Perkins loans were one of the cheapest options for funding education. The program targeted low-income students and required only a 5% interest rate. With its low-cost terms and nine-month grace period, Perkins loans aided thousands of students in need of financial support. Besides those benefits, this loan provides other advantages such as Perkins loan forgiveness opportunities. Borrowers working in public service or dealing with exceptional cases, such as bankruptcy, can partially or eliminate their debt. This guide will discuss all tiny details of the Perkins loan forgiveness programs, including cancellation and discharge.
Due to budgetary issues and the decentralized nature of federal loans, the Perkins loans stopped applications in 2017. Unfortunately, there emerged no perfect substitute for the Perkins loans with the same favorable conditions. However, we will also discuss the best alternatives, which can be considered if a student deals with financial limitations.
People who rely on tight budgets to live usually lack the additional funds for a decent education. When it comes to paying the education costs, they mostly look for a loan. The Federal Perkins loans were one of those loan programs that aided people in accessing higher education. This student loan offered a 5% fixed interest rate. Hence, it was one of the cheapest sources of funds for needy students. Besides, there was a nine-month grace period. The grace period allows debtors to have some time before starting making payments after leaving school. Whether students graduated, left the school willingly, or dropped below the half-time status, they were required to make payments nine months later. However, this period was still useful because people might find a job without worrying about their loans’ monthly payments.
What made Perkins loans unique was that its grace period was longer than other available loans. Another distinctive characteristic of this loan was its funding scheme. While the government provided the loan, the schools could also contribute to the amount. Around 1700 schools made loans to their students and credited payments twice a year during the academic year. Plus, making payments was easier because borrowers could directly make the payment to the school or the institution’s servicer. In other cases, they deal with numerous federal loan servicers that act as an intermediary between the debtor and the U.S Department of Education.
Eligibility for Perkins Loans
Perkins loans program was need-based. Both undergraduate and graduate students could be eligible if they could prove an extreme financial difficulty. Undergraduate students received $5500 per year, but there was a limit of $27500. Meanwhile, graduate borrowers got $8000 yearly, and they had a $60000 limit.
What Happened to Perkins Loans?
One can wonder that if this student aid was that fantastic why it ended. Congress decided not to renew the program in 2017. Therefore, the program officially ended at the end of September, 2017. Yet, the disbursement of the loans continued till June, 2018.
Previously, there were attempts to end the program. In 2015, the government started the process of closing this student aid. One of the main reasons for the program closure was budget limitations. Some congressmen still tried to find a better solution to help the students who need the aid the most. They thought that this low-cost funding option was an excellent opportunity for poor students. Others, who opposed the continuation of the program, justified their ideas by claiming that the closure will facilitate the simplification and centralization of federal loans. As mentioned before, Perkins loans allowed schools to lend funds directly and contribute to the program’s funding together with the government. The Senate blocked the attempts of people who opposed the closure, and though the program was extended, it ended in 2017.
If You Have Perkins Loans…
People with Perkins loans will continue to make payments for ten years after they start the repayments. The loan has a fixed 5% interest rate, which means its interest rate will not increase even if the program ends. Besides, some Perkins loan holders can enjoy discharge if there is a situation like death, bankruptcy, school closure, disability, etc. Perkins loan forgiveness is also available to the borrowers if they work as teachers or public servicers. This guide will focus more on what is a Perkins loan forgiveness program, its eligibility criteria, and other available options for the borrowers.
What Did Replace This Loan?
Before we dive into the Perkins loan forgiveness and discharge, we need to discuss what substituted this option. As mentioned before, with its long grace period and low-interest rates, the loan was one of the best options out there for students with financial difficulties. However, when it ended, no other program could be as good as the Perkins loans. There are still need-based loans such as Pell Grants, college aid awards, private and federal loans, or Federal Supplemental Educational Opportunity Grants(FSEOG).
As students who rely on Perkins loans are left with no replacing option, they need to find an alternative option. The first step of this process is filing the Free Application for Federal Student Aid(FAFSA). By filling it, students can be qualified for other student aid programs and direct loans. In short, FAFSA facilitates the Department of Education to check if you are qualifying for need-based programs, like grants or scholarships.
Alternatives to Perkins Loans
The most significant advantage of Pell Grants is that students do not need to repay it. It is a grant for undergraduates, and its amount can be as high as $6195 yearly. The numbers can change each year based on the updated information about the tax and family incomes. While this student aid sounds excellent, it does not benefit graduate students as Perkins loans did.
Another grant for students in need of financial aid is FSEOG. Similar to Pell Grants, it also benefits undergraduate students. People can receive up to $4000 per year, depending on their financial situation.
Students can also apply for scholarships or grants awarded by nonprofit organizations. Many of these institutions help people with financial difficulties. Hence, if applicants were eligible for Perkins loans, there is a high chance that they will qualify for such scholarships.
Other federal loans could be an alternative to Perkins loans. However, their interest rates are not as low as Perkins. On the positive side, it is much easier to be eligible. There exist many programs with different conditions, and you can find one that fits your specifications. Besides, direct loans provide income-based payment plans. Such plans make repayments more manageable after students start paying back their debts. Like Perkins loans, if you later qualify for the forgiveness, you can eliminate a portion of the loan or get rid of it completely. For Perkins loans holders, there also exist Perkins loan forgiveness programs to reduce their obligations. In short, students need to find the best available option coming after the Perkins loans. Researching all the possibilities can be helpful, but you can also contact the Student loan Resolved to select the best student aid program.
Perkins Loan Forgiveness Programs
The cancellation of Perkins loans was terrible news for students with financial challenges. However, the existence of Perkins loan forgiveness programs made the situation a little better. Perkins loan cancellation plan benefits borrowers depending on their employment type, volunteer service, and work duration. Meanwhile, discharge occurs in unexpected conditions, such as bankruptcy or death.
Get Expert Help
Before we discuss Perkins loan forgiveness programs’ details, you need to consider that those opportunities can be complex to understand. Student loan forgiveness programs have extensive eligibility requirements and application instructions. Each year, thousands of people fail to get forgiveness because they make technical mistakes in applying or misinterpreting the eligibility conditions. Hence, debtors should get expert help to consult each step in the debt elimination process.
Besides, specialists in this field can help borrowers to decide which program to apply. If you have Perkins loans, you can be eligible for multiple forgiveness programs. Therefore, choosing the right one that fits your specifications and brings the most benefit demands previous experience in the field, in-depth knowledge on loans, and analytical skills to evaluate the risks and advantages. If you need a guide in the application, or have questions about the programs presented here, you can contact us anytime.
Perkins Loans Cancellation
This student aid program can help borrowers to get up to 100% reduction for their Perkins loans. According to the eligibility requirements, debtors who serve full time in a public or nonprofit elementary and secondary schools can qualify for the cancellation. However, teachers in postsecondary schools are not eligible to benefit from this program.
Besides, the specifications of teachers also matter. Perkins loans program aimed to assist people with low incomes. Similarly, student loan cancellation considers the welfare of poor people. If a borrower teaches in school, which deals with children of low-income families, then the debtor is eligible for the cancellation. Another possible case happens when a borrower teaches children of all ages with disabilities. Alternatively, if a borrower serves in a state with a shortage of teachers in a particular subject, he/she can apply for the cancellation. What should be kept in mind is that the duties that qualify the borrower should be noted in the job description. Moreover, the teacher should have an employment contract directly with the school.
Eligibility in Details
The condition of being a teacher sounds simple, but there exist many details to consider. Borrowers do not need to have any license or certificate to apply to this Perkins loan forgiveness program. However, the school- whether elementary or secondary- should have a full-time contract with the borrower. A debtor is only eligible is he/she provides direct educational service to the students. This requirement has both positive and negative sides.
On the one hand, professions that do not teach but deal with students, such as a librarian or a guidance counselor, can still be eligible because they are educational service parts. On the other hand, researchers, supervisors, or curriculum specialists cannot apply to this program even though they are working full time in a school. As they do not provide direct educational service, they are not qualified for this Perkins loan forgiveness program.
Duration of Service
Perkins loans cancellation program reduces some portion of the student debt per year. Hence, a teacher needs to complete a full academic year working full time to enjoy the benefit. Luckily, there is no exact requirement for a teacher’s daily mandatory work hours to be considered full-time. The work hours depend on employing school. As long as a teacher has a full-time contract, there will not emerge problems to benefit from this forgiveness program.
Besides, debtors can work in two different schools for a year. The primary condition is that their service should be consecutive without the summer holidays. Another case happens when a teacher simultaneously works in two or more schools as a part-time professional. In this case, the debtor is still eligible for the cancellation because the sum of the total service qualifies for the full-time requirement. However, borrowers should convince one of their employers, schools, to certify that they are working full-time in an academic year.
While providing the service required for Perkins loan cancellation, debtors receive deferment status. During this period, they do not need to pay a monthly interest rate. Deferment status postpones the payments on the loan. Yet, it is advisable to contact Perkins’ servicer to get more information about this condition.
Private Schools, Preschool and Educational Service Agency Teachers
Borrowers of Perkins loans working in private schools can be eligible for the cancellation under a few rules. First, the school should be a nonprofit organization that has this status with the Internal Revenue Service. Second, schools should still teach elementary or secondary education. In this case, a teacher will be eligible for Perkins loan forgiveness.
The situation is much more challenging for Preschool or Pre Kindergarten teachers. Even if the school serves low-income families’ children, teachers might not be eligible. The only case which qualifies these teachers happens if the school is a part of an elementary education program, and the state recognizes it.
If borrowers serve in educational service agencies, they can enjoy this Perkins loan forgiveness program if their service covers starting on or after Aug. 14, 2008.
Low-income School Teachers
Previously we mentioned that a borrower needs to work in schools that serve low-income families. Yet, it can be hard to define which schools can qualify for this requirement. One of the easiest ways to determine eligibility is by checking the list of the Department of Education. The ED publishes the list of low-income schools every year. Borrowers in need of a cancellation program can check their database to identify if their employment is considered eligible. If they have any questions, they need to contact the state education agency. Keep in mind that the Department of Education does not answer the Perkins loan forgiveness opportunity questions.
Besides, if a borrower teaches in schools operating in Indian reservations by the Indian tribal groups, then he/she does not need to check the eligibility. These schools qualify for the program. Plus, teachers in schools that the Bureau of Indian Education operates can apply to the cancellation with no barriers for workplace conditions.
How the ED Determines Low-Income Schools?
There exist two conditions that a school should meet to be on the Department of Education list. First, it should be located in a district that is qualified for Title I funds. This qualification should be for the year when a borrower applies for the cancellation. Second, 30% of children the school enrolls should be in a Title I program.
Teachers who receive cancellation of some debt can continue benefiting from the program even if the school loses its low-income status in the later years. Some institutions allow the teachers to get cancellation if the borrowers can prove that they were eligible for the program in the prior year. While they can still reduce their debt, there is no guarantee that the successful applicants will get refunds for their payments in the previous period.
Special Education Providers
If applicants provide physical, occupational, recreational therapy, psychological services, language pathology, or audiology, they will qualify for this Perkins loan forgiveness program. However, they need to have a license or certificate from the state agency of their location. Plus, debtors need to ensure that their service is a necessary part of the curriculum for disabled children. While applying, teachers should find an official in their schools to certify that the applicants are full-time service providers to disabled children of all ages.
Working in Subject Shortage Area
The cancellation also benefits people who work in shortage areas. There can be some subjects that lack teachers in certain areas. The Department of Education finds these positions in elementary and secondary schools and creates a list every year. If debtors work in these positions that have a teacher shortage, they can qualify for the cancellation. Some subjects are automatically eligible, even if they are not on the list. These subjects are science, math, foreign language, and bilingual education. Teachers in these subjects can apply for the cancellation with peace in mind, considering that their majority service is these subjects. Debtors teaching other subjects can search for the Teacher Shortage Areas Listing online to identify their eligibility.
If borrowers meet the eligibility requirements, then they can enjoy partial or full cancellation of their debt. As mentioned before, a debtor will receive some Perkins loan forgiveness for each year of full-time service. For the first and second years, this amount is a 15% reduction, which increases to 20% in the next two years. Finally, in the fifth year, a debtor receives a 30% cancellation. The cancellation percentage also includes the interest payment that accumulates during the year.
What Other Employment Types Qualifies for Cancellation?
Teachers are not the only public service providers who can take advantage of this Perkins loan forgiveness program. Firefighters, military service personnel, nurses, law enforcement officers, volunteer service providers, etc. can qualify for the program. However, their eligibility depends on the type of loan and its date. All employment categories can get up to 100% cancellation, except for volunteers who can receive only up to 70% reduction. Moreover, the period for full elimination varies depending on the job type. Teachers, attorneys, librarians, firefighters, or nurses need to provide five years of qualifying service to get full cancellation. In contrast, staff members in prekindergarten or Head Start program cancellation need to work for seven years to eliminate all their debts.
Perkins Loans Discharge
A borrower is not obliged to repay the debt due to exceptional cases, such as disability or death. This advantage is due to the Perkins loan discharge program. If debtors become eligible for the loan discharge, they do not need to pay back a penny. However, there should exist special conditions. In case of bankruptcy, death, service-related or total/partial disability, and closing school, borrowers’ debts will be written off. Also, if the debtor’s spouse is the victim of the 9/11 events, then the discharge program eliminates the debt. The eligibility criteria for each discharge program varies.
Closed School Discharge
This type of Perkins loan forgiveness program aims to help students who cannot graduate because their schools are closed. Borrowers can get 100% elimination of their Perkins loans, if their school had closed before completing their degrees. More specifically, if debtors are enrolled or on leave at the time of school closure, they can become eligible. In case of withdrawal, the school must close during the 120 days.
A borrower meeting these conditions should contact the loan servicer to start the discharge process. However, they need to continue repaying the loan until they get the discharge. Once discharged, debtors will enjoy extreme benefits. First, there exists no obligation to pay back the loan. Second, the student receives a refund for the prior payments. Third, the credit history related to this loan is erased from the report of the debtor. Besides, borrowers can automatically be eligible for the discharge. If, after the closure, the debtor does not apply for the new school during the three years, then the debt will be erased automatically.
Debtors should keep in mind that if they transfer the credit hours from closing school to a new one to complete the degree, they will not qualify for the discharge program.
Discharge for Disability
Total or permanent disability can also be an eligible condition for Perkins loan forgiveness. Debtors need to fill the TPD application and send it to Nelnet, together with the necessary documentation for proving disability. Nelnet is the servicer which aids the Department of Education in TPD discharge programs.
Three types of documents can be qualifying proofs for disability. The first document is from the U.S Department of Veterans Affairs. Such documentation is useful when a borrower has a service-related disability. It shows that the applicant has a total disability because of the service, limiting his/her employment rating. Borrowers can also get a document from the Social Security Administration. In this case, they need to submit a copy of their notice of awards or Benefit Planning Query. The ease of this process is that the Department of Education works closely with the VA and the SSA. They regularly collect information about debtors with disabilities.
If you are eligible, they contact you for this Perkins loan forgiveness opportunity. In such a situation, all you need to do is fill the application. There will be no need to get a document for disability. Lastly, Physician certification can be submitted, which claims that the debtor cannot be employed because of his/her disability- whether mental or physical. Such a disability can result in death or lasted and will last for 60 months. The doctor that provides this document should be a licensed doctor of osteopathy or medicine.
Sometimes disabled people cannot deal with all the disability discharge requirements and need help from a third party. In this case, they can designate an individual or an organization as their representatives who will manage the application on their behalf. However, the debtor needs to fill the Representative Designation form.
What happens after approval?
The process after the approval for discharge also depends on the document type. In case of a document from Veteran affairs, Nelnet notifies the debtor about the discharge. Besides, it gives loan holders instructions to refund the payments made on or after the disability determination. In the other two cases, the SSA document and Physician’s certificate, will again inform the applicant and the loan holder about approval and refund. However, Nelnet will notify the debtor that they will monitor the applicant for three years after the disability. During this time, if the conditions change, they can again restore the loan payments.
When the student loan repayment causes undue hardship for the debtor, then it can be discharged. Undue hardship indicates that repayment will leave the borrower with little money, which is not enough to maintain living standards. Hardship should also continue for a long time. Besides, the applicant needs to prove that he/she did everything to repay the debt, which shows good faith. In all these conditions, filing for Chapter 7 and 13 bankruptcy is possible. Even if you are eligible for Chapter 13 bankruptcy, it does not discharge the loan. Instead, it creates a new repayment plan affordable for the debtor. In Chapter 7, all assets are liquidated to meet the obligations.
Bankruptcy is not usually recommended. First, it is hard to prove undue hardship. If you cannot prove it, your debt will not be discharged. You will be left with enormous expenses for court cases and attorneys, together with the debt. Second, even if bankruptcy is successfully declared, its negative impact will stay on the credit history for an extended period, up to 10 years. During this period, the debtor will not be able to get insurance or rent accommodation easily. Therefore, unless there is no other solution but student loan bankruptcy, it is not worth following.
Discharge for Death
Another type of Perkins loan forgiveness is death discharge. If the debtor dies, the loan will be discharged. However, a family member or another representative needs to provide proof of death to the loan servicer. Such proof includes a death certificate in its original, copy, or photocopied version.
Application to both Perkins loan forgiveness programs- cancellation and discharge- is straightforward. The debtors need to contact their schools, which made the loan or its servicer. They will provide the necessary forms to fill and instruct the borrowers based on their eligible programs.
Which Program to Apply?
We have discussed options for Perkins loan forgiveness- mainly two types, cancellation and discharge. Cancellation happens in return for dedicated service. People working in public services, such as teachers, firefighters, nurses, and attorneys, can enjoy this program partially or entirely eliminate their debts. It takes around five years of service to receive a 100% reduction in outstanding debt.
In contrast, the discharge does not require a mandatory service. Debtors only qualify for the discharge if they deal with special cases, including bankruptcy, death, school closure, or disability. In those cases, mainly, the whole debt is discharged, except for bankruptcy. Debtors who declare bankruptcy can get rid of the debt if they apply to the Chapter 7 bankruptcy. Yet, such discharge is generally not advisable.
Before applying to any program, debtors need to consider its eligibility criteria and benefits. They need to choose the one that fits their criteria and provides the most significant advantage. However, assessment and selection are not easy because the rules for eligibility and the benefits of Perkins loan forgiveness involve financial or legal terms, which are difficult to understand. Hence, it is better to contact an expert to get guidance in this process and maximize the chance of debt elimination.