Student loan debt has continued to grow in Wisconsin as the cost of college has increased, topping out at $24.4 billion as of 2016, according to the Consumer Financial Protection Bureau. Wisconsin’s student debt load is a part of a $1.4 trillion nationwide debt held by 44 million people. The Cap Times is examining and explaining the student loan debt issue in a series of stories and a six-part podcast.
We are looking at what lawmakers in Wisconsin and in Washington, D.C., are saying about it, including the decision allow the Perkins loan program to expire.
New student loans made under the federal Perkins program ended on Oct. 1, which means there will be fewer dollars students can borrow at a relatively low interest rate to attend college. It leaves the federal government’s direct lending program as the sole borrowing mechanism for students who wish to borrow from the federal government.
Here are some questions and answers about how we got here and what happens next.
What was it?
The Perkins program was a federal loan program that allowed students who demonstrated financial need to take out loans for college up to $5,500 at a capped, fixed 5 percent interest rate. Students had 10 years to repay the loan and a nine-month grace period to begin payments after leaving school. The total an undergraduate could borrow was $27,500 over the course of their education. Graduate students could borrow up to $60,000, including the amount borrowed as an undergraduate.
Where did it come from?
The Perkins program traces its creation to Sputnik. After the USSR launched the first space satellite into orbit in 1957, Congress created the National Defense Student Loan program in 1958 designed to make America more competitive in the space race. The program was the first federal lending program after the GI Bill in 1944 and expanded loans to non-veterans. It encouraged students to study math, science, foreign languages, engineering and teaching. That program later evolved into the Perkins program that shifted its focus to low-income students. Perkins is named for Carl D. Perkins, a Democratic Congressman from Kentucky.
How did the program work?
Perkins was a campus-based program. Institutions received federal dollars, originated loans to their students and are responsible for servicing the loans throughout the repayment term. The Perkins Loan Program is a revolving loan program where the dollars collected from former students are used to make new loans to current students. The federal government hadn’t funded the program since 2004.
Who opposed it?
The program’s chief opponent in Congress has been U.S. Senator Lamar Alexander, R-TN, chairman of the Senate’s education committee and others who say that the federal aid system is convoluted. He has said the program complicated federal education lending and has advocated for a simpler system of unsubsidized loans.
Alexander has agreed to extend the program in the past, but last month blocked a bill by Sen. Tammy Baldwin to reauthorize the program. The bipartisan bill, cosponsored by Sen. Bob Casey, R-PA, and Republican Senators Susan Collins of Maine and Rob Portman of Ohio, would have continued it until October 2019.
How many students at UW-Madison will be affected?
According to university, more than 3,500 current UW-Madison students will be directly affected. During the lifetime of the program, however, over 138,000 UW-Madison students benefited from this low-cost, high impact loan with every federal dollar having successfully revolved approximately seven times.
Will this change affect students' ability to attend school?
Jeff Pfund, associate director for administration for the Office of Student Financial Aid at UW-Madison and a board member of the Coalition of Higher Education Assistance Organizations, which has lobbied for the reauthorization of Perkins, said there will be some impact, but it's unclear the scope and magnitude.
"It would be unrealistic of us to not expect some impact in regards to retention or recruitment, we just don't know how big or small of an impact we may see. ... This is a large gap to fill, and this does not include the Wisconsin private colleges that also participate in the program. During the temporary sunset of the program in 2015 schools nationally reported increased withdrawal rates and increased balances being owed. Historically, a last dollar Perkins loan would have been the solution."
How much money did students borrow from the program?
Perkins affects 27,513 Wisconsin students with $60.5 million in funding with 30 colleges and universities participating in the program. About half are UW System students, Pfund said.
According to UW-Madison, the program is self-funding and continuous repayments provide for advances between $7 million and $17 million annually at UW-Madison:
• In 2015-16, 3,599 students borrowed $8.1 million to average about $2,263 each.
• In 2016-17, students borrowed over $7.25 million from the program
• In 2017-18, students borrowed about $11 million
What happens now?
Many university administrators say the loss of Perkins will make it harder for students to secure enough loans to attend school. Some are looking for different funding sources, but most agree that the elimination of the program will drive students to more expensive loans.
Pfund said there are no statewide or national initiatives to replace Perkins. He hopes that Perkins could be reconsidered as Congress evaluates the larger Higher Education Act.
"Because Congress has not tackled HEA Reauthorization they should support a two-year extension. Allowing the program to expire without an alternative would be unkind to our most financially needy students," he said. "Informal conversations with others schools have yielded a hodgepodge of ideas with little to no economic viability. What is lost in the conversation is that a majority of Perkins programs are located in schools without substantial means to support an internal replacement program. Smaller schools with less resources will not have the ability to replace Perkins."
Will private lenders fund more student loans with the phase-out of Perkins?
Pfund says likely not.
"I do not feel private lenders will step up to the plate. For many Perkins students the school is the lender-of-last resort. These are families who typically do not qualify for loans based upon credit or family income. These families look to the school for help," he said.
"Student loans are unique. We give loans to young people without credit scores and without jobs on the premise that they will graduate and get good jobs. The federal government provides a unique role in creating this market — a market that private lenders really do not want to be in. Our alumni have created a self-supporting system by repaying their loans on time thus allowing us to fund additional generations of students with their repayments.
"In addition, the federal Perkins program allows students to cancel their loans if they join the Peace Corps or become a nurse or police officer or serve in the military," he said. "No private loan would ever offer such a benefit."