PERKINS LOAN CHANGES

The president’s budget request for fiscal year 2010 would make changes to the Perkins Loan program. Perkins loans are provided to college students with greater financial need. Loan capital is provided by the federal government and institutions of higher education manage the funds as a revolving pool of loans. The program currently provides $1.1 billion in low-interest loans each year. Under the president’s budget request, available loan funds each year would increase to $5.8 billion. Additionally, the federal government would make the loans directly instead of funding loan pools at individual schools. Schools, however, would still play a role in determining which students receive loans.

The proposal would charge students interest while they attend school, unlike the current program. It would also change the cancellation benefits available to borrowers so that they are the same as those in the Direct Loan program.

ELIMINATE

Under mandatory programs (those not subject to annual appropriations funding), the administration proposes eliminating the Federal Family Education Loan (FFEL) Program. The program subsidizes private lenders who make loans to students pursuing a higher education. All student loans would be made instead through the Direct Loan program, which provides nearly identical loan terms for borrowers, but loans are financed directly by the federal government, not private lenders.

The president’s proposal would also terminate subsidies provided to federal student loan guaranty agencies under the FFEL Program. Guaranty agencies are state or private non-profit agencies that provide some administrative and service functions for the federal government under the FFEL Program. According to the administration, elimination of the FFEL Program will result in between $20.0 billion and $21.0 billion in savings over the next five fiscal years.