Perkins Loan: What It Was, How It Worked, and Repayment Rules (2024)

What Was a Perkins Loan?

The Perkins Loan was a U.S. government-backed financial aid program initiated in 1958, offering low-interest loans to undergraduate and graduate students with significant financial need, as assessed by institutional guidelines and the the Free Application for Federal Student Aid (FAFSA) form.

The program concluded in September 2017, with the last funds disbursed in June 2018, though repayments on outstanding loans persist. As of the second quarter of 2023, these loans account for $3.7 billion in federal student debt held by 1.2 million borrowers.

How Perkins Loans Worked

Perkins loans were granted through the financial aid office of the student's educational institution with money paid either directly to the student or applied toward institutional charges. Perkins loans were subsidized by the government which paid the accrued interest. The school was the actual lender, and the loan was repaid to the school.

When students applied, their borrowing limits were determined by their financial needs and the school's funding availability. Undergraduates could borrow up to $5,500 annually, with a total limit of $27,500, while graduate students could borrow up to $8,000 annually, capped at $60,000, inclusive of any undergraduate Perkins loans. Federal Perkins Loans carried a 5% interest rate and a 10-year repayment term. Repayment on the loan began nine months after the student graduated, left school, or dropped below half-time status.

How to Repay a Perkins Loan

Although the loan program ended in 2017, there are still outstanding Perkins loans. As of the second quarter of 2023, these loans account for $3.7 billion in federal student debt held by 1.2 million borrowers. Perkins loans must be repaid within ten years. Borrowers employed in a public-service-related job, such as a public school teacher or a nurse, may be eligible to have their loans canceled after a certain number of years of service.

Perkins Loan Forgiveness

Borrowers may qualify for a student loan forgiveness program if they work in a public service job. The school that issued the Perkins loans can provide applications and instructions specific to the type of available loan forgiveness.

Those who qualify may include teachers who meet specific eligibility requirements, early childhood education providers, employees at a child or family services agency, instructors at a tribal university or college, librarians with a master's degree at a Title 1 school, firefighters, people serving in the military or working in law enforcement, nurses or medical technicians, early intervention services providers, lawyers working as public defenders, speech pathologists with a master's degree at a Title 1 school, or volunteers with AmeriCorps VISTA or the Peace Corps.

Repayment Assistance

On June 30, 2023, the Supreme Court struck down a Biden Administration plan to forgive up to $20,000 per borrower in student loan debt, which would have included Perkins Loans held directly by the government.

Two months later, the White House launched the Saving on a Valuable Education (SAVE) Plan. SAVE is an income-driven repayment (IDR) plan which includes the following benefits for borrowers:

• Borrowers can reduce their monthly student loan payments to 5%-10% of their discretionary income. Some low-income borrowers would pay nothing.
• The SAVE plan eliminates capitalized interest. This means your loan balance won’t grow due to unpaid interest.
• The plan eliminates the need for a spouse to cosign an IDR application.

Perkins Loans vs. Other Federal Student Loans

Although the Perkins Loan Program was allowed to expire, the U.S. Department of Education continues to help students pay for higher education through the William D. Ford Federal Direct Loan Program. The four federal direct loans are: direct subsidized loans, direct unsubsidized loans, direct Plus Loans, and direct consolidation loans.

Direct Subsidized Loans

Direct subsidized loans are made to eligible undergraduate students at a college or career school who demonstrate financial need. The size of the loan increases with each year of school, starting at $3,500 and rising to $5,500 for the third year and beyond. "Subsidized" refers to the fact that the federal government covers the interest charges for a period of time.

Direct Unsubsidized Loans

Direct unsubsidized loans are loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. The size of the loan increases with each year of school, starting at $5,500 and rising to $7,500 for the third year and beyond for dependent undergraduate students. Independent students, a category that includes all graduate and professional students and those over the age of 24, have higher borrowing limits.

Direct Plus Loans

Direct PLUS loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify.

Direct Consolidation Loans

Direct consolidation loans allow borrowers to combine their eligible federal student loans into a single loan with a single loan servicer.

The Bottom Line

Perkins loans are no longer offered, but borrowers who still hold one must repay the loan. As of 2023, other federal loans are available to students, including direct subsidized loans, direct unsubsidized loans, direct plus loans, and direct consolidation loans.