It looks like the Perkins loan still has some life left in it after all.
Right before the holidays, President Barack Obama signed bipartisan-backed legislation to extend the recently expired Perkins loan program. Congress had initially allowed the program to lapse a few months ago, but the recent deal keeps Perkins breathing — at least for now.
The new legislation is a mixed bag of good and bad news for student loan consumers.
On the plus side, the Federal Perkins Loan Program Extension Act of 2015 extends the program for many students for two more years. Under the new deal, undergraduate students who demonstrate need-based eligibility for the Perkins loan can continue to receive these loans through September 2017.
But the bad news is after that point, no new Perkins loans will be issued — not even for existing Perkins borrowers.
Discover the eight [student loan repayment myths experts want to see disappear.]
As of Oct. 1, 2015, schools have been prohibited from making new Perkins loans to students who had not received a Perkins loan prior to Oct. 1, 2014. However, existing Perkins borrowers were grandfathered in and could continue receiving new funds until they completed the program at their existing school, even though the program had technically expired.
The new plan eliminates this grandfathering provision, and it also places further eligibility restrictions on graduate students in particular. These students will only be eligible to receive new Perkins loans through September 2016 if they already have an existing Perkins loan.
Additionally, the legislation requires all Perkins borrowers to exhaust their eligibility for federal Stafford loans (subsidized and unsubsidized) before receiving a Perkins loan. Existing Perkins borrowers won’t have to meet this requirement.
That could mean higher borrowing costs for students. The Stafford loan currently has a 4.29 interest rate, lower than the Perkins’ fixed interest rate of 5 percent. However, the Stafford rate is reset each July 1 and can rise as high as 8.25 percent. Also, the government pays all interest on the Perkins loan while the borrower is in school, in the grace period or during periods of deferment. Borrowers of the unsubsidized Stafford, on the other hand, are responsible for the interest from the time of disbursement.
Learn [why you may not want to consolidate if you have a Perkins loan.]
With the Perkins Extension Act, policymakers hope to wind down the Perkins program in an orderly fashion. Congress is currently working on reauthorization of the Higher Education Act, and early indications are that one of its goals is to streamline and simplify the student aid programs.
The desire for simplification was why the Senate initially allowed Perkins to lapse, but the outcry from the higher education community on behalf of needy borrowers caused them to reconsider.
One other bit of good news: Perkins borrowers, both existing and through 2017, won’t have to worry about any changes to repayment terms. They’ll continue to be eligible for more forgiving repayment options than any other federal education loan.
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Explore What Perkins Loan Program Extension Means for Students originally appeared on usnews.com
