President Obama's Plan to Modernize and Expand Perkins Loan Program

Below is an outline of President Obama's budget plan as it relates to Perkins Loans.

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Cited from COHEAO.

President Obama released an outline of his budget that includes mention of the Perkins Loan Program.

Under the proposal, loans would be originated and fully serviced by the Department of Education. According to the Department, they believe they “can collect loans more efficiently and effectively than many colleges.”

The new version of Perkins would continue to make loans to students at a 5 percent interest rate. Schools would have discretion with regard to student eligibility. Interest on these loans would accrue while students are in school. Other terms and conditions and loan maximums would be the same as the current unsubsidized Stafford Loan program.

The plan also includes a call to increase the amount of available Perkins funds from $1 billion to $6 billion, and expand the program to cover all 4,400 institutions of higher education, as opposed to the 1,800 that currently use the program. According to the Department, this will expand the scope of Perkins by making it available to nearly 2.7 million students, as opposed to the 500,000 who currently receive Perkins Loans.

In discussing the budget proposal with reporters and members of the higher education community, Administration officials have described the proposal as “reinventing Perkins,” and state the new program is a key element of the Administration’s plans to emphasize college “completion,” as opposed to “access.” The targeting of the program to the neediest students will also be loosened, but this program would be used as an incentive for schools to promote college affordability. The “hope and plan” of the Department is to use a formula to incent schools to provide need-based aid to students (i.e. schools would receive additional loan funds based on their success in “making college affordable” or promoting college success ).

Department officials said they plan to “work out the details” with Congress on the formula for funding this new iteration of the Perkins program. While they did not provide many specifics, the Department officials did say have they have concerns with the current formula due to proportional increases in the amount of available Perkins funds and an institution’s cost of attendance. According to the Department, “that’s the wrong incentive.”

As the Department has described this proposal as part of the Department’s emphasis on college completion, it could also mean some additional major changes to program’s terms and conditions. It must be emphasized that any changes to the law must be made by Congress, subject to approval by the President. We expect the Administration and Congress will work closely together, but it will be up to Congress to actually change the Higher Education Act.

Full details of President Obama’s Fiscal 2010 Budget are expected to be released sometime later this month.