The Federal Perkins Student Loan Program is in peril.
That is nothing new, of course. Perkins, the nation’s longest-running student-loan program, has been in the cross hairs of budget-cutting and reform-minded presidents and lawmakers for decades. Both Bill Clinton and George W. Bush tried to kill it; President Obama wants to overhaul it.
But the anxiety among advocates of the program has never been higher. With Republicans set to control both chambers of Congress come January, and two key allies heading home after losing their seats, supporters are deeply worried the program will be abolished in the name of simplification.
“The Republican desire to ‘simplify, simplify, simplify,’ in my mind, equals ‘eliminate, eliminate, eliminate,’” said Cynthia A. Littlefield, vice president for federal relations at the Association of Jesuit Colleges and Universities.
Her fears aren’t unfounded. Sen. Lamar Alexander, the Tennessee Republican who will chair the Senate education committee in the next Congress, has already offered a plan to consolidate six federal loan programs into three: an undergraduate-loan program, a graduate-loan program, and a parent-loan program. Republicans in the House of Representatives have also called for streamlining student aid.
Meanwhile, the Perkins program is losing two of its biggest champions: Rep. Timothy Bishop, Democrat of New York, and Rep. John F. Tierney, Democrat of Massachusetts. The lawmakers, who have beaten back past attempts to remake or end the program, were both defeated in this year’s elections.
As it stands, the Perkins program is set to expire next September, along with the other federal student-aid programs. Advocates fear that Republicans will allow the program to lapse or even abolish it in a budget-reconciliation measure they’re expected to introduce early next year.
On Wednesday financial-aid directors at the Big Ten universities wrote to the heads of the House and Senate education committees, asking them to extend the program until Congress reauthorizes the Higher Education Act. Aid administrators in the Big Ten disbursed $67.6-million in Perkins loans to more than 39,000 students in the 2012-13 award year.
“This is the mother-ship program,” said Susan Fischer, director of financial aid at the University of Wisconsin at Madison. “This is Sputnik.”
Under Attack
In fact, the Perkins loan program does have roots in Sputnik. It was created by Congress in 1958, a year after the Soviets launched the first orbiting satellite, amid concern that American students were falling behind their Russian counterparts.
In 1959 the federal government contributed $31-million to the program, then called the National Defense Student Loan Program. Nearly 25,000 students received loans that year, averaging $383 apiece.
By the mid-1970s the government was spending 10 times as much, and the number of participating colleges had topped 3,000. In 1979 close to a million students received the loans.
The Perkins program, renamed for U.S. Rep. Carl D. Perkins, a Kentucky Democrat, provides low-interest loans to financially needy students through a risk-sharing agreement between the federal government and colleges. For every dollar that Congress provides to the program, colleges are required to put in 33 cents of their own money.
When borrowers repay their loans, the money goes into a “revolving fund” that colleges use to make new ones. At Madison every dollar that the government and the college invested at the start of the program has been “revolved” seven times, with repaid interest expanding the funding pool.
“What’s not to like?” Ms. Fischer wondered. “It’s an astounding return on investment.”
In theory, the structure of the program should appeal to Republicans, who have called for more institutional “skin in the game” in student aid. Under the Perkins program, colleges invest their own money, and thus bear some of the risk of default.
Even so, the program has long been a target of lawmakers and presidents in both parties, many of whom see it as overly complicated and duplicative. In the late 1990s, President Bill Clinton proposed ending Perkins and shifting the money into work-study and supplemental grants. But he quickly abandoned the plan in the face of intense lobbying by colleges.
President George W. Bush tried again a few years later and also failed. But he did persuade Congress to stop adding new money to the program in 2005, arguing that it was appropriately sized at a billion dollars. Four years later, lawmakers stopped setting aside money to reimburse colleges for loan cancellations under Perkins’s public-service forgiveness program.
Over time, the lack of federal reimbursements has caused the pool of available aid to shrink. In 2011-12, some 1,500 colleges lent a little less than $950-million to 485,000 students, with an average award of $1,957.
In an email a senior Republican aide said lawmakers would “review whether this program continues to be needed.” The aide, who requested anonymity because he wasn’t authorized to speak for his boss, suggested that colleges “spend more time getting their own fiscal house in order and work to restrain out-of-control tuition increases instead of finding ways for taxpayers to further subsidize them.”
Overshadowed
The Perkins program doesn’t get as much attention as the much larger Stafford program, which is available to many more students and has higher loan limits.
But supporters say it fills an important niche, covering the funding gap for borrowers and families who can’t get private loans because of their poor credit, or who make too much to receive Pell Grants but still have unmet need.
“Perkins is key for a lot of students who need a few extra thousand dollars to make education possible,” said Harrison Wadsworth, executive director of the Coalition of Higher Education Assistance Organizations, which represents Perkins servicers and some participating colleges.
The coalition opposes President Obama’s plan to expand and remake the Perkins program, arguing that such a step is tantamount to killing the program. Under the president’s proposal, Perkins loans would no longer be subsidized, and the responsibility for collecting on them would shift from colleges to the Education Department. A portion of the new money would be used as a carrot to encourage colleges to keep costs down.
“It’s really creating a brand-new program from scratch, not converting it to something else,” Mr. Wadsworth argued.
Still, most advocates say they’re willing to accept some changes as the price of preserving the aid. And some see Mr. Obama’s proposal as the best chance for doing so.
But the president’s plan is not getting much traction in Congress, where lawmakers have generally ignored the perennial proposal to remake Perkins. House Democrats included a modified version of the plan in their 2009 bill to end bank-based lending, but the proposal didn’t make it into the final measure, and the idea has languished since then.
With several months remaining until the Perkins program’s expiration date, lawmakers aren’t likely to make any decisions about its future anytime soon.
In the meantime, student-aid administrators wonder if they can package the loans for the second half of the next academic year. If the program did end on September 30, 2015, would they be allowed to make loans for the second semester? And how would the department wind Perkins down?
“Everyone is talking about October 1, but we’re making awards soon,” said Verna Hazen, financial-aid director at the Rochester Institute of Technology. “We’re looking for guidance on the second disbursement.”
An Education Department spokeswoman said the agency would release guidance on the Perkins program “within the next several weeks.” Ultimately, the fate of Perkins could rest with the Congressional Budget Office, which is responsible for “scoring” the program’s cost. If budgeters determine that there is a cost to continuing the program—because the government wouldn’t get its investment back from colleges—then lawmakers will have to come up with a way to cover the revenue loss. That would be hard to do in the current budget climate, advocates say.
“We’re going to have an uphill battle,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “If there’s a cost to continuing it, and Congress is faced with that decision point, what will they do?”
