The Federal Perkins Loan is unique because the school is the lender, and when the student defaults, the school goes after its money. And some schools are doing so aggressively by suing students to collect.
Those institutions include Yale, Penn and George Washington University, reports Bloomberg.
The problem is multifaceted. The Perkins loans are meant for students who demonstrate extreme financial hardship. So those who default on these loans have a hard time paying them back after graduating into a lackluster jobs market.
Moreover, the school needs to collect to replenish a revolving fund that helps fulfill the higher education dream of the next needy student.
A surge in defaulted loans among poor students comes as President Barack Obama seeks to expand higher education opportunities for working-class families and increase funding for the Perkins program.
The president is proposing that the Perkins fund increase to $8.5 billion from about $1 billion, and that the Education Department service the loans instead of colleges.
Bloomberg said that students defaulted on $964 million in Perkins loans in the year ended June 2011, 20 percent more than five years earlier, government data show. Unlike most student loans — distributed and collected by the federal government — Perkins loans are administered by colleges.
Bloomberg cited the case of Aaron Graff, a farmer’s son from Denver, who graduated from George Washington University in 2010. He defaulted on $4,000 in Perkins loans.
George Washington’s financial-aid office e-mailed Graff at least twice since last February, warning him of the delinquency and offering to work out a repayment plan. It filed a lawsuit in May 2012 in District of Columbia Superior Court. Graff lost a default judgment in December for $5,050 including interest and attorney fees because he didn’t attend the hearing, according to court records.
Graff, 30, said he hasn’t been able to find a full-time job. He earns $800 a month from teaching high-school equivalency courses and restores basements for extra money. He said he is trying to pay off other student loans first because they were co-signed by his parents.
“I live on the bare minimum,” he said. “It’s not like I’m defaulting on my student loans to live the lavish life. I’m defaulting on my loans because I really don’t have it.”
Here’s a quick overview of the Federal Perkins Loan:
- Available to undergraduate, graduate, and professional students with exceptional financial need.
- Interest rate for this loan is 5%.
- Not all schools participate in the Federal Perkins Loan Program. You should check with your school’s financial aid office to see if your school participates.
- Your school is the lender; you will make your payments to the school that made your loan or your school’s loan servicer.
- Funds depend on your financial need and the availability of funds at your college.
- If you are an undergraduate student, you may be eligible to receive up to $5,500 a year. The total you can borrow as an undergraduate is $27,500.
Here’s more information on Perkins loans from the U.S. Department of Education.