Last March, the passage of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provided for the suspension of loan payments, stopped collections on defaulted loans and set a 0% interest rate on Department of Education-owned federal student loans. The measure was extended three times over the course of the COVID-19 pandemic, allowing for much-needed relief for loan hoalders.
But not all graduates have been given the same opportunity.
“This university has had the voluntary authority to provide this kind of relief, but [hasn’t] done it,” Brooke Evans interjected. “How did they come to that decision? Who was at the table? What's the approval process?”
Evans, a UW alum and activist, came to UW-Madison as a nontraditional, transfer student. Barred in 2012 from the FASTrack program, Evans accepted a loan offered to her by the University through her financial aid package. It was a Perkins loan — a federal loan excluded from the federal stimulus package.
“I was always trying to prove that I was good enough to invest in and most people didn't think that I was. The university offered me some grants; I was a Pell Grant student. And then they offered me loans, Perkins loans,” she stated.
Perkins loans are a need-based, low-interest student loan offered by the U.S. Department of Education to assist low-income American college students. They featured a fixed 5% interest rate and, at nine months, a longer grace period than other student loans. What sets Perkins loans apart from other federal loans is that the school is the lender, not the government. Universities and colleges that participate in the program would provide a portion of the loan and the borrower would repay the school directly.
The Federal Perkins Loan Program ended in 2017 due to concerns that it was poorly structured and no longer as useful as other loans, even private ones, were able to offer lower interest rates. Despite this, Americans have borrowed about $6 billion from the now-defunct program.
The Department of Education announced to colleges and universities in April 2020 that they could suspend payments voluntarily and set interest rates at zero on Perkins Loans through the end of September. The department also gave schools permission to stop collection on past-due Perkins loan payments at the borrower’s request.
In August, the University of California suspended interest and payments on $140 million in education loans that it owned in an effort to offer alumni student debt relief during the pandemic. The effort reflected much of the student debt relief offered in the $2 trillion federal stimulus package through the Cares Act, but it ensured coverage for Perkins Loans as well.
“We’re trying to level the playing field for students,” Shawn Brick, director of student financial support at UC told the Washington Post. “We felt it was important to make sure students with loans where UC is the lender of record have the same support.”
UW-Madison did not make the same choice.
Instead of suspending payments and interest, the university has continued to collect on the loans despite the Department of Education repeatedly extending its decision.
This past month, Evan’s Perkins loan was put into administrative forbearance without her knowledge or consent. Her payments had been effectively “suspended,” but as forbearance stipulates, the loan would keep accruing interest.
“I never agreed to it. I just got an email that they had been put into administrative forbearance, and that the university was going to charge me interest every month. And I was horrified,” Evans recollected. “All of these things just have such devastating ripple effects. I've really struggled, and I feel that Perkins borrowers [are] being failed again.”
On March 7, Evans and founders of the UW BIPOC Coalition Tarah Stangler and Megan Spielbauer Sandate sent an email to Director of Financial Aid Helen Faith, Federal Awards Coordinator Vera Abing, Director of Student Accounts and Collections Ginger Perkins and Assistant Director of Federal Awards Katy Weisenburger requesting to meet and discuss the university’s handling of Perkins loans and ask questions about the decision to continue collecting payments.
“The Department of Education has authorized higher education institutions to suspend interest and payments on Perkins loans held by the institution from March 13th, 2020 to September 30th, 2021,” the Coalition wrote. “We want to ask why UW–Madison is continuing to collect Perkins loan payments during the COVID-19 pandemic instead of providing UW-Madison alumni and former students relief?”
An additional question that the group posed for the university staffers was how exactly the payments for Perkins loans were being used. Perkins loans are a “revolving loan fund,” which means that loans given to students are replenished by collections on pre-existing loans and through reimbursements from the Department of Education for the cost of certain loan cancellations. If payments aren’t being pooled back into the fund, where are they going?
“We are insisting upon a meeting with you all because we have tried to find information about the Federal Perkins Loans Program from the Office of Student Financial Aid and Bursar’s Office online and by phone; however, we have not been provided with clear answers,” the email concluded.
In her response, Director Faith did not acknowledge their invitation or answer their questions.
“We sincerely appreciate your advocacy and share your commitment to students,” she wrote. “Our Student Loan Servicing team is charged with serving our borrowers (both graduates and those who had to stop out or did not graduate) with an ethos of compassion.”
Instead, Faith presented a variety of other options that students in need of relief can pursue, including requesting a deferment, which would pause both payments and interest accumulation for 12 months, or forbearance, which would only pause payments for the same amount of time.
“When she’s talking about students applying for deferments and receiving them, they are using up a handful of deferments for their entire life to get through the global pandemic when other borrowers have not had to do that,” Evans noted. “Those are things that people should be using for the loss of a partner or a family member, or if they lose their job, not for this.”
UW-Madison Communications Director Meredith Mcglone echoed Faith’s response, stating that the university has in fact “paused” Perkins loan payments through deferment and forbearance. She also added that UW-Madison’s most recent Perkins Loan cohort default rate is less than one percent at 0.73% and that current borrowers have a high repayment rate.
The UW System did not respond to requests for comment.
With nearly 2 million Americans remaining indebted to the program, many graduates have a lot at stake. While the minimum monthly repayment rates set by law is $40 for Perkins loan holders, the U.S. Department of Education: The Guide to Federal Student Aid, 2009-10 estimates that a $4,000 loan, less than a semester of in-state tuition, would require a typical monthly payment of $42.43 and an interest charge of $1,091.01. A loan for $5,000 would call for approximately $53.03 monthly and $1,364.03 of interest. A $15,000 Perkins loan will result in a $159.10 monthly payment and a grand total of $4,091.73 in interest charges.
The impact these payments have, especially during the pandemic, can affect all areas of loan-holders lives.
Cliff Rob, an Associate Professor of Personal Finance at the School of Human Ecology, pointed to increasing student loan amounts and multiple lenders as a major factor in loan-holders financial decisions after graduation. From home-ownership to starting families, some graduates have struggled to justify these expenses due to stress and lack of financial satisfaction caused by loan debt.
“We're definitely seeing real inequalities, impacts on minority households, lower-income households that take out a lot of college student loan debt. It's not equal, they're struggling in the long run,” Rob said.
Evans experienced homeless while attending UW, and she still grapples with housing insecurity today. Before she came to reside at a congregate living facility, Evans once again dealt with homelessness as she worked to maintain her debt. Still, she hopes that the University will soon come forward with an explanation of why the choice was made to continue taking payment on loans from low-income alumni.
“I feel that we are owed, as Perkins borrowers, an explanation as to why the university did not offer to [suspend payments,]” Evans said. “I hope it strikes people as odd that the university was collecting and reporting on Perkins loan debt during a pandemic. These are students with exceptional financial aid. The university absolutely owes the community an explanation.”