AwardYear: 1997-1998 EnterChapterNo: 6 EnterChapterTitle: Federal Perkins Loan Program SectionNumber: SectionTitle: Introduction PageNumbers: 1-5 Loans under the Federal Perkins Loan Program include Federal Perkins Loans, National Direct Student Loans (NDSLs), and National Defense Student Loans (Defense Loans). (No new Defense Loans were made after July 1, 1972, but a few are still in repayment.) Perkins Loans and NDSLs are low-interest, long-term loans made through institutional financial aid offices to help needy undergraduate and graduate students pay postsecondary educational costs. The school must give priority to students with exceptional financial need as defined by the school. (See Section 1 of this chapter.) The current interest rate is 5%. Loans made before July 1, 1972 were Defense Loans. Loans made from July 1, 1972 through June 30, 1987 were NDSLs. A loan made on or after July 1, 1987 may be either an NDSL or a Perkins Loan. If the borrower has an outstanding balance on a Defense Loan or NDSL when the new loan is obtained, the new loan is an NDSL. If the borrower has no outstanding balance on a Defense Loan or NDSL when the new loan is obtained, the new loan is a Perkins Loan. [[The graphic on page 6-1 is currently unavailable for viewing. Please reference your paper document for additional information.]] RECENT CHANGES TO THE FEDERAL PERKINS LOAN PROGRAM [[NEW]] Part 673 has been added to the regulations as "Part 673--General Provisions for the Federal Perkins Loan Program, Federal Work- Study Program, and Federal Supplemental Educational Opportunity Grant Program," published in the Federal Register (Part IV) on November 27, 1996. Part 673 consolidates common provisions of the campus-based programs (formerly found in Parts 674, 675, and 676), and eliminates duplicate provisions for each program. The regulations, which are effective July 1, 1997, are discussed in the Introduction to Chapter 5 of this Handbook. [[Recordkeeping requirements--34 CFR 668.24 & 674.19]] New recordkeeping requirements for all Student Financial Assistance (SFA) programs were published in the Federal Register November 27, 1996 and become effective July 1, 1997. These regulations specify the length of time records must be kept and the formats in which they must be kept. These new requirements as they apply in general to all SFA programs are discussed in Chapter 3, Section 7. For information on how these requirements apply specifically to the campus-based programs, see Chapter 5, Section 3. For information on how these requirements apply specifically to the Perkins Loan Program, see Section 11 of this chapter. Requirements for maintaining and accounting for SFA program funds are included in regulations published in the Federal Register November 29, 1996 and become effective July 1, 1997. The new cash management requirements that apply specifically to the campus- based programs are discussed in Chapter 5, Section 3. The new provisions that apply to all SFA programs are discussed in detail in Chapter 3, Section 3. [[Cash management--34 CFR 668.161 - 669.167]] The new cash management requirements that apply specifically to the Perkins Loan Program follow. (Section 11 of this chapter provides additional information on fiscal procedures and records.) [[Late disbursements]] - The late disbursement provision of the new cash management regulations applies specifically to the Federal Supplemental Educational Opportunity Grant (FSEOG) Program and the Perkins Loan Program. Regulations regarding late disbursements of an FSEOG were removed from 34 CFR 676.16(e), and revised regulations for late disbursements of FSEOGs and Federal Perkins Loans are now in 34 CFR 668.164(g). A school may make a late disbursement of a Perkins Loan and/or an FSEOG to an ineligible student if the student became ineligible solely because the student is no longer enrolled at the school for the award year. Before the student dropped out, the school must have received a Student Aid Report (SAR) or Institutional Student Information Record (ISIR) for the student with an official Expected Family Contribution (EFC) and must have awarded the student the Perkins Loan or FSEOG. The school may make that late disbursement only if the funds are used to pay for educational costs that the school determines the student incurred for the period in which the student was enrolled and eligible, and the school must make the late disbursement no later than 90 days after the date the student became ineligible because he or she was no longer enrolled. - Under the provisions of 34 CFR 668.163(c), schools must maintain the Perkins Loan Program Fund in an interest-bearing bank account or investment account (refer to Section 11 of this chapter). [[Notification of a student's right to cancel loan--34 CFR 668.165(a)]] - If a school credits a student's account at the school with Perkins Loan funds, the school must notify the student of the date and amount of the disbursement, the student's right to cancel all or a portion of that loan and his or her right to have the funds returned to the school's Perkins fund; a detailed discussion of these provisions is in Chapter 5, Section 3. PARTICIPATION AGREEMENT AND FEDERAL PERKINS LOAN FUND As discussed in Chapters 3 and 5, a school that wants to participate in any Student Financial Assistance (SFA) Program must sign a Program Participation Agreement with the Secretary. The agreement must be signed by the school official legally authorized to assume, on the school's behalf, the agreement's obligations. For all of the SFA Programs, the agreement provides that the school must use the funds it receives solely for the purposes specified in the regulations for each program and requires the school to administer each program in accordance with the Higher Education Act of 1965 (HEA), as amended, and the Student Assistance General Provisions regulations. The agreement also requires the school to submit annually to the U.S. Department of Education a report containing information that will enable the Department to determine the school's cohort default rate (discussed in Section 8 of this chapter). The agreement for the Perkins Loan Program also requires the school to establish and maintain a Perkins Loan fund (the fund) and to deposit into the fund-- - the Federal Capital Contribution (FCC) the school receives as its federal allocation for the program for each award year (see the next page); - the school's matching share--the institution's capital contribution (ICC), discussed on the next page; - payments the school receives for repayment of loan principal, interest, collection charges, and penalty or late charges on loans from the fund; - payments the school receives from the federal government for cancellations (such as teacher cancellations) of Perkins Loans and NDSLs (see Section 5 of this chapter); - any other earnings on fund assets, including net interest earnings on funds deposited in an interest-bearing account (total interest minus bank charges incurred on the account); and - proceeds of any short-term no-interest loans the school makes to the fund in anticipation of receipt of its FCC or of loan collections. ALLOCATION OF FUNDS--FEDERAL CAPITAL CONTRIBUTION As discussed in the introduction to Chapter 5, a school applies for program funds annually through the electronic Fiscal Operations Report and Application to Participate (FISAP). The Department allocates funds directly to schools. The allocation for the Perkins Loan Program, the FCC is the amount of funding the school is authorized to receive from the Department for an award year. This amount is based on the funds appropriated by Congress for the program, as well as the allocation formulas, which were established by law and which do not provide for appeals. The following provisions of the HEA and the Perkins Loan Program regulations affect the school's allocation: [[Basis for initial allocation--HEA 462(a)] - The Department bases the initial allocation of a school's FCC on the amount allocated to the school for the 1985-86 award year. [[Basis for reallocation--34 CFR 673.4(a)]] - The Department reallocates funds to schools by reallocating 80% of the total funds in accordance with the statutory formula in section 462(j) of the HEA and reallocating 20% in a manner that best carries out the purposes of the Perkins Loan Program. [[School's matching share--34 CFR 674.8]] - The school's matching share or ICC is one-third of the FCC (or 25% of the COMBINED FCC and ICC); however, schools participating in the Expanded Lending Option (ELO) are required to provide a dollar-for-dollar match with the FCC. - If a school returns more than 10% of its FCC, the Department will reduce the school's FCC for the second succeeding year by the dollar amount returned. [[Transfer of funds to FWS and/or FSEOG--34 CFR 674.18(c)]] - A school may transfer up to a total of 25% of its FCC for an award year to either or both the FSEOG and FWS programs. - A school may transfer up to 100% of its initial and supplemental allocations to the Work-Colleges Program. - A school must match any funds transferred to another program at the matching rate of that program. The school does not have to provide matching funds until the transfer has occurred. - A school must use the transferred funds according to the requirements of the program to which they are transferred. - A school must report any funds that are transferred to another program on the Fiscal Operations Report portion of the FISAP. - A school that transfers funds to the FWS, FSEOG, and/or Work- Colleges programs must transfer any unexpended funds BACK to the Perkins Loan Program at the end of the award year. [[Reduction of FCC for high cohort default rate--34 CFR 674.5]] - If a school's cohort default rate equals or exceeds 20%, the school's FCC will be reduced by a default penalty percentage calculated in relation to the school's cohort default rate. (See Section 8, "Default.") |