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AwardYear: 1996-97 EnterChapterNo: 6 EnterChapterTitle: Federal Perkins Loan Program SectionNumber: SectionTitle: Introduction PageNumbers: 1-5 Loans under the Federal Perkins Loan Program include Federal Perkins Loans, National Direct Student Loans (NDSLs), and National Defense Loans. (No new Defense Loans were made after July 1, 1972, but a few are still in repayment.) Federal 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 Loan. [[The illustration on page 6-1 is currently unavailable for viewing. Please reference your paper handbook for additional information.]] RECENT CHANGES TO THE FEDERAL PERKINS LOAN PROGRAM [[NEW]] The following changes affect the Federal Perkins Loan Program: - The amount of time a school must retain federal student aid records has been reduced from five years to three years. Generally, a school must keep records pertaining to a specific award year for three years after submitting the FISAP for that award year. There are two exceptions: one for loan records and one for records of expenditures questioned in audits or program reviews. Repayment records for Perkins Loans, NDSLs, and Defense Loans (including cancellation and deferment requests) must be kept for at least three years from the date the loan is assigned to ED, canceled, or repaid. Records questioned in an audit or program review must be kept until the questions are resolved. - Prior to the 1996-97 award year, a school was allowed to keep the required campus-based program records on microforms or in computer format. Beginning with 1996-97, a school may keep the records in one of those formats or on optical disk or other comparable imaging technology. Also beginning with the 1996-97 award year, if a school keeps its records in computer format, the school must maintain the source documents supporting the computer input in hard copy, microforms, optical disk, or other comparable imaging technology. - The Perkins Loan promissory note signature requirements were changed for the 1996-97 award year and subsequent award years. A Perkins Loan or NDSL borrower no longer is required to sign for each disbursement. Instead, he or she can sign just once each award year for all of the expected disbursements in that award year. - ED has also developed new, shorter Perkins Loan/NDSL promissory notes for the 1996-97 award year and subsequent award years. The new notes incorporate the signature requirement change. An example of these redesigned notes will be sent to schools as part of a "Dear Colleague" letter in the summer of 1996. [[34CFR 674.2]] - The definition of "making a loan" has been changed. A Perkins Loan or NDSL is now 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. Previously, a loan was considered to be made when the borrower signed for an advance of loan funds and those funds were disbursed. - Section 674.31 of the regulations was amended to clarify that a school must use the Secretary’s promissory notes and that the school may make only nonsubstantive changes to these notes. [[34CFR 674.33]] - A school may now combine the last scheduled Perkins Loan or NDSL payment with the next-to-last payment if the last payment is $25 or less. (See Section 3 of this chapter for more information.) [[34CFR 674.47]] - A school may cease collection activity on certain defaulted accounts and may write off accounts of less than $5. (See Section 7 of this chapter for more information.) PARTICIPATION AGREEMENT AND FEDERAL PERKINS LOAN FUND 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 Educaton (ED) a report containing information that will enable ED to determine the school’s cohort default rate (discussed in Section 8 of this chapter). The agreement for the Federal Perkins Loan Program also requires the school to establish and maintain a Federal 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. ALLOCATION OF FUNDS--FEDERAL CAPITAL CONTRIBUTION 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). ED allocates funds directly to schools. The allocation (FCC) for the Federal Perkins Loan Program is the amount of funding the school is authorized to receive from ED 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 Federal Perkins Loan Program regulations affect the school’s allocation: [[HEA 462(a)]] - ED bases the initial allocation of a school’s FCC on the amount allocated to the school for the 1985-86 award year. [[34CFR 674.4(b)]] - ED reallocates funds to schools by reallocating 80% 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 Federal Perkins Loan Program. [[34CFR 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 ELO are required to provide a dollar-for-dollar match with the FCC. - If a school returns more than 10% of its FCC, ED will reduce the school’s FCC for the second succeeding year by the dollar amount returned. [[34CFR 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 Federal Perkins Loan Program at the end of the award year. [[34CFR 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.") |