Section 463(a)(4)(A) of the Higher Education Act of 1965, as amended, states that if an institution knowingly failed to maintain an acceptable collection record for a defaulted Federal Perkins Loan (Perkins loan), the Secretary may require the institution to assign the loan to the Department of Education (the Department) without recompense.
With the wind-down of the Perkins Loan Program, the Secretary will require assignment to the Department of all Perkins loans that have been in default for two or more years. The fact that a loan has been in default for more than two years suggests a lack of compliance with the collection procedure criteria established by regulation. Therefore, unless the institution provides documentation of an acceptable collection record for loans that have been in default for two or more years, the institution will be required to assign such loans to the Department.
We will notify institutions individually of their obligation to provide documentation of their collection efforts on these loans and the deadline by which loans without documentation must be assigned after the next Fiscal Operations and Application to Participate (FISAP) is filed in October 2019.
In an Electronic Announcement on Federal Perkins Loan Program Administrative Responsibilities and Reporting Requirements, published on October 4, 2018, we reminded institutions of their obligation to ensure all collection procedures under the regulations 34 CFR 674.45, which included assignment of defaulted loans, were being followed.
If the institution, or the firm it engages, pursues collection activity for up to 12 months and is not successful in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the institution shall:
- Litigate in accordance with the procedures in § 674.46;
- Make a second effort to collect the account as follows:
- If the institution first attempted to collect the account using its own personnel, it shall refer the account to a collection firm.
- If the institution first attempted to collect the account by using a collection firm, it shall either attempt to collect the account using institution personnel, or place the account with a different collection firm; or
- Submit the account for assignment to the Secretary in accordance with the procedures set forth in § 674.50.
If an institution is unsuccessful in its efforts to place a loan in repayment after extensive collection efforts, it must continue to service the loan by making yearly attempts to collect from the borrower until the loan is
- recovered through litigation;
- assigned to the Department; or
- written off only if the outstanding principal, accrued interest, collection costs and late charges are within the allowable thresholds as prescribed under § 674.47(h) (loans with a balance of less than $25; or loans with a balance of less than $50 if the borrower has been billed for this balance for at least 2 years).
Institutions are reminded that under Section 463(a)(5) they may voluntarily assign Perkins loans, including those loans that have an acceptable collection record or are not in default, at any time.
If you have questions about the information in this announcement, contact the COD School Relations Center at 1-800-848-0978. You may also email CODSupport@ed.gov.