Updates to the Federal Perkins Loan Program continue as the Department of Education (“Department”) proceeds to wind down the program. During the fall, the Department issued several announcements including literature on the reimbursement for Perkins Service Cancellation, distributions of assets from the Revolving Loan Fund, and the assignment of Perkins Loan in default for two or more years.
Since fiscal year 2010, the Department has failed to reimburse institutions more than $400 million for canceled loans through the Perkins Loan, citing a “lack of federal appropriations” according to the National Association of Student Financial Aid Administrators. On September 10, 2019, the Office of the Under Secretary issued an electronic announcement “Distribution of Assets from the Perkins Loan Revolving Fund and Reimbursement for Perkins Service Cancellations.” The Department has determined that institutions will be reimbursed for the institutional share of Perkins Loan Service Cancellations from the Perkins Loan Revolving Fund held by the institutions.
In addition to the above reimbursement of institutional share of Perkins Loans Service Cancellations to the institution, the Department will require an annual capital distribution of the Federal and Institution share of assets based on cash in the Institution’s Perkins Revolving Loan Fund (“Fund”) reported on the Fiscal Operations Report and Application to Participate (“FISAP”) submitted on October 1, 2019, as announced in the October 15, 2019, electronic announcement. The Department will notify the institution of the amount of cash in the Fund that is subject to the distribution of assets. The institution will then calculate the distribution of assets related to Federal and Institution share based on the Proportional Share Percentage. The notification will also state the amount the Department has determined to pay for the partial reimbursement for Perkins Service Loan Cancellation as described in the September 10, 2019, announcement. Both the Institution share and Federal share will need to be removed from the Fund and either returned to the Department or the institution by February 17, 2020. Institutions should NOT remove or return any funds to the Department or the institution until the institution has been notified to do so by the Department.
The September 16, 2019, announcement, “Federal Perkin Loan Program – Assignment of Federal Perkins Loans in Default for Two or More Years,” notes that with the wind-down of the Perkins Program, the Secretary will require that all Perkins Loans that have been in default for two or more years will be assigned to the Department. According to the announcement, the fact that the loans have been in default for this length of time suggests that there is a lack of compliance with the collection procedures criteria established by the regulations. The Department will notify the institutions of their obligation to provide documentation of their collection efforts on these particular loans. If these loans do not have proper documentation of the collection efforts, then the loans must be assigned to the Department. Additionally, it is important to note that institutions under Section 463(a)(5) may voluntarily assign Perkins loans to the Department, including loans that have acceptable collections records or that have not been in default, at any time.
Blue & Co. has performed a closeout audit on a university’s liquidation of Perkins Loans, made recommendations with regard to the assignment of loans with various institutions, and assisted schools with the calculation of distributions of the revolving funds to the Department.
If you feel you would benefit from a discussion regarding the Perkins Program changes, we would be happy to schedule a time to discuss any concerns. Please contact Joseph Duruttya or your local Blue & Co. advisor.