Federal Perkins Loan
A Federal Perkins Loan is given to students who have demonstrated financial hardship. Currently, a student can receive up to $27,500 for undergraduate studies and $60,000 for graduate studies. The amount available will vary based on available government funds. Students will not receive this money directly; the money will be sent to their college or university and administered through the school’s financial aid office.
A Perkins Loan will not necessarily be enough money to finance an entire undergraduate education. Most students who receive this loan will also receive other federal loans (like the Stafford) to help pay their educational expenses. Because they already have a financial hardship situation, they might have trouble paying back the loan within 10 years. This is especially true if they are employed in a low-paying profession, so they consider using the federal student loan consolidation process to reduce their monthly payments.
What You Need to Know
Depending on your profession, you may want to think twice before consolidating your Perkins Loan with other government loans. A teacher may be eligible to have 100% of their Perkins Loan cancelled if they meet the following requirements:
- Teach at a secondary school or a non-profit school
- Teach a foreign language, bilingual education, science, math, or other subject matter that has a state-wide shortage of teachers
- Teach special-education to children, infants, or toddlers with designated learning disabilities
- Teach at a school located in a low-income area
- Are currently employed by a school system
- Meet the government’s definition of a teacher (a position title will not make you eligible)
If you are eligible, the federal government will forgive your loan in increments, based on your years of service in the teaching profession. Teachers will have 15% of their loan forgiven during their first two years, 20% during the next two years, and 30% during the fifth year. Any interest that accrued throughout these years will also be cancelled. If you decide to consolidate your Perkins Loan, you will lose this benefit. You will be responsible for paying back the entire amount of the loan.
Not everyone who receives the Perkins Loan will end up becoming a teacher, so they will not be eligible for this generous loan-forgiveness policy. However, this does not mean they should rush into consolidating. Currently, a Perkins Loan carries a fixed interest rate of 5%. Other federal student loans may have a higher interest rate. When you consolidate, you will receive a blended rate, which is an average of the interest rates from each of your federal loans, rounded up by 0.125%. This means that you may end up paying a much higher interest rate, so it would not make any sense to consolidate.
If you decide to consolidate, you will lose the nine-month grace period. This is one of the most generous grace periods in the student loan market. You do not have to begin repaying your loan until nine months after graduation. This gives you the opportunity to find a job and get your finances settled somewhat before making those large, monthly student loan payments.
Remember, you do not have to consolidate all of your federal student loans. You are given the option of picking which federal loans you want to consolidate. Discuss your different options with the lender, making sure you will not lose any of the valuable benefits that come with a Perkins Loan.
Consolidating Your Perkins Loan
Most students will consolidate their loans through the Federal Direct Loan Consolidation Program or with a Federal Family Education Loan Lender. You may be required to consolidate a Perkins Loan with at least one other Direct Loan. A minimum loan balance of $7,500 may also be required. It is important to talk with a variety of lenders to make sure that you are getting the best interest rate available. Remember, lenders are not able to charge an application fee to initiate the consolidation process. They are also prohibited from charging prepayment penalties or fees. Always read the fine print on the promissory note you will be asked to sign. Make sure that there aren’t any hidden fees or charges that you will be responsible for paying.