There are a lot of great federal aid options out there, for every type of student. The Perkins loan may just be one of many types of federal loans, but it comes with a lot of perks that make it worth an in-depth look. I'll go through all the information you need about this loan program, before telling you how to get your own Perkins loan.
What Is the Perkins Loan?
Like the Direct Subsidized and Direct Unsubsidized programs, Perkins are government-backed, low-interest loans that are meant to help students pay for school. Certain federal aid programs don't require students to demonstrate financial need as an eligibility requirement, like Direct Unsubsidized loans. The Perkins is meant for students who demonstrate exceptional financial need, however; as such, there are some extra perks built into the loans.
Before I talk about some of the benefits of the Perkins loans, I'll talk briefly about how loans usually work. Then, I'll go into more Perkins loans details, and explain how this loan program differs from the norm.
What It Means to Take Out a Loan
When you take out a loan, by definition, you're borrowing a sum of money (a principle) from a person or institution (a lender), with the promise that you'll pay this money back at a later date. You'll likely also agree to repay extra money in addition to the principle (interest), over a certain time period (the length of the loan).
People usually pay back their student loans by making monthly payments after they graduate. A part of the payment covers accrued (accumulated) interest, whereas the rest of it goes towards paying back the principle.
Interest accrues on your loan at a certain rate, usually starting when the loan amount is given out to you (disbursed). The higher your interest rate, and the longer it takes you to pay back your loan, the more interest will accrue. Standard repayment terms for federal student loans (unless the loans are quite small) are 120 monthly payments, or 10 years.
Finally, interest can also capitalize, or be added to your principle amount. What this ultimately means is that interest is now accruing on a new, larger principle; the bigger the principle, the more interest will accrue. The rate of capitalization depends on your loan, but some student loans capitalize at graduation.
As you might have deduced by now, one method of saving money on your loans is to minimize the amount of interest that accrues and/or capitalizes. You'll see in the next section why Perkins loans make this process a little bit easier on student borrowers.
Interest may just come to pennies a day, but it can add up to a significant amount over time.
What's Unique About Federal Perkins Loans?
In the previous section, I noted that interest usually starts accruing when the loan is disbursed. If I take out a loan my freshman fall, interest will accrue through all 4 years of college. When I graduate, I'll owe my principle + 4 years of interest - and depending on the type of loan, this interest may capitalize when I graduate.
With Federal Perkins loans, you won't see any interest accrue while you're in school, during grace period, or during a period of deferment. The grace period for a Perkins loan is also a bit longer than the standard: 9 months vs. 6 months, which means another 3 months of no interest post-graduation.
Here's an example of how loan repayment might play out. In this example, I have both a Perkins loan and an unsubsidized loan, both disbursed at the beginning of my freshman year. Even though the interest rate is higher for the Perkins loan, you end up paying out a lot more for the unsubsidized loan:
|
Perkins Loan |
Unsubsidized Loan |
|
|
Interest Rate |
5% |
4.29% |
|
Principle |
$5,000 |
$5,000 |
|
Balance Due 6 Months Post Graduation |
$5,000 |
$5,911 |
|
Monthly payment (based on standard 120 month repayment) |
$53.03 |
$60.66 |
|
Total Amount Paid |
$6,363.60 |
$7,279.2 |
Finally, and perhaps most excitingly, Perkins loans give students the option of loan cancellation or loan forgiveness if they pursue particular job or career paths. If you play your cards right, you could walk away without owing any money on your loans. I'll talk more about loan cancellation in the next section.
Loan Details
The Perkins loan interest rate is currently at 5%, which is only slightly higher than interest rates on Direct Unsubsidized and Direct Subsidized loans. Like I mentioned in the previous section, interest does not accrue during school, grace periods, or deferment periods. There are no other loan fees.
Loan money is applied directly to school-related charges (tuition, fees, and on-campus room and board). If there is any money left over after the loan is applied to these charges, you'll receive a refund from your school. You can use this money on any other school-related costs (e.g. transportation, books, personal expenses).
Repayment
You have 9 months after you leave school, graduate, or drop below half-time status before you have to start making monthly payments on your loan. The standard federal loan repayment option has borrowers making 120 monthly payments (10 years) to pay off the loan in full.
Loan Cancellation
Cancellation sounds like it would be a bad thing, but when it comes to student loans, cancellation arguably the best thing that can happen. Your Perkins loan debt could be wiped, or canceled, in part or in full if you spend time working in particular fields. There are many different situations that could make you eligible for loan cancellation. Examples of cancellation-eligible positions include law enforcement officer or firefighter, teacher, nurse, medical technician, and even attorney.
Factors such as your length of employment, the area you're working in (e.g. if you're serving low-income communities), and the demand for certain services (e.g. if there's a higher demand for teachers in certain subjects) could all affect how much loan cancellation you're eligible for. Working in a cancellation-eligible job would constitute a period of deferment, so no interest would accrue!
You can apply for Perkins loan cancellation through your school, or your school's loan servicer. Don't ever assume that your loans will be eligible for cancellation; run everything by your school's financial aid office first, and don't stop making payments until your loan is officially deferred.
Loan cancellation won't be right for everybody, but it's a great debt-erasing option for people interested in certain career paths.
Perkins Loan Eligibility and Limits
As great as the Perkins details sound (especially with the possibility of cancellation), there are unfortunately some eligibility restrictions and limits to keep in mind.
In order to be eligible for a Perkins loan, you must:
- Meet basic federal aid requirements (learn more about federal aid requirements here)
- Be an undergraduate, graduate, or professional student enrolled in a participating school
- Demonstrate "exceptional" financial need. Perkins loan borrowers are typically from low-income families; 30% of families with dependent students who took out Perkins loans in 2012 made less than $30,000.
The amount of money you can take out in Perkins loans depends on (1) your financial need, and (2) how much money your school can lend. Not everyone who meets basic eligibility requirements will receive Perkins loan options. As such, it's difficult to estimate ahead of time how much money you'll get through the Perkins loan program.
Although there's not much you can do to estimate your Perkins loan amount, you can keep loan limits and averages in mind:
- Maximum undergraduate annual amount: $5,500
- Maximum undergraduate lifetime amount: $27,500
- Maxiumum graduate annual amount: $8,000
- Maximum graduate lifetime amount (includes any undergraduate Perkins loans): $60,000
The average new Perkins loan award is about $2,000, much lower than the annual limits for both undergrads and graduate students.
How to Apply
Perkins loans sound like pretty good options, right? You can apply for Perkins loans by submitting a Free Application for Federal Student Aid, or FAFSA. The application isn't just for Perkins loans - when you submit a FAFSA, you're also considered for Pell Grants and other federal loans. You can get step-by-step instructions for submitting a FAFSA here.
Although Perkins loans are government-backed, your Perkins loan lender would be your school, not the US government. Because schools need to have a certain amount of available funds in order to offer these loans to students, not all schools participate in the Perkins loan program. You can find out if a school offers Perkins loans by contacting its financial aid office.
As you might have expected, Perkins loan funds tend to be limited, and often run out before the official FAFSA deadline. In order to optimize your chances of getting a Perkins loan, try to submit your FASFA early in the spring semester for the next academic year. For example, if you'd like aid for the 2016-2017 academic year, plan on submitting your FAFSA in January or February of 2016.
What's Next?
Perkins loans aren't the only federal loans with competitive interest rates. Check out our guide comparing Direct Subsidized and Direct Unsubsidized loans.
As great as low interest rates sound, even with the possibility of loan cancellation, there's something even better than money you have to pay back: free money. Learn more about Pell Grants here.
