Unfortunately, the federal government won't let most traditional undergraduates borrow more than $5,500 a year through the Stafford program. (Adult, non-traditional undergraduate students can borrow a maximum of $10,500 a year in Stafford loans.) The average net cost of attendance at a public four-year university (after subtracting out scholarships) is about $13,000, so many students who max out their Stafford loans still need to borrow more. Those students can ask their parents to borrow through the federal PLUS program, which charges a maximum of 9.4 percent after all fees are counted. Or they can try to get a bank to approve a private loan. But because of the recent credit crunch, banks are tightening up on private loans, rejecting all but those with the best credit and often charging even those folks higher interest rates.
The higher interest rates on other loans and the quirky rules governing the Perkins program are at the root of the Perkins shortage, says Larry Zaglaniczny, director of congressional relations for the National Association of Student Financial Aid Administrators. While the federal government guarantees that anyone who qualifies for a federal Stafford or PLUS loan will get their money, there is no such guarantee for Perkins loans. Instead, each college has a fixed pool of Perkins money it can lend. Schools have to wait until their graduates start paying old Perkins loans back to get money they can then recycle out to new students. During the first half of the decade, most college graduates paid off Perkins loans very quickly because interest rates in general were so low that many consolidated all their educational debt into one new lower-cost loan. But now that interest rates have spiked upward, most new graduates are choosing to keep the Perkins loans and their 5 percent rate over the 10-year term of the loan. So instead of getting all their money back quickly after a student's graduation, colleges are collecting a few hundred dollars a month from each borrower.
One reason Washington isn't boosting the Perkins program is because some in Congress and the administration feel the program is not fair. Perkins funding has not been spread equally to all schools. Because each school's Perkins pool was set years ago, schools that have recently seen a big jump in enrollment, for example, have much less, per student, to hand out. That means a student who would qualify for a Perkins loan at one school might not be offered one at another school. The federal Stafford and PLUS programs, on the other hand, treat all college students equally.
Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group, said that while the Perkins program is imperfect, the declines are unfortunate because "it is a good program and helps a lot of students."