2009 through 2014 and through fiscal year 2015 under GEPA, according to the Congressional Research Service.

But discretionary appropriations for federal capital contributions haven’t been contributed since 2004. Funding for reimbursement of colleges for Perkins loan cancellations, which are a result of graduates taking public service jobs, was last provided in fiscal year 2009, and the department still keeps financial records of those cancellations, although it’s unknown when those universities would be paid back. Money for new Perkins loans comes from the principal and interest repaid by former students who borrowed Perkins loans. Colleges have to contribute at least one third of the money for each Perkins loan that goes to student loans.

According to Inside Higher Education’s analysis of U.S. Department of Education records, some of the most expensive universities disburse the most Perkins loans, including New York University, the University of Pennsylvania, Stanford University the University of Michigan at Ann Arbor, Cornell University, and Harvard University. NYU, which disburses $13.4 million in Perkins loans, more than Stanford or Harvard, released a statement to ThinkProgress in support of keeping the program:

NYU does strongly support the reauthorization for Perkins loans. They offer flexibility to both students and schools to help students cover gaps left by federal grants and Stafford loans. Perkins loans also have a lower rate than private loans and provide schools another tool to assist their neediest students.

Although lawmakers and university groups are working to save the program, Ben Miller, senior director for postsecondary education at the Center for American Progress, said it would be wise to use this opportunity to make serious changes to the program, along with the Federal Work Study and Supplemental Educational Opportunity Grant, which provide $1.6 billion to students yearly. Miller said that one of the primary issues with Perkins is its outdated funding formula. The funding formula guarantees colleges receive the same amount of money that they did in 1999. Because the 1999 amount was supposed to provide colleges what they received in past years, that amount is similar to what schools received in 1979. The 1970s funding formula looked at school enrollment to determine how those dollars would be allocated. However, during that time period, enrollment in colleges and universities in the Northeast was much more concentrated than it is now, so students attending universities in other parts of the country are losing out, Miller said.

“They’re different from other federal loans in that not all students are guaranteed to receive them … Colleges get to choose who gets the loan, so you could have two similarly situated students at the same school and one gets the Perkins loan and one doesn’t,” Miller said. “Because they run through the campus, the college gets a lot more discretion over it. The problem with it is that the formula reflects what higher education looks like in the late 1970s, not what it does today, so the way the dollars are spent the colleges that are not as deserving of them on an enrollment basis as they were 30 years ago.”

Now may be one of the few opportunities to reform the campus-based aid programs, Miller said. He cited a Seton Hall University study by Robert Kelchen released this year that showed that the Federal Work Study program awards were three times as likely to assist affluent students at private nonprofit universities than low-income students at community colleges.

“The most expensive and elite colleges disproportionately benefit. From Perkins and the other two campus-based aid programs, it becomes very difficult to outdo that lobby,” Miller said. “Perkins represents an opportunity to reform because we have a time-based crisis where these elite institutions need something to keep a benefit. That provides a chance to say if you keep this and you keep your Perkins dollars, you need to fix these programs. Because if you just extend it, you’ve lost your leverage with these schools.”

When asked whether the debate was worth risking the elimination of the program altogether, Miller said, “It’s hard losing Perkins without any other benefits to students. It’s a net negative, but we should acknowledge that part of the reason why Perkins is at risk of going away is because of serious flaws in its distribution that need to be addressed.”