Federal Perkins Loan Basics
Nebraska Association of Student Financial
Aid Administrators
April 10, 2014
Norfolk, Nebraska
Presented by:
Mari Krag
Student Loan Service Center,
North Dakota University system
1
Session Rules of Etiquette
Please turn off your cell phone
 If you must leave the session early, please
do so as discreetly as possible
 Please avoid side conversations during the
session
Thank you for your cooperation!

2
Agenda








What is a Federal Perkins Student Loan?
Perkins Promissory Note
Entrance & Exit Counseling
Repayment & Billing
Forbearance, Deferment, Discharge &
Cancellation
Collection and Default
Assignment
COHORT Default Rates
3
What is a Federal Perkins Student Loan?

Perkins Student Loans are low-interest, longterm loans made by schools to assist needy
students in paying for school.
 Federal
Perkins Loan Program funds are
made up of a Federal Capital Contribution
(FCC) and a non-federal share provided by
the school (ICC).
4
Perkins Loan Limits


Annual Maximum Loan:
Undergraduate: $5,500
Graduate: $8,000
Aggregate Maximum Loan:
Undergraduate Grade levels 1 & 2: $11,000
Grade levels 3 & 4: $27,500
Graduate: $60,000
Perkins Master Promissory Note



34 CFR 674.31
For the paper MPN Go to:
http://ifap.ed.gov/dpcletters/GEN1219.html
For the electronic version of the MPN Go to:
http://ifap.ed.gov/dpcletters/GEN1223.html
5
Disclosure, Entrance & Exit Counseling

Disclosure, in writing, must be made prior to disbursement or
within 30 days after.

Entrance Counseling is not required, however, it can help reduce
defaults. Some suggested topics for entrance counseling are:
 Emphasize repayment obligation
 Review terms of the loan
 Stress repayment required
 Review Rights & Responsibilities
 Consequence of Default

Additional Contact Information
6
Exit Counseling

Exit Counseling is required
Required elements of exit counseling are:
















Terms & Conditions of the Loan
Average anticipated monthly payment amount
Debt-Management Strategies
Importance of Repayment obligation
Types of tax benefits that may be available
Options to change repayment plans
Use of an MPN
Pre-payment options
Forbearance, deferment, cancellation & discharge
Consequences of Default
Obligation to repay full amount
Require current borrower information
Remind borrower he/she must inform school of contact information changes
Ombudsman’s Office
NSLDS
Loan consolidation
7
Repayment & Billing


Maximum Repayment Period is 10 years
Minimum monthly payment amount is $40
Options for Monthly, Bimonthly or Quarterly payment
plans
Grace Periods
Initial Grace Period: 9 months




Post-Deferment Grace Period: 6 months
Schools must contact borrower 3 times during grace periods at 90
days, 150 days & 240 days
Interest rate is 5% per annum simple interest
Interest begins to accrue when the Grace Period ends.
Repayment periods may be extended for prolonged periods of
illness, unemployment or low income
8

OPTION’s for billing are by monthly statements, coupons, e-bills or
ACH.

Payment Processing
Payments the school receives must be applied in the following order:
*
*
*
*
Collection Costs
Late charges (or penalty charges)
Accrued interest
Principal
9
Incentive Repayment Program

Reduce interest rate up to 1% if 48 consecutive monthly
payments

Discount up to 5% if loan paid in full before end of repayment
period or

with the Secretary’s approval, establish other incentive options

Incentives costs must be absorbed by the
school and the school must reimburse their Perkins
fund for income lost as a result of the incentives.
10
FORBEARANCE, DEFERMENT, DISCHARGE &
CANCELLATION
Forbearance is a temporary postponement of
payments. Interest continues to accrue during
forbearance. May be granted for 1 year at a
time with a maximum of 3 years.
 Borrower must request forbearance. Schools
may process forbearance based on a verbal
request from the borrower and document the
request and terms of the forbearance in the
borrowers file & send the borrower confirmation.

11
Deferment
• During deferment no payment is due and
interest does not accrue. Deferments are
followed by a 6 month Grace Period.
• Deferment for in-school, graduate
fellowship, rehabilitation training,
unemployment, economic hardship, military
service and active duty student may be
granted based on verification from the holder
of another FSA loan that they have granted a
deferment for the same reason and same
time period on a Perkins, Direct, FFEL
Stafford or Plus loan.
12

Deferment and Default
A borrower is NOT entitled to deferment on a defaulted loan.
May grant deferment if the borrower signs a new repayment
agreement & school may require borrower to pay late fees,
collection costs and some or all of the past due amount.
•
Deferments for all Perkins Loans
In – School –
Graduate Fellowship Rehabilitation Training Seeking full-time employment – 3yrs
Economic hardship – 3 yrs
Military Service In a war, military operation or national emergency
13 month Post-Active Duty deferment
13
DISCHARGING PERKINS LOANS

You must discharge the remaining balance of the loan if the
borrower qualifies for one of the following:

Death
Total and Permanent Disability (non-veterans)

http://ifap.ed.gov/eannouncements/070313TPDDischargeInformationImpofTP
DDischargeChanges.html

Discharge for Service-Connected Disability (veterans)
New on-line process for TPD through NelNet
http://www.disabilitydischarge.com/home/
U.S. Department of Education
P.O. Box 87130
Lincoln, NE 68501-7130
 Closed School

Spouses of 9/11 victims
 Bankruptcy Discharge
14
Cancellation

Borrower must submit cancellation form




Concurrent deferment must be processed during
period of service
No cancellation allowed for services before the loan
was disbursed or during the enrollment period
covered by the loan
May cancel a defaulted loan if the only reason for
default was borrower’s failure to file cancellation
request on time. If loan was accelerated only service
performed PRIOR to date of acceleration can be
cancelled.
No cancellation for AmeriCorps recipients of a national
service education award.
15

Cancellation Rates:
Military, Teachers/Public Servants
1st & 2nd Years = 15%
3rd & 4th Years = 20%
5th Year = 30%
 Early Childhood Education
15% each year
 Volunteer Service
Up to 70% = 1st & 2nd Yrs = 15%
3rd & 4th Yrs = 20%

A year of service consists of 12 consecutive months of service,
except for teaching service, where a borrower must be full-time for
a full academic year or its equivalent.
16
Summary Listing of Cancellations:
Elementary and Secondary Teachers in a public or
nonprofit elementary or secondary school system in
a:

Low-Income School or
 Low-Income Educational Service Agency
 Teacher in a Shortage Field ie: math, science,
foreign languages or bilingual education or other field
determined by the state as a teacher shortage field.
 Special-Education Teacher including teachers of
infants, toddlers, children or youth with
disabilities.
• Military Service Cancellation
- for a full year of active duty in an area of
hostilities or an area of imminent danger.
•
17
•
Public Service Cancellations
 Nurse or Medical Technician








- Nurse is a licensed or registered nurse
- Medical Technician is an allied health professional
who is certified, registered or licensed.
Firefighter Cancellation
- Must be employed full-time by a federal, state or
local fire fighting agency.
Early Intervention (for disabled infants/toddlers
Child or Family Services
Faculty Member at a Tribal college or university
Speech Pathologist (at Title 1 School)
Librarian (at Title 1 School)
Law Enforcement
Public Defender
18
•
Early Childhood Education
Includes Pre-Kindergarten, Child Care, Head Start
•
Volunteer Service Cancellation
70% cancellation allowed for service as a volunteer
in Peace Corps or AmeriCorps VISTA (Americorps
does not qualify unless service is with VISTA and
borrower elects NOT to receive a National Service
Education Award.
19
Collection and Default
• Notices of Overdue Payments



•
1st past due notice = 15 days after payment due date
2nd past due notice = 30 days after payment due date
Final Demand letter = 45 days after payment due date
- must include amount of any late charge
Default Reduction Assistance Program
DRAP assists schools by contacting defaulted borrowers by letter
All functions of the DRAP process are accessed via the eCampusBased (eCB) website. https://cbfisap.ed.gov
• RETURNED MAIL or NO RESPONSE
You must take steps to locate the borrower.
If no response within 30 days of Final Notice you must try to
contact the borrower by phone. Make at least two attempts on
different days at different times.
20
Late Charges







The assessment of late charges is optional.
Must assess on all overdue payments if adopts a late charge policy
Charge is based on either actual costs or on average costs
Charge may not exceed 20% of the installment payment
Must inform borrower of the assessment of the late charge
May not charge late fees once collection action begins
May waive any late charges if borrower repays full past-due amount
Loan Acceleration
 Acceleration is an option not a requirement. Must accelerate prior to
assigning loan to Department.
 Acceleration immediately makes payable the entire outstanding balance
 You may accelerate if borrower misses payment, deferment, forbearance
or cancellation filing date.
 Marks serious stage of default. Must send written acceleration notice at
least 30 days in advance.
 Must send another notice to inform borrower of the date of acceleration
including total amount due.
21
Collection Procedures
First collection effort
Use your own personnel or hire a collection firm. If cannot
collect by the end of 12 months you may litigate or make a
second collection effort.
Second collection effort
If first used own personnel must refer to collection firm (unless
state law prohibits).
If first used a collection firm, use your own personnel or use a
different collection firm or assign to the Department.
If 2nd collection attempt is unsuccessful you must continue to make
yearly attempts to collect until –

the loan is paid through litigation

the loan is assigned to the Department

the loan is written off
22
Credit Bureau Reporting
Must report defaulted loan to credit bureaus
Must report any changes in the status
Must respond within one month to any inquiries
National Credit Bureaus that the Department has agreements with are:
Trans Union Corporation
1-800-888-4213
Experian
1-888-397-3742
Equifax
1-800-685-1111
Credit bureaus charge fees for their services, which the school or servicer
are responsible to pay to use the credit bureau’s services.
23
Writing off Accounts



You may write off a defaulted account with a
balance of less than $25 (including outstanding
principal, accrued interest, collection costs and late
charges).
You may write off a defaulted account with a
balance of less than $50 (including outstanding
principal, accrued interest, collection costs and late
charges) IF, for a period of two years, you have
billed the borrower as required.
34 CFR 674.43(a) and 674.47(h)
24
Assignment

A defaulted loan may be assigned to the Department if the school has not
been able to collect and…
 all due diligence procedures have been followed
 The total amount of the loan is $25 or more
 The loan has been accelerated.
•
A loan may NOT be assigned if….
 Borrower has received a discharge in bankruptcy
 If there is a judgment (unless the judgment has been entered and
assigned to the United States
 The loan has been discharged because the borrower has died
http://ifap.ed.gov/eannouncements/attachments/PerkinsAssignmentProcedures
April2013.pdf
25
Required Documentation for Assignment
A school may be required to submit the following
documents for assignment









One original and one copy of assignment form
Original promissory note or certified copy of the original note
Copy of Repayment schedule
Copies of all deferment and cancellation requests
Copy of the acceleration notice to the borrower
Documentation the loan has been withdrawn/returned from collection
Copies of any bankruptcy pleadings
Certified copy of judgment order
Documentation that the school has complied with all due diligence
requirements if school COHORT default rate at 20% 2 years prior to
submission.
Assignments are to be sent to: ECSI Federal Perkins Loan Servicer
181 Montour Run Road Coraopolis, PA 15108
26
COHORT Default Rates
For any award year in which 30 or more borrowers enter repayment
COHORT default is calculated on a percentage of those borrowers who
default before the end of the following award year.
Example:
33 borrowers enter repayment
4 are 8 months delinquent by the end of the following award year
COHORT DEFAULT RATE = 12%
If the school’s COHORT default rate is …
 25% or higher, the school’s FCC will be reduced to zero
 50% or higher for the 3 most recent years, the school is ineligible to
participate in the Federal Perkins Loan Program and must liquidate its loan
portfolio.
ORANGE BOOK: http://ifap.ed.gov/perkinscdrguide/1112PerkinsCDR.html
27
Reference:

www.ifap.ed.gov
28
THANK YOU!
Mari Krag
Student Loan Service Center, NDUS
Dept. 3190 PO Box 6050
Fargo ND 58108-6050
Tel: 701-231-9545
mari.krag@ndsu.edu
29