Federal Perkins Loans are federal loans that are part of the federal campus-based financial aid program. Campus-based means that the funds are handled at the school, which originates, monitors and collects the student loan in compliance with federal regulations. For many years, the federal government awarded funds to the schools which had to be matched by a contribution from the school itself. This was done to establish a revolving student loan fund at the school.
For the last several years, the federal government has made no contributions to the Federal Perkins Loan funds, so the school can lend out only the amount it expects to collect from former students repaying their loans back to the school. The federal government sets annual and cumulative borrowing limits on Perkins Loans, but the school must determine the amount of loan to individual students or groups of students based upon need as well as the number of students expected to meet the need criteria established by the school. Very few schools have the ability to award the maximum amount of Perkins loans to students.
Perkins Loans still require a master promissory note similar to those used for the Direct Stafford and Direct Graduate PLUS Loan programs, but there is no origination fee, no credit check and just a 5% interest rate. The Federal Perkins Loan program accrues no interest while the student attends school at least half time or during the first nine months after graduating, withdrawing or beginning less than half time attendance. Unlike the Subsidized Federal Direct Stafford Loans, which accrue interest which is paid by the government during the time the student is in school, in the grace period, or in deferment, the Perkins Loan does not accrue interest during these periods. However, if a student pays off the Perkins Loan with a consolidation loan, the student loses this interest benefit. The Perkins loan also has other benefits, including loan forgiveness for teachers, early childhood educators, nurses, law enforcement personnel (including prosecutors), public defenders, etc., which are lost if the student consolidates the Perkins loan. Thus it is important to know the details of your loan programs before accepting any loans.
More information on the Perkins and other federal loans is available from the U.S Department of education at www.studentaid.ed.gov/repayingpub and www.studentaid.ed.gov/repaying.