Federal Perkins Loan Interest Rate
As indicated on the Federal Student Aid website, the Federal Perkins Loan is a low-interest loan for undergraduate and graduates students who demonstrate exceptional financial need. According to the U.S. Department of Education, approximately 1,700 schools participate in the Federal Perkins Loan Program. For this reason, students are best advised to contact schools of interest to learn if the Federal Perkins Loan can be included in the school’s financial aid package.
Schools determine eligibility for the Federal Perkins Loan based on the financial information the student reports in the Free Application for Federal Student Aid (FAFSA). After completing the FAFSA, students will have access to their Student Aid Report (SAR) that summarizes information from the FAFSA and includes any Expected Family Contribution (EFC) that the school has calculated. Students with a low or zero EFC may see an offer in their financial aid package for a Federal Perkins Loan. Features of the Federal Perkins Loan program include:
- A 5 percent interest rate
- There are no loan origination fees
- Awards go up to $5,500 per year
- Total undergraduate borrowing is capped at $27,500
- The school is the lender
- Repayment does not begin until nine months after graduation
As the National Center for Education Statistics details, from the 2006-07 to the 2011-12 academic years, the percentage of undergraduates at 4-year colleges who received financial aid rose from 75 to 85 percent. During this same period, financial assistance among undergraduates at 4-year for-profit colleges increased from 55 to 91 percent. In the 2011-12 academic year, 83 percent of students at 4-year private for-profit colleges received student loan aid.
The increased need among private school students may owe in great part to the exceptionally high cost of tuition at these schools. For instance, according to the 2014 U.S. News “National Universities Rankings,” at the top 10 schools, the lowest cost and fees amounted to $41,820 (Princeton University). Of the bottom 10 private schools (in the top 100), the least expensive one costs $34,704 (University of Tulsa, Oklahoma). Although loans have to be repaid, the Federal Perkins Loan is a helpful program for undergraduates who need to close the gap between “free money” they may receive (grants and scholarships) and the total cost of attendance.
As Federal Student Aid discusses, Federal Perkins Loans do not have the same repayment terms as loans in the Federal Direct Loan Program. To learn about repayment options, borrowers will need to work directly with their school or the school’s designated loan service provider. In the alternative, the Federal Perkins Loan is eligible for a Direct Consolidation Loan.
The benefit of a Direct Consolidation Loan is that students can combine multiple (eligible) federal student loans into one new loan and have the convenience of paying one monthly payment. Although all other applicable repayment terms should be explored, the Direct Consolidation Loan usually extends the repayment term to 30 years and, as a result of borrowers having more time to pay, they will end up with a lower monthly repayment amount. But this option should be carefully considered as a Direct Consolidation Loan can result in the loan costing more over its life (because of the additional interest accruing over the additional years). A Direct Consolidation Loan is irreversible; once it happens, the original loans are merged into one new one.