Summary: Calculating Default Rates in the Federal Perkins Loan Program
SUBJECT: This letter provides guidance regarding the calculation of an institution's cohort default rate for the Federal Perkins Loan Program as of June 30, 1999.
On October 7, 1998, President Clinton signed into law the Higher Education Amendments of 1998 (the Amendments). Among the many important provisions of the new law are a number of changes to the Federal Perkins Loan Program, including an expansion of the list of loans that are not treated as defaults in calculating cohort default rates. See Section 462(d) of the Amendments for the statutory language.
The Amendments also require that we develop all new regulations through a negotiated rulemaking process. Although we declined to issue non-regulatory guidance on this issue during the negotiations, we believe it is necessary to provide interim policy guidance until the final regulations become effective. This letter provides guidance on calculating your school's Federal Perkins Loan Program cohort default rate for borrowers who entered repayment between July 1, 1997 and June 30, 1998.
Sec. 462(g)(2) of the Higher Education Act of 1965, as amended (the HEA), requires that all loans that have been in default for 240 or more days (270 or more days if the borrower is billed quarterly) be counted as defaults in calculating your schools Federal Perkins Loan Program cohort default rate. However, the amended HEA provides several instances in which a loan is not counted as a default for purposes of calculating your schools cohort default rate.
Based on proposed regulations on which the negotiated rulemaking committee reached consensus, the following loans are not treated as defaults in calculating your schools Federal Perkins Loan Program cohort default rate as of June 30, 1999:
· loans on which the borrower has voluntarily made six consecutive, monthly payments
· loans on which the borrower has voluntarily made all payments currently due
· loans repaid in full by the borrower
· loans for which the borrower has received a deferment, based on a condition that began prior to the loan becoming 240/270 days past due
· loans for which the borrower has received a forbearance, based on a condition that began prior to the loan becoming 240/270 days past due
· loans that have been rehabilitated
· loans discharged due to death or permanent and total disability
· loans discharged in bankruptcy
· loans discharged due to a closed school
· loans repaid in full under a compromise repayment agreement in accordance with Sec. 674.33(e)
For purposes of making the above determination, the term "voluntary" excludes payments obtained by income tax offset, garnishment, income or asset execution or pursuant to a judgment.
If you have any questions regarding the loans that are not treated as defaults for purposes of calculating cohort default rates, please contact Gail McLarnon, Federal Perkins Loan Program Specialist at (202)-708-8242 or firstname.lastname@example.org.
Diane Rogers, Chief of Staff
Office of the Deputy Secretary