Modernize and Expand Perkins Loans
Background: Current annual loan limits in the federal student loan programs are inadequate for
some students with special circumstances. Today, many of these students must either drop out of
school or borrow from private lenders, often at high interest rates with unforgiving repayment
An option for a small share of these students is the Perkins Loan program. Created 51 years ago
in the wake of the Soviet launch of Sputnik, Perkins Loans represent less than 2 percent of all
federal student loans. Undergraduate or graduate students receive $1 billion loans annually from
campus-administered revolving funds totaling approximately $8.6 billion. Participating schools
have significant discretion in determining which students to offer these loans and the amounts
they can borrow. Perkins Loans have a fixed 5 percent interest rate.
The Perkins loan revolving funds were amassed through appropriations for federal capital
contributions and school matching funds; the federal share of these funds is $6.6 billion. The
Higher Education Act allocates these funds according to a formula the does not take the financial
need of an institution’s students into account.
FY 2010 Budget Proposal: The Budget does not propose an across-the-board increase in loan
limits, which could lead to over-borrowing and tuition inflation. Rather, the Budget would
modernize and expand the Perkins Loan Program so that many more colleges can participate and
many more students would have access to greater aid. Up to six billion dollars in available
loans each year would be serviced more efficiently and at lower cost along with other Federal
Loan volume would be allocated among degree-granting institutions using a method to be
determined in consultation with Congress. The Administration intends for this new formula to
encourage colleges to control costs and offer need-based aid to prevent excessive indebtedness.
It may also reward schools that enroll