EnterChapterTitle: Federal Perkins Loan Program
[[Initial grace period]]
A "grace period" is the period of time before the borrower must
begin or resume repaying a loan. An "initial grace period" is one that
immediately follows a period of enrollment and immediately
precedes the date repayment is required to begin for the first time.
[[Grace period depends on when loan was made]]
For borrowers who have been attending at least half time, initial
grace periods are either six or nine consecutive months after the
borrower drops below half-time study at an eligible institution or at a
comparable school outside the United States. The length of the initial
grace period varies because of legislative changes to the Federal
Perkins Loan Program. Repayment terms also vary, depending on
when a borrower took out a loan. If a borrower has several loans,
each is subject to the repayment terms in effect at the time the
particular loan was made.
If a borrower requests a deferment to begin during the initial grace
period, the borrower must waive (in writing) his or her rights to the
initial grace period. The request for a deferment alone is not
sufficient documentation for a school to waive the initial grace
period; the borrower must also acknowledge in writing that he or she
wants the waiver. (Deferments are discussed in Section 4,
"Forbearance and Deferments.")
[[Differences between Perkins Loan and NDSL grace periods]]
Repayment of a Perkins Loan begins NINE MONTHS after the date
that the borrower drops below half-time enrollment. Repayment of a
National Direct Student Loan (NDSL) made before October 1, 1980,
begins NINE MONTHS after the date that the borrower drops below
half-time enrollment. Repayment of an NDSL made on or after
October 1, 1980 begins SIX MONTHS after the date that the
borrower drops below at least half-time enrollment.
For a student attending at least half time, the initial grace period does
not end until he or she ceases to be enrolled at least half time for a
CONTINUOUS period of six or nine months, whichever is
applicable. A borrower who returns to school on at least a half-time
basis prior to completion of the initial grace period is entitled to a
full initial grace period, calculated as six or nine consecutive months,
from the date that he or she drops below half-time enrollment again.
Suppose, for example, that a borrower takes out a loan in the fall
quarter, drops out of school for the winter quarter, and resumes at
least half-time study for the spring quarter. The borrower would still
be entitled to a full initial grace period once he or she again leaves
school or drops below half-time status.
[[Post-deferment grace period]]
A "post-deferment grace period" is the period of six consecutive
months that immediately follows the end of a period of deferment
and precedes the date on which the borrower must resume repayment
on the loan. A Perkins Loan or NDSL made on or after July 1, 1993
has a six-month post-deferment grace period after each of the
authorized deferments, INCLUDING the economic hardship
deferment. A Perkins Loan or all NDSL made on or after October 1,
1980 but before July 1, 1993, has a six-month post-deferment grace
period after each of the deferments that apply to those loans
EXCEPT the hardship deferment. Neither the deferment nor the
grace period is counted as part of the 10-year repayment period.
It is important to note that grace periods are always day-specific; that
is, an initial grace period begins on the day immediately following
the day the borrower drops below half-time enrollment. Likewise, a
post-deferment grace period begins on the day immediately
following the day on which an authorized period of deferment ends.
[[The chart "Grace Periods" on page 6-24 is currently unavailable for
viewing. Please reference your paper document for additional information.]]
[[Differing grace periods for a borrower]]
If a borrower has received loans with different grace periods (and
different deferment provisions), the borrower must repay each loan
according to the terms of its promissory note; the borrower must pay
the minimum monthly payment amount that applies to each loan that
is not in a grace or deferment period.
GRACE PERIOD FOR BORROWER ATTENDING LESS THAN
[[Borrower with outstanding loan(s)--34 CFR 674.32]]
A borrower who is attending LESS THAN HALF TIME and who
has an outstanding Perkins Loan or NDSL must begin repayment on
an ADDITIONAL loan when the NEXT SCHEDULED
INSTALLMENT of the outstanding loan is due; there is no formal
grace period or in-school deferment on the new loan.
Suppose the borrower has been making monthly payments on
Perkins Loan #1. He takes out Perkins Loan #2 in September 1997.
His next payment on Loan #1 is due October 15. Therefore, he will
begin repaying Loan #2 at the same time. REMEMBER THAT THE
REPAYMENT STATUS OF THE OUTSTANDING LOAN
DETERMINES THE REPAYMENT STATUS OF THE SECOND
[[The graphic "Attending Less Than Half Time (with outstanding
loan)" on page 6-25 is currently unavailable for viewing. Please
reference your paper document for additional information.]]
[[Borrower with NO outstanding loans(s)--34 CFR 674.32]]
A borrower who is attending less than half time and who has no
outstanding Perkins Loan or NDSL must begin repaying a new loan
nine months from the date the loan is made OR nine months from the
date the borrower ceases to be enrolled as a regular student on at
least a half-time basis,*1* WHICHEVER IS EARLIER.
For example, a student starts school full time in September 1997. She
does not have an outstanding Perkins Loan or NDSL. In January
1998, she drops to one-quarter time. In March, she receives a Perkins
Loan. Nine months after the date the loan was made is December.
Nine months after the time she dropped below half-time enrollment
is October, and this nine-month period includes the date the loan was
made. Because October is earlier than December, she must begin
repayment in October.
[[The graphic "Attending Less Than Half Time (with no outstanding
loan)" on page 6-25 is currently unavailable for viewing. Please reference
your paper document for additional information.]]
[[Payments received during the academic year the loan was made]]
The borrower may prepay all or part of the loan at any time without
penalty. Amounts repaid DURING THE ACADEMIC YEAR THE
LOAN WAS MADE and BEFORE THE INITIAL GRACE PERIOD
HAS ENDED are not considered prepayments, but MUST BE USED
TO REDUCE THE ORIGINAL LOAN AMOUNT.
For example, suppose that a borrower receives a $1,000 Perkins
Loan and that his grandmother gives him $400 during the academic
year in which the loan is made. He receives the $400 before the
initial grace period ends. The borrower applies the money to his
Perkins Loan. The principal advanced to the borrower becomes
$600. This is not considered a prepayment because the original loan
amount has been reduced.
[[Prepaying after the initial grace period]]
If the borrower repays MORE THAN THE AMOUNT DUE for any
repayment period after the initial grace period has ended, the school
must use the excess to prepay principal, unless the borrower
designates the excess as an advance payment on the next regular
installment. If the borrower designates the excess as an advance
payment on the next installment and that advance payment exceeds
the amount of the next regularly scheduled installment, the school
must use the excess to prepay principal.
Before the student ceases to be enrolled at least half time, the school
must establish a repayment plan. The following provisions apply to
[[34 CFR 674.33]]
- If the last scheduled payment is $25 or less, the school may
combine it with the next-to-last payment.
- If the installment for all loans a school made to a borrower is not a
multiple of $5, the school may round that payment to the next
highest dollar amount that is a multiple of $5.
- Any payment a school receives must be applied in the following
1. collection costs,
2. late charges (or penalty charges),
3. accrued interest, and
[[Loans at more than one school]]
If a student receives loans from more than one school, the repayment
of each loan is made to (or default is attributed to) the school where
the student received the loan.
EXIT INTERVIEW AND REPAYMENT SCHEDULE
[[34 CFR 674.42]]
At the time a borrower leaves school, the school must conduct an
exit interview, during which a repayment schedule is provided to the
borrower. (See Section 6 of this chapter for more information.) The
U.S. Department of Education recommends a repayment schedule
that shows the principal and interest due on each installment and the
amount left to be paid. This type of schedule is not a requirement;
however, a repayment schedule should contain at least
[[Repayment schedule provisions]]
- the number of payments of principal or the number of equal
- the rate of interest,
- the date the first payment is due, and
- the frequency of payments.
DEVELOPING A REPAYMENT SCHEDULE
Interest on a loan must be computed at the rate of 5% per annum
simple interest on the unpaid principal balance. Interest accrues on a
Perkins Loan; it is not capitalized. Generally, interest is computed
from the date a payment is received rather than from the due date.
However, there are exceptions. For example, if a grace period
expires in the middle of a month, interest may be computed to the
beginning of the next month. Also, if a past-due payment is received
before the next regularly scheduled payment, the interest may be
computed according to the established payment schedule--no
adjustments are necessary. Past-due payments should be applied in
the same order as other payments, except that past-due payments
must be applied to the "oldest" past-due dollars first.
To calculate the amount due in each payment over a period of 10
years, including principal and interest, a school may use the
following table of constant multipliers. The table is based on the
assumption that the school will not exercise a minimum monthly
payment option. Using this table will ensure that each of the
borrower's payments sufficiently covers the interest accruing
between payments and that the loan will be repaid within the
specified amount of time.
[[The "10-year repayment table" on page 6-28 is currently
unavailable for viewing. Please reference your
paper document for additional information.]]
MINIMUM MONTHLY REPAYMENT AMOUNTS
A school may require a borrower to pay a minimum monthly
payment amount on an NDSL or on a Perkins Loan*2* if
- the promissory note includes a provision specifying a required
amount for the minimum payment and the monthly repayment of
principal and interest for a 10-year repayment period is less than
the minimum monthly payment or
- the borrower has received loans with different interest rates at the
same school and the total monthly payment would otherwise be
less that the minimum monthly payment.
If the promissory note includes the optional minimum monthly
payment provisions, the school may require the borrower to repay a
monthly amount of at least $40--or $30 in the case of certain loans.
A school may require a borrower to pay at least $40 per month (or
the equivalent in bimonthly or quarterly payments) if
- the monthly payment amount over a 10-year repayment period is
less than $40*3* for a loan made on or after October 1, 1992 to a
borrower who, at the time the loan was made, had no outstanding
loan balance on a Perkins Loan, NDSL, or National Defense
Student Loan (Defense Loan) AND
- the promissory note includes an optional $40 minimum monthly
A school may require a borrower to pay at least $30 per month (or
the equivalent in bimonthly or quarterly payments) if
- the monthly payment amount over a 10-year repayment period is
less than $30;*3*
- the loan is
- a Perkins Loan or NDSL made before October 1, 1992 or
- a Perkins Loan or NDSL made on or after October 1, 1992 to a
borrower who, at the time the loan was made, had an
outstanding loan balance on a Perkins Loan, NDSL, or Defense
- the promissory note includes an optional $30 minimum monthly
[[Proportional repayment under minimum $40 (or $30) option]]
The regulations require a school to divide the $40 (or $30) minimum
monthly payment among the loans in the same proportion that the
original loan principal of each loan bears to the total original
principal of all loans. Thus, if the total monthly payment amount for
more than one loan would otherwise be LESS THAN THE
APPLICABLE MINIMUM MONTHLY PAYMENT AMOUNT and
if a school exercises the minimum monthly payment option, the 10-
year table of constant multipliers cannot be used.
For example, suppose that a borrower with Perkins Loans of $1,500
and $1,000 (for a total debt of $2,500) has a promissory note that
includes the minimum monthly payment provision. Using the
constant multiplier table, the total monthly payment on the two loans
would be less than $40:
$1,500 X .0106065 = $15.91 per month on loan #1
$1,000 X .0106065 = $10.61 per month on loan #2
$26.52 total payment per month
Because the monthly payment on the two loans is less than $40, the
school may decide to exercise the minimum $40 payment option. If
the school does so, the monthly payment for each loan is calculated
by dividing the original principal of the loan by the total original
principal of all loans:
$1,500 / $2,500 = .600000 X $40 = $24 per month on loan #1
$1,000 / $2,500 = .400000 X $40 = $16 per month on loan #2
$2,500 $40 total payment per month
If the borrower has received loans with different grace periods and
deferments, the school must treat each note separately, and the
borrower must pay the minimum monthly payment that is applicable
to each loan that is not in a grace or deferment period.
[[Minimum monthly payment amount and loans from more than one
A borrower may have received Perkins Loans or NDSLs from more
than one school. If only ONE school exercises the $40 (or $30)
option when the total monthly payment amount is less than $40 (or
$30), that school receives the difference between $40 (or $30) and
the repayment owed to the second school.
Suppose that School A, which does not exercise the minimum
monthly payment option, receives $25 a month (the amount due
under its established 10-year repayment plan). School B, which
exercises the $40 option, would receive $15, the difference between
$40 and the amount of principal and interest paid to School A.
If a borrower has obtained Perkins Loans or NDSLs from more than
one school and EACH school exercises the minimum repayment
option, the $40 or $30 minimum repayment is divided among the
schools in proportion to the total amount of principal each has
If the total monthly repayment is LESS THAN $40 (OR $30), a
school may exercise the minimum repayment options applicable to
the respective loans. However, the maximum monthly repayment
may not exceed $40 (or $30).
If the borrower owes funds to more than one school, he or she should
contact any school that is exercising a minimum monthly payment
option and should provide the following information:
- the names of all other schools to which the borrower owes funds
under the Perkins Loan Program;
- the approximate amount of the indebtedness to each school; and
- any information that would help identify the loans--for example,
the loan number and the dates of loan advances.
The school the borrower contacts should then contact the other
schools and negotiate the amount each should receive from the
[[Minimum monthly payment amount and different interest rates
from the same school]]
If a borrower has loans with different interest rates from the same
school and if the borrower's total monthly repayment is AT LEAST
$40 (or $30) for all loans, the school may not exercise the minimum
monthly payment on any loan. If the total monthly repayment is
LESS THAN $40 (or $30), the school may exercise the $40 (or $30)
option, as long as the minimum monthly repayment provision was
included in the promissory note. If the school exercises this option,
the school must divide each monthly payment among all loans
proportionate to the amount of principal advanced under each loan.
[[Minimum repayment amount and hardship]]
A school may reduce a borrower's scheduled payments for up to one
year at a time if the borrower is paying the $40 (or $30) minimum
monthly payment amount and if the school determines that the
borrower is unable to make the scheduled payments due to hardship,
such as prolonged illness or unemployment.
ESTABLISHING REPAYMENT DATES
Depending on the repayment schedule (monthly, bimonthly, or
quarterly), the borrower's first payment is due one, two, or three
months from the date the grace period expires. Repayment schedules
must be adjusted (preferably on the first installment) so that the loan
will be repaid within the normal 10-year period or as prescribed in
the terms of the promissory note.
[[Standard dates for quarterly repayment]
For convenience, a school may establish standard repayment dates
for borrowers who are on quarterly repayment schedules. The first
repayment date may be the first day of the calendar quarter after the
grace period has expired. Four standard repayment dates would be
used: January 1, April 1, July 1, and October 1. (See the chart
[[The chart "Example Of Federal Perkins Loan Quarterly Billing" on
page 6-31 is currently unavailable for viewing. Please reference your
paper document for additional information.]]
[["rolling" quarterly repayment schedule]]
Another type of repayment schedule is a "rolling" quarterly
repayment schedule in which each borrower's first repayment is due
exactly three months after the date his or her grace period expires.
For example, if a borrower's first grace period expires on May 17,
the first installment payment is due August 18. Another borrower's
grace period expires May 18, so the first installment payment on that
loan is due August 19.
[[Effect of deferment on repayment dates]]
For collection and bookkeeping purposes, a fixed repayment date is
preferred. Otherwise, if the borrower is entitled to a deferment, the
school may have problems computing payments due. (See Section 4
of this chapter.) Once the payment date is established, the borrower
will owe principal and interest for any portion of a scheduled
installment period not covered by a deferment. However, if the
borrower is in deferment on a due date, any amounts owed are
carried over and paid on the first due date on which the borrower is
out of deferment.
The interest rate charged on the unpaid balance of a Defense Loan,
NDSL, or Perkins Loan depends on when the loan was made. The
interest rate is stated in the borrower's promissory note. The annual
interest rate for loans made
- before July 1, 1981 was 3%;
- between July 1, 1981 and September 30, 1981 was 4%;
- on or after October 1, 1981 is 5%.
Interest on loans made on or after October 1, 1981 is computed at the
rate of 5% per annum simple interest on the unpaid principal
balance. Interest should be computed from the date when the
payment is received rather than from the due date; however, interest
charges may be computed to the nearest first-of-the-month, or they
may be computed in accordance with the borrower's established
schedule of payments of principal and interest if the borrower is
making payments on a regular basis according to that schedule.
LENGTH OF REPAYMENT PERIOD
[[Maximum repayment period and repayment plans]]
The term "repayment period" generally refers to the span of time the
borrower is given to repay his or her loan--usually a maximum of 10
years from the time repayment begins. (For the exception, see the
discussions of hardship and low-income individual that follow.) A
borrower must repay his or her loan, plus interest, in quarterly,
bimonthly, or monthly installments over a 10-year period. The length
of a repayment period may be less than 10 years because of
minimum monthly payment requirements. Remember that a
repayment period NEVER includes authorized periods of deferment,
forbearance, or cancellation.
If a borrower wants to repay the loan in graduated installments, he or
she must request permission to do so from the school; if the school
agrees to this type of repayment, a graduated repayment schedule is
prepared and submitted to the Department for approval. If the
Department approves the school's request, the borrower may use the
graduated method of repayment.
[[Extension of repayment for hardship]]
A school may EXTEND a repayment period if the borrower is
experiencing a period of prolonged illness or unemployment or if the
borrower is a "low-income individual" (defined on the next page).
Interest continues to accrue during an extension of a repayment
period for any of these reasons.
[[Extension of repayment for a low-income individual]]
For NDSLs made on or after October 1, 1980 and for all Perkins
Loans, a school may extend the borrower's repayment period up to
10 additional years if, during the repayment period, the school
determines that the borrower qualifies as a low-income individual.
The school must review the borrower's status annually to determine
whether he or she still qualifies. Once a borrower no longer qualifies,
his or her repayment schedule must be amended so that the number
of months in it does not exceed the number of months remaining on
the original repayment schedule (not counting the extension period).
[[Other adjustments for low-income individuals]]
There are two other ways that a school may adjust the repayment
schedule for a borrower who qualifies as a low-income individual:
1. The school may require the borrower to pay a reduced amount
for a limited time and then later increase the payment amount so
that the borrower catches up on payments. For example, a school
reduces the payment amount to $10 per month for six months and
then increase it to $50 per month until the borrower catches up.
The repayment period does not have to be extended.
2. The school may allow the borrower to pay $10 per month for a
year and then resume normal payments. This type of adjustment
extends the repayment period.
[[Definition of "low-income individual"--34 CFR 674.33(c)(2)]]
The definition of low-income individual is based on the maximum
income levels in the Income Protection Allowance (IPA) chart
published annually in the Federal Register. The IPA chart for the
1997-98 award year was published May 31, 1996. See the maximum
income levels for the 1997-98 award year in the chart that follows.
1. For an unmarried borrower without dependents, a low-income
individual is one whose total income for the PRECEDING
CALENDAR YEAR did not exceed 45% of the IPA for the
CURRENT AWARD YEAR for a family of four with one in
college. For the 1997-98 award year, an unmarried borrower
without dependents is a low-income individual if his or her 1996
income was $8,132 or less.
2. For a borrower with a spouse or legal dependents, a "low-income
individual" is one whose total family income for the PRECEDING
CALENDAR YEAR did not exceed 125% of the IPA for the
CURRENT AWARD YEAR for a family equal in size to that of
the borrower's family with one family member in college.
[[The chart "Low-income Individual; Maximum 1995 Income Levels
for 1996-97 Award Year" on page 6-34 is currently unavailable for
viewing on the SFA BBS. Please reference your paper document or
download the pdf files for additional information.]]
DISPOSITION OF PROMISSORY NOTE AND REPAYMENT
The school must keep the original signed promissory note and
repayment schedule in a locked, fireproof container until the loan is
repaid in full or until the original note and schedule are needed in
order to enforce loan collection. Only authorized personnel may have
access to these records.
Promissory notes for loans made prior to December 1, 1987 include
a requirement to attach the repayment schedule to the promissory
note. If a promissory note has this requirement in the "Repayment"
section of the note, the lending school must be careful to attach the
repayment schedule to that note. Promissory notes for loans made
after December 1, 1987 do not include such a requirement.
If the original promissory note is released for the purpose of
enforcing repayment, the school must keep a certified true copy. To
qualify as a certified true copy, a photocopy (front and back) of the
original promissory note must bear the following certification
statement signed by the appropriate school official:
"CERTIFIED TRUE COPY: I declare under penalty of perjury
that the foregoing is a true and correct copy of the original
At the exit interview, the school must provide a copy of the signed
promissory note and the signed repayment schedule to the borrower.
If the school is unable to obtain a SIGNED repayment schedule, the
school must provide the borrower with the schedule he or she will
follow in repaying the loan.
[[Error in promissory note]]
If an error is discovered in a promissory note, the school should
obtain legal advice about what action it should take. The appropriate
school official and the student should sign by or initial all approved
changes in the note.
[[Loan that is paid in full]]
When a loan has been repaid, the school should mark the note with
the phrase "PAID IN FULL" and with the date the loan was paid in
full, have the note certified by a school official, and give or mail the
original note to the borrower. The school must keep a copy of the
note for at least three years after the date the loan is paid in full.
Because a borrower must reaffirm a Perkins Loan that has been
written off before he or she is eligible to apply for future federal
student aid, the Department recommends that the school maintain a
certified copy of the signed promissory note as well as a record of
the full amount owed in its records beyond the three-year record
*1* This nine-month period includes the date the loan was made.
*2* The minimum monthly payment amount for a Defense Loan was
*3* A student's monthly payment amount may need to be higher
than $40 (or $30), of course, so that his or her debt is repaid by the
end of 10years.