Maintained for Historical Purposes

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

Federal Perkins Loan Program - Making and Disbursing Loans

AwardYear: 1997-1998
EnterChapterNo: 6
EnterChapterTitle: Federal Perkins Loan Program
SectionNumber: 2
SectionTitle: Making and Disbursing Loans
PageNumbers: 11-22

[[34 CFR 674.16(c)(2)]]
A Federal Perkins Loan or National Direct Student Loan (NDSL) is
considered to be made when the borrower has signed the promissory
note for the award year and the school makes the first disbursement
of loan funds under that promissory note for that award year.
Beginning July 1, 1996, the student is required to sign the
promissory note only once each award year. The borrower must sign
before the school disburses any loan funds to him or her under that
note for that award year. However, a school may continue to require
a borrower to sign for each advance if it chooses to do so.

[[Financial need - Other resources = Maximum loan eligibility]]
A financial aid administrator may not award or disburse a Perkins
Loan or NDSL to a student if the combination of that loan and all of
the student's other resources would exceed the student's need. The
aid administrator must take into account those resources that he or
she can reasonably anticipate at the time aid is awarded to the
student, those the school makes available to its students, or those the
aid administrator knows about. A list of resources and a discussion of
overawards are in Chapter 5, Section 2.

[[Disbursement of SFA funds--34 CFR 668.164]]
The regulations now provide uniform cash management rules, which
became effective July 1, 1995, for the Student Financial Assistance
(SFA) Programs. These provisions cover disbursing funds to a
student, crediting a student's account, calculating allowable charges,
and holding student loans, and they are discussed in Chapter 3,
Section 3. The major provisions affecting Perkins Loan disbursement
are discussed on page 6-19.


If a student is attending a school that does NOT participate in the
Perkins Loan Program's Expanded Lending Option (ELO), which is
discussed below, the maximum amount an eligible student may
borrow is

- $3,000 per award year for a student who has not successfully
completed a program of undergraduate education or

- $5,000 per award year for a graduate or professional student.

The maximum cumulative amount an eligible student may borrow at
schools that do NOT participate in the ELO is

- $15,000 for a student who has not successfully completed a
program of undergraduate education or

- $30,000 for a graduate or professional student, including loans
borrowed as an undergraduate student.

[[Expanded Lending Option (ELO)]]
A school that maintains a cohort default rate of 15% or less may
participate in the ELO if the school has signed an ELO participation
agreement with the Department. (Cohort default rates are discussed
in Section 8 of this chapter.)

Schools participating in the ELO are required to match the Federal
Capital Contribution (FCC) on a dollar-for-dollar basis, and they
may make loans to students at higher award-year and cumulative
loan limits than nonparticipating schools.

[[Loan limits at ELO schools]]
If a student is attending a school that participates in the ELO, the
maximum amount the student may borrow is

- $4,000 per award year for a student who has not successfully
completed a program of undergraduate education or

- $6,000 per award year for a graduate or professional student.

The maximum cumulative amount an eligible student may borrow at
a school that participates in the ELO is

- $20,000 for a student who has successfully completed two years
of a program leading to a bachelor's degree but who has not
completed the work necessary for the degree;

- $40,000 for a graduate or professional student, including loans
borrowed as an undergraduate student; or

- $8,000 for all other students.

[[Effect of repayment on loan limit]]
All of the cumulative maximum amounts listed here include all
Defense Loans, NDSLs, and Perkins Loans a borrower may have.
Unlike repayment in the Federal Family Education Loan (FFEL)
Program, repayment in the Perkins Loan Program does not establish
a new cumulative loan limit. For example, a student who had
borrowed the maximum cumulative amount for a graduate or
professional student would not be eligible for another loan even if
the student had repaid part or all of the amount he or she borrowed.

[[Study abroad]]
A student engaged in a program of study abroad may receive a
Perkins Loan provided that he or she meets all eligibility
requirements. A student studying abroad in a program approved for
credit by the home school where the student is enrolled may exceed
the annual and/or cumulative loan limits by 20% if reasonable costs
of the program exceed the cost of attending the home school.

[[Loans limits for teacher-certification students]]
A student enrolled in a teacher certification program may be
considered either an undergraduate or a graduate student. This
determination is left to the student's school. The borrowing limit for
a student enrolled in a teacher certification program depends on the
school's determination of his or her status (undergraduate or
graduate). A teacher-certification student who is considered to be a
graduate student and who has already borrowed the cumulative
maximum allowed for an undergraduate is eligible to receive an
additional Perkins Loan or NDSL. A teacher-certification student
who is considered to be an undergraduate student and who has
already borrowed the cumulative maximum allowed for an
undergraduate is not eligible to receive an additional Perkins Loan or


[[School must provide certain information]]
DISBURSEMENT, the school must have the student sign the
promissory note. (See Section 2 of this chapter.) The school must
also furnish the student with certain information. It must inform the
student about his or her rights and responsibilities under the Perkins
Loan Program, and it must inform him or her that the loan may be
used only for educational expenses and that he or she must repay the
loan. The school should also make sure the student knows that the
SCHOOL holds the promissory note.

A school must also provide the student with the following
information in writing before making the first loan disbursement:

1. the name of the school and the addresses where payments and
communications should be sent;

2. a statement indicating that the school will report the outstanding
balance of the loan to a national credit bureau at least annually;

3. the principal amount of the loan;

4. the stated interest rate;

5. the maximum yearly and cumulative amounts the student may

6. an explanation of when the student must start repayment and
when he or she must begin paying the interest that accrues;

7. the maximum and minimum repayment terms the school may
impose and the minimum monthly payment required;

8. a statement of the total cumulative balance owed by the student
to that school and an estimate of the monthly payment amount
needed to repay that balance;

9. options the borrower may have to consolidate or refinance;

10. the borrower's right to prepay all or part of the loan at any time
without penalty;

11. a summary of circumstances in which repayment of the loan
principal or interest may be deferred or canceled, including a brief
notice about the Department of Defense program for repaying
loans based on certain military service;

12. a definition of default and the consequences for the borrower,
including a statement that the school may report the default to a
national credit bureau;

13. the effect that accepting the loan will have on the borrower's
eligibility for other types of student aid;

14. a complete list of charges connected with making the loan,
including whether those charges are deducted from the loan or
whether the student must pay them separately; and

15. an explanation of the costs that may be assessed the student in
collecting the loan, such as late charges and collection and
litigation costs.

The school must provide this information to the student--in writing--
as part of the application material, as part of the promissory note, or
on a separate form. Although the information can be mailed to a
student, it is preferable for the aid administrator to meet with the
student to answer any questions and to emphasize his or her
responsibility to repay the loan.

[[Obtain information from students]]
The school is encouraged to use this initial counseling session to
obtain the following information from a student:

- the student's name, current address, and Social Security Number;

- the student's parents' permanent address;

- the student's and his or her parents' telephone numbers;

- the student's expected date of graduation;

- the student's spouse's name and address;

- the student's spouse's employer;

- the names and addresses of two or three of the student's personal
acquaintances; and

- the student's drivers license number, if any.

This information could be valuable later for use in collection
procedures, and it will help the school locate a student who leaves
school without notice or who does not attend the exit interview.
Effective pre-loan counseling sessions will satisfy the school's
requirement to tell each borrower about his or her rights and
obligations and to provide information about the requirement to
repay the loan. However, this counseling may not be used to satisfy
the requirement for an exit interview. (See Section 6 of this chapter
for more information.)


The promissory note is the legally binding document that is evidence
of a borrower's indebtedness to a school. A student must sign this
note before he or she can receive any Perkins Loan funds and must
be given a copy of the note at (or before) the exit interview. The note
includes information about the loan's interest rate, repayment terms,
and minimum rates of repayment; deferment, forbearance, and
cancellation provisions; collection costs; attorney fees; and late

[["Dear Colleague" Letters CB-93-9 and CB-96-8]]
The Department has issued two sets of different promissory notes,
either of which a school may use. "Dear Colleague" Letter CB-93-9,
dated July 1993, included information and sample promissory notes.
The Department issued redesigns of the July 1993 promissory notes
in "Dear Colleague" Letter CB-96-8, dated May 1996. Both sets of
notes (July 1993 and May 1996) include all changes required by the
Higher Education Amendments of 1992. A school must use a
promissory note that the Department has approved; the school may
make only nonsubstantive changes to the note (such as changes to
the type style or the addition of items such as the borrower's driver's
license number).

A promissory note must state that the school is required to disclose to
any one of the national credit bureaus with which the Department has
an agreement the amount of the loan made to the borrower along
with other relevant information. The note must also state that if the
borrower defaults on the loan, the school or the Department, if the
loan is assigned to the Department for collection, is required to
disclose the default and any other relevant information to the same
national credit bureau to which the loan was originally reported.

[[Minor who signs promissory note]]
The Higher Education Amendments of 1992 eliminated the "defense
of infancy," whereby the signing of a contract by a minor would not
create a binding obligation. Under this provision of the law, a minor
may sign a promissory note without an endorser or any security, and
the minor who signs is responsible for repayment regardless of any
state law to the contrary.

If the school does not have a valid note or other written evidence that
would be upheld in a court of law, the school has no recourse against
a borrower who defaults. In such cases, the school would have to
repay to its Perkins Loan fund any amounts loaned, whether
recovered from the borrower or not, as well as any Administrative
Cost Allowance (ACA) claimed on those amounts. Two examples of
invalid notes are notes that have been changed after they were signed
and notes without proper signatures or dates for loan advances.


The Department redesigned the July 1993 promissory notes to
facilitate implementing the signature requirement change, which
allows a school to obtain a borrower's signature on the note only
once each award year, rather than each time a disbursement is made.
The May 1996 promissory note is a single-page (front and back)
document. Separate promissory notes based on the borrower's
enrollment status (half time or greater or less than half time) have
been eliminated, as were separate sections for obtaining information
on prior Perkins Loans and for obtaining a borrower's signature for
each loan advance.

There are no new provisions in the May 1996 notes. A school still
has the option of using a closed-end or open-ended note. The sample
promissory notes issued in July 1993 are open-ended notes. Those
issued in May 1996 are provided in both formats. As stated
previously, a school is not required to use the May 1996 notes. If a
school chooses to use the July 1993 promissory notes, it will be
required to obtain the borrower's signature for each advance
(disbursement) of the loan. A SCHOOL MAY NOT ALTER THE
the school uses a July 1993 note is required to sign at the end of the
last page of the note.


[[Decrease in loan amount]]
If a student's initial loan amount DECREASES; the borrower has
signed either an open-ended or a closed-end May 1996 promissory
note; and a disbursement has been made, the school can choose one
of the following options:

- It may leave the loan amount unchanged. (The school's
disbursement records will reflect the decreased loan amount. The
school may also attach a statement to the promissory note to
explain the decreased loan amount.)

- It may change the face of the promissory note to reflect the
decreased loan amount. This option requires that both the student
and appropriate school official initial the decrease. A school must
not unilaterally change the amount of the loan.

[[Increase in loan amount]]
If the student has signed the promissory note and the initial loan
MADE, the action a school must take depends on the type of
promissory note involved:

- If the student signed a closed-end promissory note, the school
MUST issue a new closed-end note reflecting only the increase from
the original loan amount.

- If the student signed an open-ended promissory note, the school
MUST reflect only the increase in the loan amount on the next line
of the note.


A school may develop its own notes, which may include some or all
of the optional provisions in the Department-provided note.
However, a school-designed note must include ALL of the required
information and must be based on the sample notes the Department
has provided. A school may not change the text or the order of the
text in the Department-provided notes, and a school may not add
provisions to the note. The school may add such information as the
student's driver's license number to the note.

There is no minimum size of type or print specified for the notes.
However, the notes must be legible so that a borrower would not be
able to claim a defense against repayment of the loan because the
print was too small to be read.


Optional provisions regarding a minimum monthly payment amount
are included in the July 1993 sample promissory notes (bracketed
paragraphs III(5)(A) and III(5)(B)), and a school may choose to
include these provisions. However, a school must either include both
paragraphs or omit both paragraphs. If a school includes both
paragraphs in the promissory note, the note must state the exact
minimum monthly payment amount. If a school does not include the
minimum monthly payment option in the note, the school may not
require a minimum monthly payment amount from the borrower.

The optional provision regarding a minimum monthly payment
amount is included as a single, optional sentence at the end of the
repayment paragraph on page 1 of the May 1996 promissory notes.
A school would include this sentence in the promissory note if the
school is exercising the minimum monthly payment amount
provision. Page 2 of the May 1996 promissory notes includes a
summary of this provision.

If the optional provisions are included in the school's note, a
minimum monthly payment of $40 is required for a loan made on or
after October 1, 1992 to a borrower who had no outstanding balance
on a Perkins Loan, NDSL, or Defense Loan on the date the loan was
made. (For other borrowers, the monthly minimum amount remains


If a school is developing its own notes, it may use either "closed-
end" ("limited") or "open-ended" notes. A note may be printed on
more than one sheet of paper if the borrower signs each page or if
each page contains the number of that page plus the total number of
pages in the note (for example, page 1 of 3, page 2 of 3).

[[Time limit for closed-end notes]]
- "CLOSED-END" OR "LIMITED" NOTE. This note is valid for
not more than 12 months and usually covers one award year or
one academic year. It may also be used for a single academic term.
The loan amount must be entered in the note. Closed-end notes
can be designed for a single disbursement (if the award is less
than $501) or multiple disbursements. If a school uses multiple
disbursements and uses the July 1993 promissory notes, the
borrower must sign for each advance. If there will be only one
disbursement, the borrower's signature at the end of the note is

- "OPEN-ENDED" NOTE. If a school uses an open-ended note, it
does not have to issue new notes for future loans it makes to the
same borrower UNLESS the requirements of the Perkins Loan
Program are changed by statute or regulation. An open-ended note
may be used for several years.

The sample notes in "Dear Colleague" Letter CB-93-9 are open-
ended notes. This open-ended note does not itself contain the
specific amount of the approved loan. Instead, at the time of each
disbursement, the school must enter the amount advanced and the
date of receipt in the "Schedule of Advances," which is a part of
the note. The borrower must sign this schedule EACH TIME he or
she receives a disbursement. IT IS NOT ACCEPTABLE

"Dear Colleague" Letter CB-96-8 also provides an open-ended
note. Unlike the July 1993 open-ended note, this open-ended note
contains the specified amount of the approved loan for each award

[[Requirements for loans that have been paid in full]]
When a borrower has fully repaid a loan, the school must mark the
note "paid in full," have it certified by an official of the school, and
give the original note to the borrower. The school must keep a copy
of the note for at least three years after the date the loan was repaid
in full.


A school must disburse Federal Supplemental Educational
Opportunity Grant (FSEOG) funds to a student or the student's
school account in accordance with the revised cash management
regulations published in the Federal Register November 29, 1996
and 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.

The new disbursement provisions that are specifically applicable to
Perkins Loans follow:

[[Notification of 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.

- The school must send the above notice, either in writing or
electronically, within 30 days of the date the school credits the
student's account at the school. If the school sends the notice
electronically, the school must require the student to confirm
receipt of the notice, and must keep a copy of the confirmation.

- The school must return the Perkins Loan proceeds, cancel the
loan, or do both if

it receives a loan cancellation request within 14 days after the
school sends the notice to the student, or

the school sends the notice more than 14 days before the first
day of the payment period, and the school receives a loan
cancellation request by the first day of the payment period.

- If the school does not receive the cancellation request within the
time period described above, the school may return the loan
proceeds, cancel the loan, or do both, but is not required to do so.
The school must notify the student in writing or electronically of
the school's decision.

A school may not disburse funds for a payment period until the
student enrolls for that period.

The school must report the disbursement and amount of each Perkins
Loan or NDSL to a national credit bureau with which the
Department has an agreement. See Section 10 for further details on
complying with this requirement.

[[34 CFR Section 674.16(f)]]
Keep in mind that if a school makes payments before the student
begins attendance, it must accept responsibility for any overpayment.
If a student withdraws--or is expelled--before the first day of classes,
for example, all funds disbursed are considered an overpayment and
must be restored to the Perkins Loan fund. A student who never
begins class is considered to have withdrawn.

[[Power of attorney--34 CFR Section 674.16(i)]]
A school official may not obtain a student's power of attorney to
endorse any check used to disburse funds or to sign for any loan
advance unless the Department has granted prior approval. The
Department would not grant such a power of attorney unless the
school could demonstrate that there is no one else (such as a relative,
landlord, or member of the clergy) who could act on behalf of the
student. There are no exceptions to gaining prior approval to obtain a
student's power of attorney. For a student studying abroad, the school
does not automatically obtain the student's power of attorney; the
school will still be required to request the Department's approval and
to demonstrate that there is no one else who can act on behalf of the


Beginning July 1, 1997, a school that is awarding a Perkins Loan for
a full academic year must advance a portion of the loan during each
ACADEMIC TERMS. Previously, a school was required to advance
a portion of a Perkins Loan during each payment period only if the
school used standard academic terms. A school that did not use
standard academic terms was required to advance funds at least twice
during the academic year--once at the beginning and once at the
midpoint. Thus, for the purpose of the frequency of Perkins Loan
disbursements, the standardization of disbursement rules across the
SFA programs represents no change for schools using standard
academic terms.

In general, to determine the amount of each disbursement, a school
will divide the total loan amount by the number of payment periods
the student will attend. The definition of payment period is in 34
CFR 668.4. For a school that measures progress in credit hours and
has academic terms, a payment period is defined as a term (a
semester, trimester, quarter, or nonstandard term). The definition of
payment period for a school that does not have academic terms or a
school that measures progress in clock hours is discussed in detail in
Chapter 3, Section 3.

A school may advance funds WITHIN a payment period in whatever
installments it determines will best meet the student's needs.
However, if the total amount awarded a student under the Perkins
Loan Program is less than $501 for an academic year, only one
payment is necessary.

[[Student attending less than a full academic year]]
For a student attending less than a full academic year, the amount
advanced is determined by dividing the loan amount by the number
of payment periods the student will attend in the academic year. Only
one payment is necessary if the total Perkins Loan amount awarded
to a student for an academic year is less than $501.


If a student incurs uneven costs or resources during an academic year
and needs additional funds during a payment period, the school may
advance the additional amount REGARDLESS OF WHETHER THE
student who will receive a $1,000 Perkins Loan must spend $300 for
books and supplies at the beginning of the school year. That $300
could be disbursed along with the first payment. To determine the
first payment, subtract the extra amount (in this case, $300) from the
total loan and divide the remainder by the number of payment
periods. The regular amount for one payment period is then added to
the extra amount to determine the initial payment.

A school that has a two-semester system would determine the
payments as follows:

[[The two-semester payment example on page 6-22 is currently
unavailable for viewing. Please reference your
paper document for additional information.]]

Within a payment period, the school may advance funds in whatever
installments it determines will best meet the student's needs.


Regulations regarding late disbursement of a Perkins Loan were
removed from 34 CFR 674.16 (g), and revised regulations are now in
34 CFR 668.164(g). A school may make a late disbursement of a
Perkins Loan 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 EFC and
have awarded the student the Perkins Loan. 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.

Last Modified: 12/02/1999