UW students may see gap in aid after the demise of a popular student loan program
Experts warn that unsustainable student borrowing is reaching crisis levels across the country. Default rates at UW-Madison have actually fallen over the past year.Image By: Max Homstad
The Perkins Loan Program, which provided $25.4 million in low-interest loans to UW System students, has expired, with seemingly little hope of congressional renewal in sight.
The program offered unique financial services to students, offering a comparably low interest rate of five percent and a nine-month grace period after graduation before payments begin, all without requiring any annual funding, as all loans given are provided by those already paid back.
“Eliminating this program, to put it clearly, will affect who can and cannot go to college,” said Nick Webber, government relations director for the UW System Student Representatives. “The reality is that the next time 13,600 UW students open their financial aid packages, they will be missing out on make-or-break money.”
Webber and his team have been working with lawmakers to encourage legislation to extend the program into 2019, even discussing the matter with House Speaker Paul Ryan, R-Wis., who benefitted from the program himself as a student.
The bills to extend the program currently have 243 cosponsors in the U.S. House and 20 cosponsors in the U.S. Senate, including U.S Rep. Mark Pocan, D-Wis., and U.S. Sen. Tammy Baldwin, D-Wis.
Despite significant bipartisan support, legislation in neither chamber has left its committee, largely due to opposition by their Republican chairs.
Founded in 1958, the Perkins Loan Program was the longest-running student loan model in the country. The $1.2-billion federal loan program offered up to $5,500 per year for undergraduate students who expressed extreme financial need through the FAFSA application.
Without renewal, recipients will have to find other options to fill the gap in financial aid. Private banks and other government programs still provide student loans, but the Perkins program filled a unique gap in financial aid services.
Critics argue that the program added unnecessary complexity, considering other loan programs are provided directly from the government or another servicer, without the added layer of university involvement.
A recent op-ed in Forbes supported this line of thinking, also arguing that “the Perkins program delivers the greatest benefit to wealthy, elite institutions that do not need federal help.”
Many in higher education disagree with these sentiments, however, considering the program’s budget-neutral appeal and the socioeconomic reality of its beneficiaries, regardless of their university’s prestige.
According to Karla Weber, the communications manager for the Office of Student Financial Aid at UW-Madison, the average family income of a Perkins loan recipient is under $28,000 annually, roughly half the national median income.
“As families start to plan for the 2018-’19 school year and we are not able to offer Perkins, we are expecting a gap in traditional financial aid offers,” Weber said. “Filling any gap this significant can be tough and we do not have a simple or straightforward solution.”
The Perkins Loan Program expired once before in 2015, but was extended through Sept. 30 of last year, and higher ed lobbyists are pushing for another renewal as soon as possible.
But according to Clifford Robb, an associate professor of Consumer Science in the School of Human Ecology at UW-Madison, reinstating the program as-was may not be the best idea.
“Ideally the students would be able to go in knowing what they are taking out and in what amount, and that’s a difficult picture for students to get with the current loan system that is chunked out in separate packages with money from all over at different rates,” Robb said.
However, switching to a single, all-inclusive model would mean that other models, like the Perkins program, would be phased out, creating a potentially difficult transitionary period of increased reliance on private sector loans, which may be unable to support the needs of all students.
For this reason, Robb said that it would be worth fighting to get some form of the Perkins Loan extended. It is currently unclear that the ideal unanimous model will come into play soon enough to make up for the missing money.
Webber warned lawmakers to consider the potential implications of oversimplifying, arguing that the complications of our current system have been established in order to account for and reach the students who need financial aid the most.
“The concept of a simplified program appears to be rational for many. Yet, the reality is that families finance post-secondary education in many ways - through savings, work and work-study, gifts from family, federal, state, institutional and private loans. In addition tuition discounts, scholarships, and grants are used to reduce the cost of college,” Weber said. “Using one grant and/or one loan does not mean that the financing is better or easier.”
The Higher Education Act, first passed in 1965 with the intention of strengthening financial resources for college students, will be brought to the House floor this year for reauthorization for the first time since 2008, with significant debate around how to restructure loan programs like Perkins.
“Congressional gridlock should never take away the opportunity for higher education,” Webber said, arguing for continued student lobbying efforts on behalf of meaningful loan extension.
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