Federal Perkins Loan Program – Updated Guidance on Mandatory Assignment of Federal Perkins Loans in Default for More than Two Years (EA ID: GENERAL-21-53)

Federal Student Aid
Federal Perkins Loan Program – Updated Guidance on Mandatory Assignment of Federal Perkins Loans in Default for More than Two Years (EA ID: GENERAL-21-53)

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.

As part of the wind down of the Perkins Loan Program, the Secretary requires all institutions to assign to the Department all Perkins Loans that have been in default for more than two years. Unless the institution has documentation that these borrowers are making payments toward their Perkins loan debt, you are required to assign all Perkins Loans that have been in default for more than two years to the Department.

Institutions will have through June 30, 2022 to either assign or purchase loans that have been in default for more than two years. If an institution determines that borrowers who have defaulted Perkins Loans are making payments, the institution may notify the Department that documentation showing an acceptable collection record is available upon request. If the documentation is requested and reviewed by the Department, the institution will be notified whether these loans are required to be assigned, purchased, or if the institution may continue collecting on these loans.

In early 2022, the Department will assess all active Perkins loan assignment activity. If it is determined that an institution has shown insufficient effort assigning, purchasing, or providing acceptable collection records to the Department for review, a warning letter may be sent to the institution’s financial aid office as well as to the campus CEO/President reminding them of the requirement to take action on these loans by the June 30, 2022 deadline.

For subsequent Fiscal Operations and Application to Participate (FISAP) reporting periods beyond June 30, 2022, institutions will be required to assess their Perkins Loan portfolio to determine if additional accounts have exceeded two years in default status. The institution will then have until the end of the subsequent FISAP reporting period to assign those accounts. For example, a Perkins loan reaches 24 months in default status without collections activity in December 2022. The institution will have until June 30, 2024 to assign or purchase the loan.

If between the time the loan reached the 24-month default status and reaching the deadline to assign, the institution is able to collect payments on the loan, they may continue collecting on the loan in lieu of assigning or purchasing it. The Department will continue to monitor all school Perkins Loan assignment activity in subsequent years to ensure continued compliance with this requirement.

Any Perkins Loans required to be assigned that have been placed with a Private Collection Agency (PCA) must be returned to the institution so that the institution may meet the required assignment deadlines.

Perkins Loan Assignment

For guidance on the Perkins loan assignment process, please refer to the Perkins Assignment and Liquidation Guide. For Perkins Loans rejected for assignment, the Department will provide the institution with the reason(s) for rejection; if the institution can resolve the issue(s) it may resubmit the loan for assignment. If it is not possible to resolve an issue and the loan is unable to be assigned, the institution will have to purchase the loan.

Purchasing a Perkins Loan Ineligible for Assignment

34 CFR 674.50(g) of the Federal Perkins Loan Program regulations states that the Secretary may require that the institution reimburse its program Fund for the entire portion of the outstanding principal balance (OPB) plus any accrued interest on a loan the Department determines is unenforceable.

An institution reports school-purchased loans on its FISAP in Part III, Section A the same as it would report funds it received from a borrower’s repayment of a loan balance. The amount deposited into the program Fund to purchase the loans is reported in cash-on-hand (Field 1.1). The portion of the total cash deposited that is principal is reported as loan principal collected (Field 5) and the portion that is interest is reported as interest income on loans (Field 31).

Collection Procedures

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 34 CFR 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.

Contact Information

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.