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In an effort to rewrite the Higher Education Act and streamline the federal government’s various student loan programs, the Federal Perkins Loan Program has officially ended.

Under section 461(b)(1) of the Higher Education Act of 1965, as amended (the HEA), the authority for schools to make a Perkins Loan ended on September 30, 2014, with an automatic one-year extension pursuant to section 422(a) of the General Education Provisions Act (GEPA). There have been numerous threats from budget hawks in Congress and the White House in the past, but as of September 30, 2015, Congress was not able to pass legislation to continue the program.

Therefore, schools may not make Perkins Loans to new borrowers after September 30, 2015.

As noted in a letter from Lynn B. Mahaffie, Deputy Assistant Secretary, Policy, Planning, and Innovation in the U.S. Department of Education’s Office of Postsecondary Education:

If prior to October 1, 2015, a school makes the first disbursement of a Federal Perkins Loan to a student for the 2015-2016 award year, the school may make any remaining disbursements of that 2015-2016 loan after September 30, 2015.

In addition, section 461(b)(2) of the HEA includes a narrow “grandfathering” provision that allows schools to make Federal Perkins Loans to certain students for up to five additional years (through September 30, 2020) to enable students who received loans for award years that end prior to October 1, 2015 “to continue or complete courses of study.” The award year that ends prior to October 1, 2015, is the current 2014-2015 award year, which ends on June 30, 2015. Thus, a school may make a new Perkins Loan to a student after September 30, 2015, if all of the following conditions are met:

1. The school made at least one Perkins Loan disbursement to the student on or before June 30, 2015.
2. The student is enrolled at the same institution where the last Perkins Loan disbursement was received. For example, a student who received a Perkins Loan disbursement for enrollment at School A, and then received a Perkins Loan disbursement for enrollment at School B would be considered to be an eligible grandfathered borrower at School B, provided all other conditions are met, but not for a subsequent enrollment at School A.
3. The student is enrolled in the same academic program for which the student received his or her last Perkins Loan disbursement. We consider an academic program to be the same program only if the first four digits of the program’s Classification of Instructional Program (CIP) code are identical to the first four digits of the CIP code for the program for which the student received his or her last Perkins Loan disbursement.
4. While the law provides for this limited “grandfathering” continued eligibility for Perkins Loans “as may be necessary to enable students… to continue or complete courses of study,” many of these grandfathered students could have their need met by a combination of other student aid and thus will not need a Perkins Loan to “enable [them]… to continue or complete [their] courses of study.” Therefore, a Perkins Loan can be made to an otherwise eligible grandfathered student to meet all or some of the student’s unmet need only after the student has been awarded all Direct Subsidized Loan aid for which the student is eligible.

Note that because the grandfathering provision applies only to students who received a Perkins Loan for award years 2014-2015 or earlier, a student who received his or her first Perkins Loan for the 2015-2016 final award year of the program (e.g., an incoming first-year student) will not be an eligible grandfathered student for purposes of receiving loans beyond that 2015-2016 award year.

Additional implications facing institutions participating in the Federal Perkins Program include the disposition of Perkins Loan revolving funds and outstanding loan portfolios. CapinCrouse can help you set up the necessary systems and controls to comply with these changes. If you have any questions, please contact partner Fran Brown.

Additional information:
IFAP: Federal Perkins Loan Wind-Down Questions and Answers
Inside Higher Ed: Congress Lets Perkins Loan Program Lapse