Perkins Loans: Understanding the Basics
By: BankingMyWay.com Staff

There are several federal programs that provide loans to students who demonstrate financial need and Federal Perkins loans are some of the most commonly utilized public funds. Named after former House of Representatives member Carl D. Perkins, these loans are offered at a low, fixed interest rate of 5%. These loans are backed by the government in case of default, which makes them much easier to obtain than many private loans.

Perkins loans are “subsidized,” which means that the federal government pays the interest on the principal balance for you while you’re in school. These loans are given out based largely on need, so you must complete a FAFSA (Free Application for Federal Student Aid) in order to qualify. You can do this by mail or online. You’ll be asked to list several pieces of vital information, including, but not limited to:

- Social security number
- Driver’s license
- Previous year W-2s, 1099s and other records of money earned
- Previous year tax return for you and your spouse
- Your parents’ previous year tax return if you are a dependant
- Previous year untaxed income records
- Current bank statements
- Current business, investments, mortgage and farm records
- Alien registration or permanent resident card (if you’re not a U.S. citizen)

Once this information is received, your responses are entered into a formula known as the Federal Methodology. The result of this calculation is called your Expected Family Contribution, or EFC. Your EFC will be used by your desired institution(s) to craft a financial aid package for you that can include a Federal Perkins loan if you qualify. These loans can be written for any amount, up to the current government limits. The Perkins loan limits for those enrolled in undergraduate programs during the 2009-2010 year are $5,500 a year with a lifetime maximum set at $27,500. Graduate students are limited to $8,000 a year with a lifetime maximum of $60,000 (including undergrad loans).

Rules and Repayment
After you graduate (or stop attending) school, you will have a 9-month grace period during which no payments are required.  During this time, the federal government pays your interest, as well as during periods of deferment. There are also creative ways to have some or all of your Perkins debt forgiven. For example, you can qualify for Federal Loan Cancellation for a percentage of your loans if you teach at designated low-income schools or in “shortage” areas like math, science and bilingual education. Enrollment in the Peace Corps, AmeriCorps or Volunteers in Service to America (VISTA) can earn you money towards loan repayment as well. 15% of your Perkins loan can be forgiven during each of your first two years of service and up to 20% for your third and fourth years. This means you can eliminate up to 70% of your total Perkins debt with service work.

Related Stories:
How to Prioritize Debt
Learn How to Reduce Student Loan Debt

Strategies for Student Loan Forbearance

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