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Federal Perkins Student Loan
...Interest Added?

The federal Perkins student loan program is useless to low income students, now that the health care bill/SAFRA has passed.

This law has transformed Perkins Loans into unsubsidized, rather than subsidized loans.

The irony of course is that Perkins loans eligibility is based on financial hardship, while an unsubsidized Stafford loan is merely based on unmet need.

And the very students who will be helped by SAFRA's automatic Pell grant increases, are the same ones who will be hurt by these changes to their federal Perkins loans.

Let's say a student with a "0" EFC applied to a private school with costs of $25,000 (on the low side of average).

The student would get $5,550 in Pell money.

If the school gave the student around $14,000 (say $13,950) in grant and scholarship money, the student would still have to come up with around $5500.

The financial aid package would now include a federal loan to make up the difference, and because the student had a "0" EFC, chances are good that it would be a low-interest Perkins loan for the maximum amount of $5,500 per year.

And that brings you to the $25,000 per year cost of attendance.

What Difference Would it Make if They Became Unsubsidized Loans?

As it stood before, a student who took out the maximum $5,500 per year for four years, owed $22,000 when the (now, 9-month) grace period is over.

If Perkins loans become unsubsidized, the amount owed will be $24,934.

The student will be almost $3,000 more in debt.

The loan for the first year will have interest accruing for 50 months:

1st year	12 months
2nd year	12 months
3rd year	12 months
4th year	8 months
grace period	6 months

The second year's loan will have interest accruing for 38 months; the third year's loan will have interest accruing for 26 months; and the fourth year's loan will have interest accruing for 14 months.

These are the amounts that will be added together for the final amount due at the start of repayment:

1st year's loan	$6,646
2nd year's loan	$6,371
3rd year's loan	$6,096
4th year's loan	$5,821
total	$24,934

The passage in SAFRA which makes these changes is Section 221. FEDERAL DIRECT PERKINS LOANS TERMS AND CONDITIONS:

"Unless otherwise specified in this section, all terms and conditions and other requirements applicable to Federal Direct Unsubsidized Stafford loans established undersection 455(a)(2)(D) shall apply to loans made pursuant to this section."

Perkins loan forgiveness has already been made equal to Stafford forgiveness. This law will not benefit those students who take out federal Perkins loans.

Visit these pages for useful information on other financial aid topics:

Education tax credit

Cheap college textbooks

Federal Pell grant application

The federal Perkins student loan program is no longer the best loan program now that the bill has passed. It will be ranked behind subsidized Stafford loans, but ahead of unsubsidized Stafford loans (because of its 5% interest rate).