Perkins Borrowers: Up a Creek Without A Paddle?

The days are numbered for the federal Perkins loan program. Last year, a little over a billion dollars were distributed to students at about 1,400 colleges and universities through the program, primarily at public and nonprofit four-year schools. However, the program has been widely criticized for adding unnecessary complexity to an already-maddening student loan system. Additionally, since Perkins loans are much less likely to reach the students at low-cost community colleges that serve the neediest students, the program does not create a level playing field for students at different types of schools. But with the authority for universities to make new loans expiring at the end of September, what will happen to the students currently using Perkins loans to pay their way through school?

The programs most powerful opponent, Chairman of the Senate HELP Committee Lamar Alexander, has argued that Perkins adds needless complexity by requiring students to navigate multiple loan options. But it’s elimination could mean a smaller pool of money for those students, many of whom are already exhausting their other federal loan options. According to Department of Education data from the 2011-12 school year, the share of students taking on the maximum in federal Stafford loans is substantially higher for Perkins borrowers, across all school types (Figure 1). 

Depending on the sector in which a borrower is enrolled, between half and two-thirds of Perkins recipients are already maxing out their Stafford loan eligibility. It is possible that some students are taking the full amount offered because of a lack of awareness of their ability to reduce the amount they borrow, but it is also likely that some students are doing so because they need the financial support to cover their costs (the existing financial aid system has also left over 11 percent of students at four-year schools food insecure). In the absence of the Perkins programs, many of these students will likely need to take on other types of debt if they hope to stay in school: Parent PLUS loans, and private loans could help fill the gap, but both of these come with higher interest rates than Perkins loans and lack many of the federal protections in place for student loans. 

In other ways, Perkins borrowers are also not that much different from other students. Only about 26.5% of students reported turning down additional federal loans in 2011-12, and Perkins borrowers did not do so substantially more or less than other students. In general, the practice was more common at public four-year schools, and less prevalent at private nonprofits and for-profits, which tend to be more expensive (Figure 2).

Notably, a statistically significant difference in the rates of turning down federal loans occurs between Perkins and non-Perkins students only among public four-year students, and nowhere else. Additionally, we see that those taking on Perkins loans were less likely to turn down additional aid. This suggests that Perkins loans are not an alternative to Stafford loans, but rather a supplemental source of funding for students with high levels of unmet need. In fact, that’s exactly how the program is intended to function: institutions have some authority in how to distribute their Perkins dollars, but recipients must show exceptional financial need.

Some students also reported enrolling in fewer classes or working additional hours as a way to avoid taking on additional debt. Perkins loans, in general, did not impact students rate of reporting either behavior when the type of school attended was taken into account. That is, Perkins borrowers overall were much less likely to say they enrolled in fewer classes to avoid debt than their peers without Perkins loans (Figure 3). However, within sector groupings, this effect disappears, likely owing to the higher availability of Perkins loans to students in non-profit four-year institutions, who are much more likely than students at community colleges and for-profit to enroll in school full time.  

Perkins borrowers are also less likely to say that they worked additional hours in order to avoid federal loans, but the differences were not statistically significant for any group (Figure 4). The overall numbers are likely a greater cause for concern: over half of all students indicated working additional hours to avoid federal borrowing. These additional work hours could become detrimental to students academic success if the hours worked become excessive. However, Perkins loans are not likely a solution here: since students seeking to avoid additional loans could be considered loan-averse, the availability of additional loans may not be an appealing prospect.

However, since a high proportion of Perkins borrowers are taking on the maximum Stafford loan, we should be very concerned that these students will now have a hole to fill in their aid packages. Since non-Perkins students also report high rates of borrowing the maximum Stafford loan, these issues of affordability appear to extend well beyond the current set of Perkins borrowers. Cutting the Perkins program may be a necessary step toward improving equity and simplicity in the federal student loan program, but the savings from these cuts should be re-invested to support students in other ways. Eliminating Perkins without finding new ways to support students in the program’s absence, including helping schools and students navigate the transition period, leaves current students and financial aid officers scrambling to fill holes in aid packages. And as we can see, there’s plenty of need to go around.