Introduction INTRODUCTION

i
The Federal Perkins Loan Program comprises Federal Perkins Loans, National Direct Student
Loans (NDSLs), and National Defense Student Loans (Defense Loans). (No new Defense Loans
were made after July 1, 1972, but a few are still in repayment.) Perkins Loans and NDSLs are
low-interest (currently 5 percent), long-term loans made through school financial aid offices to
help needy undergraduate and graduate students pay for postsecondary education.

LOAN TYPES
A loan made to a new borrower under the Federal Perkins Loan
Program is a Perkins Loan. (New borrowers have no outstanding
balance on a Defense Loan or NDSL.) If the borrower has an
outstanding balance on a Defense Loan or NDSL when the new loan is
obtained, the new loan is an NDSL. Loans made from July 1, 1972
through June 30, 1987 were NDSL’s. Loans made before July 1, 1972
were Defense Loans.

RECENT CHANGES

Satisfactory Repayment Arrangements

Satisfactory repayment arrangements, for the purposes of
Satisfactory Repayment
regaining SFA aid eligibility, are now defined as the making of six
Definition Cite
consecutive, on-time, monthly payments on a defaulted loan. 34 CFR 674.2

Eligibility Criteria and Default

A borrower who satisfies any of the conditions that remove his or
her Perkins Loan from the school’s cohort default rate becomes Eligibility and Default Cite
eligible for additional Perkins Loans. HEA 464 (b)(1)

Addendum to Perkins Promissory Note

Until the Department develops and distributes new Perkins Loan
promissory notes that include the provisions resulting from the 1998
Amendments, schools must provide borrowers with a copy of the
Addendum to the NDSL and Federal Perkins Loan Promissory Notes
published in Dear Partner Letter CB-00-07, May 2000.

For loans made on or after August 1, 2000, schools must provide a

copy of the Addendum with the copy of the promissory note. For loans
made between October 7, 1998 and August 1, 2000, schools should, in
a timely manner, provide a copy of the Addendum to borrowers in
order to inform borrowers of the new borrower benefits.

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Vol. 5 — Perkins Loans, 2000-2001
Leaves of Absences Cite Withdrawal Dates for Students on Leaves of Absence
34 CFR 668.22 (b)(1) Students granted approved leaves of absence retain their in-school
34 CFR 668.22 (c)(1)(v) status for SFA loans. However, if a student does not return from an
34 CFR 668.22 (d)(1)(ix)
approved leave of absence, the student’s grace period begins the date
the student began the leave of absence. (If the school is required to
take attendance, the grace period begins on the last date of
academic attendance.)

For a student who does not return from an approved leave of

absence, this withdrawal date might result in the exhaustion of some
or all of the student’s grace period.

Leaves of absence no longer qualify as approved leaves of absence

for SFA purposes unless the school explains the effects that the
student’s failure to return from an approved leave of absence might
have on the student’s loan repayment terms, including the exhaustion
of some or all of the student’s grace period.

Note: For academic reasons, schools may grant leaves of absence

that do not meet the conditions of the SFA regulations for granting
“approved” leaves of absence. However, these “unapproved” leaves of
absence must be treated as withdrawals for SFA purposes.

Exit Counseling
Schools may now conduct exit counseling through audiovisual
Exit Counseling Cite presentation or electronic means. If a school conducts exit
34 CFR 674.42(b)(1)
counseling through electronic means it must take reasonable steps
to ensure that each student participates in the exit counseling and
receives the materials.

SFA Ombudsman
Schools must now explain the services of the SFA Ombudsman
SFA Ombudsman Cites
during the exit interview and, if the borrower raises a dispute that the
34 CFR 674.42(b)(2)(ix)
34 CFR 674.41(a)(3) school cannot resolve, during regular collection procedures.

New Deferment Provisions

Borrowers are no longer required to request deferments in
Requesting Deferment Cite writing. However, borrowers must still provide schools with all the
34 CFR 674.38(a)
information and documents the schools require, by the deadline(s)
the schools establish.

Schools may grant in-school deferments to borrowers based on

Enrollment Verification Cite
34 CFR 674.38 (a)(2) student enrollment information provided by third-party servicers or
other schools. The enrollment information must indicate that the
borrower is enrolled as a regular student on at least a half-time basis.

If a school grants deferment based on third-party enrollment

information, the school must notify the borrower of the deferment
and offer the option to cancel the deferment and continue repayment
of the loan.

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 Introduction

Borrowers serving as volunteers in the Peace Corps are Peace Corps Economic Hardship
automatically eligible for economic hardship deferments. Loan Deferment Cite
holders may grant categorical deferments for borrowers’ full-terms of 34 CFR 674.34 (e)
service, not to exceed three years.

Effective October 1, 1998, if a borrower who is a member of the

Armed Forces reserve is ordered to active duty for 30 days or more, the Active Duty Cite
borrower’s grace period does not begin until the borrower is released 34 CFR 674.31(b)(2)(i)(C)
from active duty. This delay may not exceed 3 years and includes up to
12 months for the borrower to reenroll. Borrowers who enroll in a
different program when they return from active duty are entitled to
the same grace period benefits.

A borrower who is in a grace period when called or ordered to

active duty is entitled to a new grace period upon conclusion of the
excluded period.

Incentive Repayment Program

Schools may now offer borrowers incentives, such as discounts and Incentive Repayment Program
reduced interest, to reduce default and replenish the Federal Perkins Cite
Loan revolving fund. Schools may not use Perkins Funds to pay for 34 CFR 674.33(f)
these discounts.

Rehabilitation
Schools participating in the Federal Perkins Loan Program must
now establish loan rehabilitation programs for Perkins Loans and Rehabilitation Cite
34 CFR 674.39
NDSLs. A borrower who successfully rehabilitates defaulted loan(s)
regains the original benefits and privileges of her promissory note.

A borrower may rehabilitate a defaulted loan only once.

Closed School Discharge

Effective October 1, 1998, holders of a Perkins Loan or NDSL
Closed School Discharge Cite
made on or after January 1, 1986 may discharge the loan if the
34 CFR 674.33(g)
borrower is unable to complete his or her program of study due to the
closure of the school. The loan holder must reimburse borrowers for
payments made voluntarily or by forced collection.

Service Cancellations
Cancellation benefits once available only to loans disbursed on
or after July 23, 1992 are now available to all loans for eligible Service Cancellations Cites
34 CFR 674.53(a)(1)(ii)
service performed on or after October 7, 1998.
34 CFR 674.56(a)(2)
34 CFR 674.57(a)(2)
Web List of Low-Income Schools 34 CFR 674.58(a)(2)
The Department maintains a web page listing the low-income 34 CFR 674.60(a)(2)
elementary and secondary schools in which a borrower may teach
during the school year to qualify for cancellation benefits. Please, visit
this site at <http://www.ed.gov/offices/OSFAP/Students/repayment/
teachers/>.

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Vol. 5 — Perkins Loans, 2000-2001
Bankruptcy Cite Bankruptcy
34 CFR 674.49(c)(3) Effective October 8, 1998, a borrower must obtain a bankruptcy
court’s ruling of undue hardship for a student loan to be discharged
in bankruptcy. Previously, student loans were discharged in
bankruptcy if the loans had been in repayment for seven years or
more.

Penalties for High Cohort Default Rate

If the school’s cohort default rate is 25% or higher, the school’s
Penalty Cite FCC will be reduced to zero.
34 CFR 674.5(a)
For FY 2000 and succeeding fiscal years, a school with a cohort
default rate of 50% or more for the three most recent years is
ineligible to participate in the Federal Perkins Loan Program and must
liquidate its loan portfolio.

Expanded Lending Option

The expanded lending option has been eliminated.

Default Reduction Plan

Schools are no longer required to establish a default reduction
plan.

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