Nearly 40,000 former students with $92 million in Perkins Loans stand to benefit from UC’s decision, which also applies to Dream loans, made to undocumented students.
Borrowers automatically will have the interest on their loans waived through Sept. 30 but must choose to postpone their payments temporarily. Anyone delinquent will have their payments automatically suspended, according to the university. UC will halt late fees and refrain from turning over accounts to debt collection agencies through the end of September.
“We’re trying to level the playing field for students,” said Shawn Brick, director of student financial support at UC, which has undergraduate campuses in Berkeley, Los Angeles and seven other locations. “We felt it was important to make sure students with loans where UC is the lender of record have the same support” afforded to other federal borrowers through the Cares Act stimulus.
Brick said the university system has been exploring ways to help alumni with UC-held loans since President Trump ordered the Education Department in March to offer 60-day relief to most federal borrowers. The guidance the department provided on Perkins, he said, made it easier for the university to move forward on those loans.
Earlier this month, the Education Department told colleges and universities they could suspend payments voluntarily and set interest rates at zero on Perkins Loans through the end of September. The department also gave schools leeway to stop collection on past-due Perkins debt at a borrower’s request during that time.
Because the department is not tracking how many institutions are taking advantage of the guidance, it is unclear whether many Perkins borrowers are getting help. Given the financial turmoil colleges are confronting because of the coronavirus pandemic, some may not be in a position to forgo money from Perkins Loan repayment.
“Depending on the amount of outstanding Perkins Loans a school has, the interest could be a sizable dollar amount,” said Bryan Dickson, director of student financial services at the National Association of College and University Business Officers. “That said, it is not unexpected to see colleges and universities prioritizing their desire to assist students in need … despite facing their own institutional budget constraints.”
People with federal Perkins Loans can consolidate their debt into the Direct Loan program — where loans are made and held directly by the federal government — to take advantage of the six-month interest waiver and payment suspension provided by the stimulus package. But consolidation would increase their debt because unpaid interest would be added to the balance, and they would end up with a slightly higher interest rate.
Nearly 2 million Americans have about $6 billion from the now-defunct Federal Perkins Loan Program. The program ended in 2017 amid concerns it was poorly structured and no longer served a purpose.
Perkins was created in 1958 to provide low-interest loans to needy students through a cost-sharing agreement between the federal government and colleges. The loans carried 5 percent interest that became less attractive once rates on other federal student loans fell.
Critics of the campus-based program said it unfairly favored wealthy universities. Federal contributions had been determined by the level of financial need at participating schools. Private universities received a large share of the money because their high prices created more need, even among students who in other circumstances would not be considered needy.
Before universities lost the authority to issue new loans in 2017, Congress had not contributed money to the program for more than a decade. Instead, schools that offered Perkins Loans relied on their own contributions and repayment from prior recipients to fund the loans.