Moving Forward with Perkins Loan Assignments: Rules, Deadlines, and Process

Monday, March 04, 2024

The Perkins Loan Program was a federal student loan program that provided low-interest loans to students with exceptional financial need. No new loans have been issued since the Program’s expiration in 2017. Existing borrowers are still required to repay their loans according to the terms of the program.

On August 27, 2021, the Department of Education (“ED”) mandated that institutions assign all Perkins Loans that were more than two years delinquent back to the government. Though the June 30, 2023 deadline has passed, institutions must continue to show progress in assigning past-due loans. A school may assign any Perkins Loans (non-defaulted or defaulted) to ED at any time during the program year. This guide explores the assignment and liquidation processes.

What is an assignment?

Loan assignment is the process an institution takes to relinquish a borrower’s loan and all associated rights. These rights include any share of payments collected for the loan once that loan has been accepted and assigned to another entity.

In this case, an institution would assign one or more Perkins Loans to ED, effectively transferring all rights and responsibilities for servicing and collecting on the loan to the United States government.

Why assign loans?

Assigning past-due Perkins Loans to ED is a requirement as of August 2021. But besides the mandate to do so, assigning past-due Perkins Loans can be good for institutions in that it helps maintain a healthy financial portfolio. Assigning a loan means transferring all rights and responsibilities for servicing and collecting that loan to the government. The government wants these loans assigned because it has collection options that schools do not have access to that can prove more successful.

What is the difference between loan assignment and liquidation?

According to the FSA’s Assignment and Liquidation Guide, “assigning loans to the Department does not mean a school is liquidating its portfolio and fund. Schools that plan to liquidate must electronically submit an intent to liquidate and close out the program. The Department strongly encourages schools to continue to review their portfolios on an ongoing basis and continue to assign older, nonperforming, defaulted loans to the Department.” “Over the past few years, many schools did a fairly good job of cleaning those delinquent loans up and assigning them to ED,” said Chris Stompanato, ECSI Client Relationship Coordinator and SME. “Now that their portfolios are much smaller due to these assignments, liquidation becomes a real possibility for many schools. ECSI is a trusted partner that can work with clients on their options and process.”

When should I liquidate or close out my Perkins Loan Program?

Many higher education institutions want to close their books on the Perkins Loan program, but timing can make a big difference depending on the portfolio. For example, if a school’s portfolio is comprised of loans held by students who consistently make payments, that institution might see a benefit to remaining in the program. Delinquency, defaults, and difficulty receiving repayment might indicate that it’s time to exit the program completely.

According to NACUBO, “Institutions have the option to assign Perkins Loans to ED or liquidate their revolving fund. However, when loans are assigned, ED keeps all monies collected and does not reimburse the institutional share. On the other hand, if an institution keeps operating the program and remits excess cash annually, it can keep its share and repurpose the funds.”

Each institution should analyze its portfolio and consider loan performance and liquidation timing to design a beneficial exit plan. The FSA’s Assignment and Liquidation Guide provides options and details about the assignment process.

What documentation do I need to complete the assignment process?

To complete the process, you’ll need the loan’s promissory note. If you cannot locate the loan’s promissory note, you can present alternative documentation, including:

  • Signed Exit Interview
  • Truth In Lending Statement
  • Entitlement Forms
  • Proof of prior payments on Perkins Loans

Our experts recommend explaining why the school is missing a promissory note (e.g., a natural disaster such as a flood, a fire, otherwise lost or destroyed, etc.) and affirming that the school conducted a thorough search of all its records and believes that the promissory note no longer exists. The explanation must detail the alternate documentation that is being submitted and should be on a separate sheet of paper that is included with the alternate documents.

If no acceptable documentation exists to assign the loan, your school may be required to purchase it. Because the loan continues to accrue interest until purchased, it’s in your school’s best interest to locate documentation as quickly as possible.

How can I best navigate the assignment process?

The assignment process involves borrower notifications, contacting collection agencies, creating forms, generating a loan history, and more – for every loan. It’s a considerable amount of administrative work.

As an industry expert in all things Perkins Loans, ECSI can support schools with both delinquent assignments and assignments as part of a liquidation. Our optional Government Assignment Package and Enhanced Government Assignment Package solutions make it simple. Let ECSI take the burden of government assignments off your business office. Schedule a demo, today.

Recommended for you