Around 100 Ohio University students will not receive low-interest federal loans because of a funding shortage of about $400,000.
OU and colleges across the country will award less in Federal Perkins Loans, offered at 5 percent interest to families typically earning under $40,000 annually, as the federal government lets the program taper off in favor of other aid packages. Slower loan payments from past recipients, which fund current loan awards, have also squeezed the program's funding.
Approximately 72 incoming freshman who are qualified for a Perkins Loan and at least 28 students already in the program will not receive the low-interest loan next year, said Sondra Williams, director of Financial Aid.
The enrollees who do survive the crunch will see the value of their loans rolled back to $1,800 so OU can help the greatest number of students possible, Williams said.
Across OU's campuses, 767 students received a Federal Perkins Loan worth an average of $2,100 this year, Williams said.
We've really taken a hit
and it looks like now with what people are saying that we may take a bigger hit next year
Williams said. That's why we're trying to be conservative and that's why we've reduced our award to $1
800.
Although OU's Perkins fund will not decrease as dramatically as some of its peers, the cut will eliminate more than $400,000 in Perkins Loans, Williams said. Michigan State University expects a decrease of $2 million in their Perkins offerings this upcoming year, according to U.S. News and World Report.
According to the same report, The University of Maryland College Park says its Perkins offerings have fallen to half of the $2.3 million in 2006-07.
Perkins Loans are the most attractive federal loans because interest does not accumulate during school and upon graduation the recipient has a nine-month grace period before repayment begins, Williams said.
The Perkins program is also unlike guaranteed federal loans, such as Stafford or PLUS, in that each school has a pre-determined pool of money available, a distinction that lies at the heart of the shortage, said Larry Zaglaniczny, director of Congressional Relations for the National Association of Student Financial Aid Administrators.
To make Perkins Loans available to new students, OU uses the money from past recipients who are now paying their debts, Williams said.
The federal government has not provided new contributions for several years now, and financial aid has fallen by the wayside under the Bush administration, Zaglaniczny said.
Congress has not been able to find ' what we recommend ' is $100 million be put into new federal capital contributions
Zaglaniczny said. We have been unsuccessful in convincing the congress to do that at this point but maybe that will change.
The most recent contribution from the federal government to OU's Perkins fund was $140,767 for the 2004-05 academic year, Williams said.
Even when OU was receiving federal money, the payments failed to keep up with the rising cost of enrollment, Williams said.
The U.S. Department of Education feels justified in its phase out of the Perkins program, according to the department's 2009 Justifications of Appropriation Estimates to Congress.
Declaring Perkins Loans ineffective, poorly targeted and redundant, the report proposed eliminating the program.
The department found that Perkins funds were allocated to select institutions based on a history of involvement with the program rather than the number of needy students enrolled. Additionally, the federal government wants to replace Perkins Loans with Stafford Loans, which are guaranteed at a higher interest rate and a six-month grace period.
The other aspect behind the languishing Perkins fund is the ebb of debt repayment from graduates, Zaglaniczny said.
This was not a problem earlier in the decade when interest rates were favorable and a large number of students were consolidating their debt into one lower-cost loan, said Zaglaniczny.
As a consequence of this debt consolidation, schools were receiving all the proceeds for the Perkins Loans at once instead of spread out over a number of years, Zaglaniczny said.
Whoever they consolidated with went in and paid off their Perkins debt so we had all this cash on hand
Williams said.
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