Industry Insights

Will Perkins Survive?

July 2015

The Federal Perkins Loan (FPL) Program is once again backed into the corner and hanging on the ropes. The program is set to expire and discontinue on September 30, 2015, unless it’s reauthorized. On January 30, 2015, the Department of Education (ED) issued a Dear Colleague Letter on the potential phaseout and wind-down of FPL. The letter notes FPL will end September 30, 2015, after the expiration of a one-year automatic extension created by the General Education Provisions Act (GEPA). The letter also detailed the restrictions on continuing to make loans to students after the September 30, 2015, deadline. 

The Higher Education Act of 1965 (HEA) has been reauthorized multiple times. Multiple drafts for reauthorization have been proposed since 2013, but many concerns remain and timely reauthorization is unlikely. The viability and future of the program has been called into question over the years, but it appears the program has lost some key supporters from the Senate Health, Education, Labor and Pension Committee in the past year, calling its survivability into question more than in the recent past. On the other hand, a bipartisan resolution was presented in June in Congress that supports the program’s continuation; additional co-sponsors are being sought for the resolution. For the Perkins program to continue, it would need to be included in reauthorization of HEA prior to September 30, 2015; alternatively, Congress could legislate a standalone bill to extend the program. Some observers speculate a one-year HEA extension including Perkins is the most likely outcome.

Assuming the current authorization expires prior to October 1, 2015, a school that has made the first FPL disbursement to a student for the 2015 - 2016 award year may make any remaining disbursements of that 2015 - 2016 loan after September 30, 2015. No new awards aside from the instance noted above can be made after the deadline.

Note:  There’s one additional exception for students who fall into the “grandfathering” provision noted below. The provision pertains to students who received Perkins Loans prior to October 1, 2015, i.e., during the 2014 - 2015 award year, and may continue their studies.

The ED’s letter, which assumes the program is being terminated, emphasizes significant aspects of the FPL wind-down that will need to be addressed, including the settlement of the schools’ revolving funds and outstanding loan portfolios. The ED plans to address these matters as the September 30 deadline approaches. However, some feel the direction and advice to close the loan fund is too reactive.

Some colleges and universities have been evaluating whether to continue participating in the program—and a few institutions have started exiting the program, whether directly or indirectly related to reauthorization of HEA.

The current compliance requirements of the FPL liquidation process listed below could significantly change with the upcoming ED decisions. The institution is required to complete all of these steps:

  1. Notify ED of the institution’s intent to stop participating in Perkins
  2. Inform ED of how the institution will collect any outstanding loans made under the program
  3. Purchase any outstanding loans left in its Perkins portfolios or assign them to ED
  4. Maintain program and fiscal records of all Perkins funds since the most recent Fiscal Operations Report (FISAP) was submitted and reconcile this information at least monthly
  5. Initiate an independent Perkins liquidation audit

These requirements are subject to change with the program’s upcoming deadline, and additional information will be provided by the ED as decisions are reached.

For more information on the program and the potential liquidation audit, contact your BKD advisor.

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