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The IFAP online library contains technical publications, regulations, and policy guidance on the administration of the Federal Student Aid programs.
AwardYear: 1998-1999
EnterChapterNo: 6
EnterChapterTitle: Federal Perkins Loan Program
SectionNumber:
SectionTitle: Introduction
PageNumbers: 1-4

hb6-1.pdf  PDF
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
Loan.

[[This file contains the graphic on page 6-1 in Portable
Document Format (PDF). It can be viewed with version 3.0 or greater
of the free Adobe Acrobat Reader software.]]

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 (PPA) 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.


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). 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 to back
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.")

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