Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Perkins Loan Program - Introduction

AwardYear: 1997-1998
EnterChapterNo: 6
EnterChapterTitle: Federal Perkins Loan Program
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

[[The graphic on page 6-1 is currently unavailable for viewing. Please
reference your paper document for additional information.]]


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

[[Notification of a student's right to cancel loan--34 CFR
- 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.


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.


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.")

Last Modified: 07/20/1998