Federal Perkins Loans and FFEL/DL Stafford Loans: A Brief Comparison

Federal Perkins Loans and FFEL/DL Stafford Loans: A Brief Comparison

Order Code RL32854
CRS Report for Congress
Received through the CRS Web
Federal Perkins Loans and FFEL/DL
Stafford Loans: A Brief Comparison
Updated June 3, 2005
David P. Smole
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Federal Perkins Loans and FFEL/DL Stafford Loans:
A Brief Comparison
Summary
Currently undergraduate, graduate, and professional students have the option,
consistent with student eligibility requirements and institutional participation, of
borrowing to finance the costs of their higher education using three types of federal
education loans authorized under the Higher Education Act (HEA): Perkins Loans,
Subsidized Stafford Loans, and Unsubsidized Stafford Loans. Perkins Loans are
low-interest, fixed-rate loans made available to students with financial need under the
Federal Perkins Loan program. No interest accrues on Perkins Loans while students
are enrolled in school at least half-time, nor during grace or deferment periods.
Subsidized Stafford Loans are low-interest, variable-rate loans made available to
students on the basis of their financial need. The federal government subsidizes the
loans by paying the interest that accrues on the loans while students are in school, and
during grace and deferment periods. Unsubsidized Stafford Loans are low-interest,
variable-rate loans made available to students regardless of their financial need. The
federal government does not pay the interest that accrues on these loans. Both
Subsidized Stafford Loans and Unsubsidized Stafford Loans may be awarded under
either of two competing federal loan programs: the Federal Family Education Loan
(FFEL) program, and the William D. Ford Direct Loan (DL) program.
The HEA is expected to be considered for reauthorization during the 109th
Congress, and during debate over reauthorization, consideration may be given to
amending the terms and conditions of existing federal education loan programs. The
Congress also might consider whether it is optimal to continue offering federal higher
education loans through multiple programs. The Administration has called for
terminating the Federal Perkins Loans program, having determined it to be
duplicative of the Subsidized Stafford Loans available under the FFEL and DL
programs, and because of its shrinking role in financing students’ higher education
costs.
This report provides a brief introduction to and comparison of key aspects of
Perkins Loans and Stafford Loans. Following a brief summary of these loan
products, the report compares Perkins Loans and Stafford Loans according to
selected criteria. This report is intended to provide the interested reader with a basic
understanding of Perkins Loans and Stafford Loans and to highlight some of their key
similarities and differences. It will be updated consistent with programmatic
changes.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Perkins Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Stafford Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparison Between Perkins Loans and Stafford Loans . . . . . . . . . . . . . . . . . . . 3
Institutional Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Basic Borrower Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Borrowers and Loan Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Costs to Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Annual Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Aggregate Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Interest: Rates and Accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Repayment Period and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repayment Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Loan Default and Cohort Default Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Loan Rehabilitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Figures
Figure 1. Historical Rates During Repayment for Perkins Loans and Stafford
Loans: 1995-1996 Through 2005-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. Perkins Loan Borrowers and Loan Volume: AY2003-AY2004 . . . . . . 6
Table 2. Stafford Loan Borrowers and Loan Volume: AY2003-AY2004 . . . . . . 7
Table 3. Perkins Loans: Annual Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 4. Stafford Loans: Annual Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 5. Perkins Loans: Aggregate Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 6. Stafford Loans: Aggregate Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 7. Perkins Loan Cancellation Rates by Type of Service . . . . . . . . . . . . . . 13
Table 8. Federal Perkins Loan Program and FFEL/DL Program Cohort
Default Rates, 1996-2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Federal Perkins Loans and FFEL/DL
Stafford Loans: A Brief Comparison
Introduction
Currently, several types of federal student aid (FSA) education loans may be
made available to undergraduate, graduate, and professional students in attendance
at participating institutions of higher education (IHEs) through programs authorized
under the Higher Education Act of 1965 (HEA), as amended by P.L. 105-244.
Federal Perkins Loans are low-interest, fixed-rate loans made available to students
with financial need.1 Students are not charged fees for borrowing Perkins Loans and
no interest accrues while students are enrolled in school at least half-time, nor during
grace or deferment periods. Subsidized Stafford Loans are low-interest, variable-
rate loans made available to students on the basis of their financial need. The federal
government subsidizes the loans by paying the interest that accrues on the loans
while students are in school, and during grace and deferment periods. Unsubsidized
Stafford Loans are low-interest, variable-rate loans made available to students
regardless of their financial need. The federal government does not pay the interest
that accrues on these loans. Students may be charged fees of up to 4% for borrowing
Stafford Loans. Both Subsidized Stafford Loans and Unsubsidized Stafford Loans
may be awarded under either of two competing federal loan programs: the Federal
Family Education Loan (FFEL) program, and the William D. Ford Direct Loan (DL)
program.2
The HEA is expected to be considered for reauthorization during the 109th
Congress.3 As bills that would reauthorize HEA programs are introduced and
considered, the Congress may debate reauthorizing (and potentially amending the
terms and conditions of) Perkins Loans and Stafford Loans. Also, in its FY2006
budget request, the Administration proposed terminating the Perkins Loan program,
in large part because the Office of Management and Budget (OMB) has found
Perkins Loans to be duplicative of the Subsidized Stafford Loans available under the
1 For additional information on Perkins Loans, see CRS Report RL31618, Campus-Based
Student Financial Aid Programs Under the Higher Education Act, by David P. Smole.
2 In this report for purposes of simplicity, where commonalities exist, Subsidized Stafford
Loans and Unsubsidized Stafford Loans are jointly referred to simply as Stafford Loans.
However, significant differences between Subsidized and Unsubsidized Stafford Loans are
noted as appropriate. For further information on Subsidized and Unsubsidized Stafford
Loans, see CRS Report RL30655, Federal Student Loans: Terms and Conditions for
Borrowers, by Adam Stoll. (Hereafter cited as CRS Report RL30655.)
3 For further information on reauthorization of the HEA, see CRS Issue Brief IB10097, The
Higher Education Act: Reauthorization Status and Issues, by Adam Stoll.

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FFEL and DL programs, and because of the declining number of IHEs participating
in the program and the small percentage of students served.4
This report provides a brief introduction to and comparison of key aspects of
Perkins Loans and Stafford Loans. Following a brief summary of these loan
products, the report compares Perkins Loans and Stafford Loans according to
selected criteria. This report is intended to provide the interested reader with a basic
understanding of Perkins Loans and Stafford Loans and to highlight some of their key
similarities and differences.
Perkins Loans
The Federal Perkins Loan Program is one of the three campus-based HEA
programs. It is currently authorized under Title IV-E of the HEA and is a successor
to Title II — Loans to Students in Institutions of Higher Education, of the National
Defense Education Act of 1958 (P.L. 85-864), which was incorporated into the HEA
through the Education Amendments of 1972 (P.L. 92-318). As a campus-based
program, participating institutions play a significant role in the program’s operation,
ranging from being required to provide institutional matching funds for the
capitalization of institutional revolving loan funds, to their discretion in establishing
institution-specific criteria for awarding and packaging aid, to their responsibility for
administering their own Perkins Loan portfolios.
Under the Perkins Loan program, federal funds are allocated to participating
IHEs to assist them in capitalizing revolving loan funds for the purpose of making
low-interest loans (fixed at 5%) to students with financial need. Institutions’
revolving loan funds are capitalized with a combination of federal capital
contributions (FCCs) and institutional capital contributions (ICCs),5 principal and
interest repaid by students previously awarded Perkins Loans, and any other charges
or earnings associated with the operation of the program. Maximum values for
Perkins Loan awards are set by statute; however, the actual value of a Perkins Loan
awarded to any individual student depends in large part on institution-specific
conditions, such as the size of the IHE’s revolving loan fund, the student’s financial
need relative to the need of other FSA applicants at the institution, and the
application of the IHE’s own policies on awarding campus-based aid. Borrowers
have a grace period of nine months after no longer being enrolled at least half-time
to begin repaying their Perkins Loans. No interest accrues on Perkins Loans prior to
a student beginning repayment, while repayment is suspended during deferment, and
during grace periods. In general, Perkins Loans must be repaid within 10 years of a
student beginning repayment. Students may have their Perkins Loans cancelled
following their employment in certain types of public service.
4 Office of Management and Budget, Budget of the United States Government, Fiscal Year
2006 — Appendix: Department of Education, p. 368; Office of Management and Budget,
Program Assessment Rating Tool, Department of Education, Federal Perkins Loans,
available at [http://www.whitehouse.gov/omb/budget/fy2006/pma/education.pdf]; and U.S.
Department of Education, Fiscal Year 2006 Justifications of Appropriation Estimates to the
Congress, vol. 2, p. N-6.
5 Under current law, IHEs must contribute ICCs to match FCCs on at least a 1-to-3 basis.

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Stafford Loans
Subsidized and Unsubsidized Stafford Loans are authorized to be awarded to
eligible students under both the Federal Family Education Loan (FFEL) and the
William D. Ford Direct Loan (DL) programs.6 (Other types of loans authorized
under the FFEL and DL programs are PLUS Loans (loans for parents) and
Consolidation Loans.)7 The FFEL program is a successor to the Guaranteed Student
Loan (GSL) program, first enacted under the HEA of 1965. Currently, the FFEL
program is authorized under Title IV-B of the HEA. The DL program was
established under the Higher Education Amendments of 1992 (P.L. 102-325), and is
currently authorized under Title IV-D of the HEA. IHEs may participate in either
program.
Both Subsidized and Unsubsidized Stafford Loans are low-interest variable-rate
loans (with interest rates capped at 8.25%) that may be awarded to eligible
undergraduate and graduate and professional students. Maximum loan limits are set
by statute and students are entitled to borrow amounts (combined subsidized and
unsubsidized) up to applicable loan limits. A student’s Subsidized Stafford loan
amount is determined through need analysis procedures. The federal government
“subsidizes” or pays interest as it accrues on Subsidized Stafford Loans during the
period when eligible borrowers are enrolled at least half-time, during a six-month
grace period, and during deferment. Borrowers of Stafford Loans may select from
among a range of repayment options. They may also consolidate multiple Stafford
Loans (along with other loans, including Perkins Loans) to simplify the repayment
of their loans or obtain preferable terms of repayment. Certain Stafford Loan
borrowers who are employed as highly qualified teachers in low-income schools may
have up to $17,500 of their loan balance forgiven.
Comparison Between Perkins Loans
and Stafford Loans
The remainder of this report presents a brief comparison between Perkins Loans
and Stafford Loans (distinguishing between Subsidized and Unsubsidized Stafford
Loans, as appropriate) on the basis of selected criteria. These comparisons highlight
in simplified terms how the loan products match up against one another.8 A basic
6 A key distinction between the FFEL and the DL programs is that under the FFEL program,
loans are capitalized by private lenders, with the federal government providing lenders with
a guarantee against loss due to borrowers’ inability to repay their loans; whereas under the
DL program, the federal government is the lender and capitalizes loans with federal funds.
7 For a more thorough description of loan products available under the FFEL and DL
programs, see CRS Report RL30655.
8 Terms and conditions of FSA loan programs are detailed and complex. This report only
highlights several key characteristics of Perkins Loans and Stafford Loans. It is not intended
to provide a complete description of all aspects of these FSA loan products. For example,
administrative costs for the Perkins Loan program and loan subsidy rates for Stafford Loans
under the FFEL and DL programs are beyond the scope of this report.

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description of the characteristics of Perkins Loans and Stafford Loans is provided for
each criterion.
Institutional Participation
Perkins Loans. As with all Title IV programs, determination of institutional
eligibility for participation and continued eligibility is made in accordance with the
requirements of HEA §102.9 In addition, IHEs participating in the Federal Perkins
Loan program must apply annually to the U.S. Department of Education (ED) to
request additional FCCs to expand their revolving loan funds and to receive
authorization to disburse loans for the upcoming award year (AY) — their authorized
level of expenditure (LOE).10 During AY2004-AY2005, nearly 1,800 IHEs
participated in the Perkins Loan program.11
Institutions may lose their eligibility to participate in the Perkins Loan program
for having a cohort default rate in excess of allowable levels.12 An IHE with a cohort
default rate of 25% or greater is not eligible to receive an FCC. An IHE with a
cohort default rate of 50% or greater, for each of the three most recent years for
which data are available, loses eligibility to participate in the program for the
remainder of the current award year and the succeeding two years. These IHEs are
also required to liquidate their revolving loan funds, returning the federal share to the
federal government; and to assign the outstanding loan portfolio to ED.
Stafford Loans. Title IV-eligible institutions may participate in the FFEL
program, the DL program, or both. Under the FFEL program, eligible students
attending participating institutions may receive both Subsidized Stafford Loans and
Unsubsidized Stafford Loans from participating banks and other lenders. FFEL
lenders are responsible for capitalizing and servicing their loans. Students attending
institutions participating in the DL program borrow Subsidized Stafford Loans and
Unsubsidized Stafford Loans from the federal government. Under the DL program,
loans are capitalized by the federal government and serviced by private contractors.
In FY2004, approximately 5,000 institutions participated in the FFEL program and
nearly 1,000 participated in the DL program.13
9 For further information on institutional eligibility, see CRS Report RL31926, Institutional
Eligibility for Participation in Title IV Student Aid Programs Under the Higher Education
Act: Background and Issues, by Rebecca R. Skinner.
10 For FY2005, no funds were appropriated for FCCs. Participating IHEs were still required
to request authorized LOEs for purposes of disbursing new loans for AY2005-AY2006.
11 U.S. Department of Education, Office of Postsecondary Education, Federal Campus-
Based Programs Data Book 2004, available at [http://www.ed.gov/finaid/prof/resources/
data/databook2004/index.html].
12 Cohort default rates are described in greater detail below (“Loan Default and Cohort
Default Rates”).
13 U.S. Department of Education, Fiscal Year 2006 Justifications of Appropriation Estimates
to the Congress, vol. 2, pp. Q-3 through Q-4.

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Similar to the Perkins Loan program, institutions may lose their eligibility to
participate in the FFEL and DL programs due to an excessive cohort default rate.
Under the FFEL and DL programs, an IHE loses eligibility to participate for having
either a cohort default rate of 25% or more for each of the three most recent fiscal
years, or a cohort default rate of 40% or more for the most recent fiscal year. In
either case, an IHE loses eligibility for the remainder of the current fiscal year and the
two subsequent fiscal years.14
Basic Borrower Eligibility
Perkins Loans. In general, students with financial need15 (undergraduate,
graduate, and professional) are eligible to receive Perkins Loans. Students enrolled
in a program leading to a degree or certificate are eligible for Perkins Loans, even if
enrolled less than half-time.16 If any part of an institution’s FCCs were based in part
on the financial need of independent students or students enrolled less than half time,
then a “reasonable” proportion of the total value of Perkins Loans made by that IHE
must be awarded to those categories of students. Institutions are required to establish
and maintain written procedures for selecting students for Perkins Loans and to give
priority in the making of loans to students with exceptional financial need consistent
with those procedures. Eligibility to receive a Perkins Loan is contingent upon the
borrower being willing to repay the loan; and failure to have made payments on a
previous loan may be considered evidence of unwillingness to repay.17
As a campus-based program, Perkins Loans are administered by the IHE a
student attends. A student’s opportunity to receive aid under the program may be
affected by institution-specific factors. These include the amount of funds available
from which to make Perkins Loans, the IHE’s criteria for awarding aid, and the mix
of students competing for loans. For example, a middle-income undergraduate
dependent student at a private four-year institution with a very large Perkins Loan
fund, but few low-income students may be more likely to receive a Perkins Loan than
a comparable student attending a public two-year institution with a small Perkins
Loan fund, but many low-income students.18
14 Certain exceptions apply for historically black colleges and universities (HBCUs) and
tribally controlled colleges and universities (TCCUs). For further information on these
exceptions and on FFEL/DL cohort default rates in general, see CRS Report RS21760,
Student Loan Cohort Default Rates: Exceptions for Certain Minority-Serving Institutions,
by Charmaine Jackson.
15 For information on the determination of financial need, see CRS Report RL32083,
Federal Student Aid Need Analysis: Background and Selected Simplification Issues, by
Adam Stoll and James B. Stedman.
16 Students enrolled in teacher certification or professional credential programs that do not
lead to a degree or certificate must be enrolled at least half time to be eligible for Perkins
Loans.
17 34 CFR 674.9(e).
18 For further information on the distribution of Perkins Loan aid to students, see CRS
Report RL32775, The Campus-Based Financial Aid Programs: A Review and Analysis of
(continued...)

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Stafford Loans. All students meeting eligibility requirements are entitled to
receive Stafford Loans. (Loan availability is not contingent on federal
appropriations.) Students (undergraduate, graduate, and professional) must be
enrolled at least half-time to borrow Stafford Loans and must be enrolled in a
program leading to a degree or certificate.19 Only students with financial need may
borrow Subsidized Stafford Loans. Students may borrow Unsubsidized Stafford
Loans (up to applicable loan limits — discussed later) irrespective of their financial
need. The institution a student attends determines whether to make Stafford Loans
available under the FFEL or DL program. IHEs are permitted to refuse to certify or
originate Stafford Loans, or to certify them for reduced amounts on a case-by-case
basis.20
Borrowers and Loan Volume
Perkins Loans. Information on students awarded Perkins Loans is presented
in Table 1. Perkins Loans — which are available only to students determined to
have financial need — are awarded to substantially fewer students than are Stafford
Loans. Over 756,000 students received Perkins Loans averaging $2,166 in AY2003-
AY2004 (the latest year for which data are available).
Table 1. Perkins Loan Borrowers and Loan Volume:
AY2003-AY2004
Loan type
Borrowers
Volume
Average borrowed
Perkins Loan
756,348
$1,638,502,202
$2,166
Source: U.S. Department of Education, Office of Postsecondary Education, Fiscal Operations Report
and Application to Participate: Award Period July1, 2003-June 30, 2004.
Stafford Loans. Selected information on Subsidized Stafford Loans and
Unsubsidized Stafford Loans awarded under both the FFEL and DL programs is
presented in Table 2 for AY2003-AY2004. Subsidized Stafford loans, which are
most similar to Perkins Loans, were awarded to 5.4 million students. The average
Subsidized Stafford Loan was $3,448 and some borrowers took out more than one
loan. Over 3.9 million students took out Unsubsidized Stafford Loans, with the
average loan amount being $4,150. Contingent upon financial need and applicable
loan limits, some students borrow both Subsidized and Unsubsidized Stafford Loans.
18 (...continued)
the Allocation of Funds to Institutions and the Distribution of Aid to Students, by David P.
Smole.
19 Students enrolled in teacher certification or professional credential programs that do not
lead to a degree or certificate also are eligible to receive Stafford Loans under either the
FFEL or DL programs.
20 34 CFR 682.603(e) and 685.301(a)(7).

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Table 2. Stafford Loan Borrowers and Loan Volume:
AY2003-AY2004
(net commitmentsa — estimated)
Loan type
Borrowers
Volume
Average loanb
Subsidized Stafford
5,418,000
$22,458,000,000
$3,448
Unsubsidized Stafford
3,951,000
$20,062,000,000
$4,150
Source: U.S. Department of Education, Budget Service, Student Loan Volume Tables — FY2006
President’s Budget.
a. Net commitments represents loans disbursed to students and excludes loans that were originated,
but never disbursed due to students dropping out or otherwise failing to attend school.
b. “Average loan” is less than total volume divided by the number of borrowers because some
borrowers have more than one loan.
Costs to Borrowers
Perkins Loans. In general, other than interest, there are no charges associated
with borrowing under the Perkins Loan program. However, borrowers who are late
in making payments or who default on their loans may be assessed charges, such as
late fees (limited to 20% of a borrower’s monthly payment), attorney’s fees, or other
collection costs.
Stafford Loans. Stafford Loan borrowers may be required to pay loan
origination and insurance fees totaling up to 4%. However, lenders have some
discretion in assessing these fees, depending on whether loans are disbursed under
the FFEL or the DL program. Under the FFEL program, loan origination fees of up
to 3% of the principal borrowed may be assessed to borrowers. In addition, guaranty
agencies may assess lenders an insurance premium of not more than 1%, and lenders
may pass this fee on to borrowers. Under the DL program, a 3% loan origination fee
is charged to all borrowers. DL borrowers are not charged an insurance fee.
Annual Loan Limits
Perkins Loans. Annual loan limits for Perkins Loans are shown in Table 3.
The annual loan limit is the same for dependent and independent undergraduate
students and does not depend on a student’s year in school.21 Students may borrow
up to the lesser of the amount of their financial need or the applicable loan limit.
21 Independent students often have greater financial need than dependent students because
their parents’ financial resources are not considered in determining their expected family
contribution (EFC).

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Table 3. Perkins Loans: Annual Loan Limits
Student type
Annual loan limit
Undergraduate (dependent and independent)
$4,000
Graduate and professional
$6,000
Source: HEA § 464(a).
Note: Annual loan limit may be increased by up to 20% for students studying abroad in approved
programs.
Stafford Loans. Annual Stafford Loans limits are shown in Table 4.
Undergraduate independent students have higher total loan limits than undergraduate
dependent students with the same number of years in school. Loan limits for
graduate and professional students are higher than for undergraduates and are not
dependent on their year in school. The total annual Stafford Loan limit applies to the
sum of Subsidized and Unsubsidized Stafford Loans. Undergraduate dependent
students can borrow up to the total loan limit with any combination of Subsidized
and Unsubsidized Stafford Loans. (Students may borrow Subsidized Stafford Loans
up to the lesser of either their financial need or the applicable Subsidized Stafford
Loan limit.) For independent students (undergraduate, graduate and professional) the
total annual loan limit is higher than the Subsidized Stafford Loan limit.
Table 4. Stafford Loans: Annual Loan Limits
Total (Subsidized &
Student type
Subsidized Stafford
Unsubsidized Stafford)
Undergraduate dependent*
1st year
$2,625
$2,625
2nd year
$3,500
$3,500
3rd year & beyond
$5,500
$5,500
Undergraduate independent
1st year
$2,625
$6,625
2nd year
$3,500
$7,500
3rd year and beyond
$5,500
$10,500
Graduate and professional
Any year
$8,500
$18,500
Source: HEA §§ 425(a) and 428H(d); and 34 CFR 682.204 and 685.203.
* Parents of undergraduate dependent students also are eligible to borrow PLUS loans. Loan limits
may be lower for students enrolled less than full time.

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Aggregate Loan Limits
Perkins Loans. Aggregate loan limits for Perkins Loans are presented in Table
5. The loan limits apply only to unpaid principal.
Table 5. Perkins Loans: Aggregate Loan Limits
Student type
Aggregate loan limit
Undergraduate (dependent and independent) who have not
$8,000
yet completed two years of undergraduate study
Undergraduate (dependent and independent) who have
$20,000
completed two or more years of undergraduate study
Graduate and professional
$40,000
Source: HEA §464(a).
Note: Aggregate loan limit may be increased by up to 20% for students studying abroad in approved
programs.
Stafford Loans. Aggregate loan limits applicable to Stafford Loans are shown
in Table 6. For undergraduate students, aggregate Subsidized Stafford Loan limits
are the same for dependent and independent students. Undergraduate independent
students may borrow more in the aggregate than may dependent students by
borrowing both Subsidized and Unsubsidized Stafford Loans. Loan limits for
graduate and professional students are substantially higher than those for
undergraduate students.
Table 6. Stafford Loans: Aggregate Loan Limits
Total (Subsidized and
Student type
Subsidized Stafford
Unsubsidized Stafford)
Undergraduate dependent*
$23,000
$23,000
Undergraduate independent
$23,000
$46,000
Graduate and professional
$65,500
$138,500
Source: HEA §§ 425(a) and 428H(d); and 34 CFR 682.204 and 685.203.
* Parents of undergraduate dependent students also are eligible to borrow PLUS loans. Loan limits
may be adjusted for students enrolled less than full time.

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Interest: Rates and Accrual
Perkins Loans. For Perkins Loans disbursed on or after October 1, 1981,
interest accrues at a fixed annual rate of 5%.22 No interest accrues on Perkins Loans
while a student is enrolled at least half-time, during a grace period of nine months
following a student ceasing to be enrolled at least half time, nor during deferment
(discussed later). Institutions may establish incentive repayment programs in which
they may reduce the interest rate by up to 1 percentage point in instances where a
student has made 48 consecutive payments. In addition, if a student repays a Perkins
Loan in full prior to the end of the repayment period, an institution may discount the
loan balance owed by up to 5% at the time the repayment is made.
Stafford Loans. Stafford Loans currently carry a variable interest rate that
fluctuates annually with the bond equivalent rate of the 91-day Treasury bill
determined at the final auction held prior to June 1. For Stafford Loans disbursed
between July 1, 1998 and June 30, 2006, the interest rate is set at the 91-day Treasury
bill rate, plus 1.7% for in-school, grace, and deferment periods; and the 91-day
Treasury bill rate, plus 2.3% during repayment periods. Both rates are capped at
8.25%. The federal government pays the cost of interest as it accrues on Subsidized
Stafford Loans during in-school, grace, and deferment periods. Stafford Loans
disbursed during other periods carry different rates.23 FFEL lenders are authorized
to offer borrowers interest rates lower than those described above — and in practice,
many do, such as for direct debit or timely repayment.24 Under the DL program, the
Secretary is authorized to offer interest rate reductions to encourage on-time
repayment, as long as the reductions are cost neutral and in the best interest of the
government.25
Historical interest rates during periods of repayment for Perkins Loans and
Stafford Loans disbursed after July 1, 1995 are presented in Figure 1. Stafford
Loans disbursed between July 1, 1995 and June 30, 1998 carry different rates from
Stafford Loans disbursed between July 1, 1998 and June 30, 2006. Rates for these
loans are presented separately in Figure 1.
22 For loans disbursed prior to July 1, 1980, the interest rate was 3%; and for loans disbursed
between July 1, 1980 and September 30, 1981, the interest rate was 4%.
23 A long-term history of interest rates for loans made under the Stafford Loan program is
presented in CRS Report RL32424, Consolidation Loans: Redesign Options and
Consideration, by Adam Stoll, Table 2. Under current law, Stafford Loans made after July
1, 2006 will carry an interest rate of 6.8%; and no interest rate reduction will be provided
for in-school, grace, or deferment periods.
24 HEA § 427A(m); and “Stafford Loan Highlights: Interest Rate Discounts During
Repayment,” The Greentree Gazette, Sep. 2003, pp. 100-101.
25 HEA § 455(b)(8). For further information on Stafford Loan interest discounts, see CRS
Report RL30655.

CRS-11
Figure 1. Historical Rates During Repayment for Perkins Loans and
Stafford Loans: 1995-1996 Through 2005-2006
9.0
8.0
7.0
6.0
te
a
r
5.0
rest
4.0
te
In
3.0
2.0
1.0
0.0
1995-
1996-
1997-
1998-
1999-
2000-
2001-
2002-
2003-
2004-
2005-
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Perkins Loans (repayment)*
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
Stafford 1995-1998 (repayment) ^
8.25
8.25
8.25
8.25
7.72
8.25
6.79
4.86
4.22
4.17
6.10
Stafford 1998-2006 (repayment)^
7.46
6.92
8.19
5.99
4.06
3.42
3.37
5.30
Sources: HEA §464; CRS Report RL32424, Consolidation Loans: Redesign Options and Considerations , Table 2; and U.S. Department of
Education, Federal Student Aid, Chief Operating Officer, FFEL and Direct Loan Variable Interest Rates effective July 1, 2005 .
Notes:
*Interest does not accrue on Perkins Loans when a student is enrolled at least half-time, during grace periods, or during deferment.
^For Subsidized Stafford Loans, the federal government pays interest as it accrues when a student is enrolled at least half-time, during grace
periods, and during deferment.
Repayment Period and Options
Perkins Loans. The standard repayment period for Perkins Loans is 10 years.
This period begins after an initial nine-month grace period following a student
ceasing to be enrolled at least half time. Grace periods and periods during deferment
and forbearance are not counted toward the 10-year repayment period. Institutions
may extend the repayment period for low-income individuals up to an additional 10
years.
Stafford Loans. Stafford Loan borrowers are required to begin repayment
following a six-month grace period. Borrowers may be eligible to select from among
a range of repayment plans depending on whether their loan was disbursed under the
FFEL or DL program. FFEL Stafford borrowers may select from among standard,
graduated, and income-sensitive repayment plans. An extended repayment plan is
available to certain FFEL Stafford Loan borrowers who accumulate loan balances
totaling over $30,000. All DL Stafford Loan borrowers are eligible to choose from
among standard, graduated, extended, and income-contingent repayment plans. The
repayment periods of these plans range from 10 to 30 years, and some of their terms
differ slightly between loan programs.26
26 For a detailed description of FFEL and DL repayment plans, see CRS Report RL30655.

CRS-12
Repayment Relief
Perkins Loans. Several types of repayment relief are available to borrowers
under the Perkins Loan program. These include grace periods, deferment,
forbearance, and cancellation. Each is discussed briefly below:
Grace Period. A grace period is a period of time prior to a borrower being
required to begin or resume payment on a loan. Perkins Loan borrowers are entitled
to an initial nine-month grace period after ceasing to be enrolled at least half time.27
Borrowers also are entitled to a six-month post-deferment grace period following
periods of deferment.
Deferment. In general, deferment is a period during which a borrower is not
required to make payments on the loan balance and during which interest does not
accrue. Borrowers may be granted deferment while they are enrolled at least half-
time at an eligible institution, and while pursuing a graduate fellowship or
rehabilitation training program approved by the Secretary. They also may be granted
deferment while they are seeking, but unable to find, full-time employment, or while
experiencing economic hardship (for up to a maximum of three years in each
instance). In addition, borrowers are eligible for concurrent deferment during any
period while they are engaged in types of service which make them eligible for loan
cancellation (discussed below).
Forbearance. In general, forbearance is a temporary suspension or
postponement of payments during which interest continues to accrue. Upon written
request, a borrower may be granted forbearance from paying principal and interest
or of principal only if the borrower’s debt burden due to HEA student financial
assistance loans is greater than or equal to 20% of the borrower’s gross income, or
if the institution determines that forbearance should be granted for other reasons.
Examples include service in AmeriCorps or for reasons due to a “national military
mobilization or other national emergency.”28 Borrowers are required to request
forbearance in writing. Forbearance is granted in one-year intervals, and may be
renewed for a total period of up to three years.
Cancellation. Individuals who have engaged in certain types of public service
are eligible to have a portion of, or the entire amount of their Perkins Loans
cancelled. The proportion of a Perkins Loan cancelled is based on both the number
of years of service an individual has completed and the cancellation rate applicable
to the particular type of service. Table 7 shows the percentage of Perkins Loan
principal that may be cancelled for each year of eligible public service. A borrower’s
liability to repay Perkins Loans is also cancelled upon death or becoming
permanently and totally disabled. The Secretary is required to reimburse institutions
27 For members of the Armed Forces Reserve, time counted toward the initial nine-month
grace period does not include any period up to three years during which the borrower is
called to active duty for more than 30 days.
28 U.S. Department of Education, 2004-2005 Federal Student Aid Handbook, vol. 6:
Campus-Based Programs, p. 6-71.

CRS-13
for the costs of loan cancelled for public service. Institutions assume the cost of
loans cancelled for death and disability.
Table 7. Perkins Loan Cancellation Rates by Type of Service
Percent of Perkins Loan principal
cancelled per year of service
Type of service
1st and 2nd
3rd and
5th year
Max.
years
4th years
and later
total
Elementary or secondary school
teacher in designated ESEA Title I-A
15%
20%
30%
100%
school
Staff member in Head Start program
15%
15%
15%
100%
Special education teacher/IDEA
15%
20%
30%
100%
professional provider
Armed Forces in area of hostilities
12½%
12½%
N/A
50%
Peace Corps or VISTA volunteer
15%
20%
N/A
70%
Law enforcement or corrections
15%
20%
30%
100%
officer
Full-time teacher in shortage subject
15%
20%
30%
100%
area
Nurse or medical technician
15%
20%
30%
100%
Employee of provider of services to
15%
20%
30%
100%
high-risk children and families
Source: HEA § 465.
Consolidation. The Perkins Loan program does not contain provisions for
loan consolidation. However, borrowers of loans made under either the FFEL or DL
programs may consolidate their Perkins Loans with other loans into a consolidation
loan. Perkins Loans that are consolidated assume the terms and conditions of the
new Consolidation Loan.
Stafford Loans. Repayment relief is available to Stafford Loan borrowers in
the following forms: grace periods, deferment, forbearance, forgiveness, discharge,
and consolidation. Each is discussed briefly below:
Grace Period. Borrowers have a six-month grace period after ceasing to be
enrolled at least half-time to begin repayment of Stafford Loans.
Deferment. For Stafford Loans, unlike Perkins Loans, interest continues to
accrue during periods of deferment. For borrowers of Subsidized Stafford Loans, the
federal government pays the interest as it accrues during deferment. Borrowers of
Unsubsidized Stafford Loans must either continue paying interest as it accrues or

CRS-14
have it capitalized into their loan balance. Stafford Loan borrowers who first
received loans on or after July 1, 1993 are eligible to be granted deferment while they
are enrolled at least half-time at an eligible institution. Deferment may also be
granted for a period of up to three years while a borrower is pursuing a graduate
fellowship or rehabilitation training program approved by the Secretary; while
seeking, but unable to find, full-time employment; or while experiencing economic
hardship. (Different provisions apply to Stafford Loans made prior to July 1, 1993.)
Forbearance. Stafford Loan holders are required to grant forbearance to
borrowers under three conditions: when the borrower is serving in a medical or
dental residency or internship and does not qualify for deferment; when the
borrower’s Title IV debt burden exceeds 20% of their income; or for service in
AmeriCorps. Borrowers may also receive forbearance, at the discretion of the lender,
to prevent defaulting on a loan or during collection on a defaulted loan. The
Secretary is also authorized to grant “administrative” forbearance for borrowers
affected by military mobilizations.
Forgiveness. Teachers who are Stafford Loan borrowers and who had no
loan balance as of October 1, 1998 may have up to $5,000 of their outstanding loan
balance forgiven for teaching in a low-income school. Certain highly-qualified
mathematics, science, and special education teachers who had no loan balance as of
October 1, 1998 may have up to $17,500 of their loan balance forgiven for teaching
in a low-income school.29
Discharge. Stafford Loans may be discharged if the borrower dies or becomes
permanently disabled. They also may be discharged if the borrower’s school closes
prior to the borrower completing his or her program of study, if the borrower’s
eligibility to borrow is falsely certified by the school, if the school does not
appropriately refund loan proceeds to the lender, and in rare instances, through
bankruptcy.
Consolidation. Multiple Stafford Loans (as well as PLUS and certain
Consolidation Loans) may be consolidated into a single loan under the FFEL and DL
programs. (A Perkins Loan may be consolidated into a Consolidation Loan that
includes at least one FFEL or DL program loan.) This might be done to simplify
repayment, to obtain a different repayment period, or to lock in a fixed interest rate
based on the weighted average of the loans being consolidated (rounded up to the
nearest one-eighth of 1%, and capped at 8.25%).30
Loan Default and Cohort Default Rates
Perkins Loans. Perkins Loan borrowers are considered to be in default after
failing to comply with the terms of their promissory note or failing to make payments
on their loans for 240 days (for loans repayable monthly) or 270 days (for loans
29 For further information on teacher loan forgiveness, see U.S. Department of Education,
Dear Colleague Letter (GEN-05-02), Teacher Loan Forgiveness Application and
Forbearance Forms (Revised), Mar. 9, 2005.
30 For further information on consolidation loans, see CRS Report RL30655.

CRS-15
repayable quarterly). After attempting to collect on defaulted loans, institutions may
assign them to the Secretary for collection.
An institution’s cohort default rate is defined as the percentage of current and
former students entering repayment on Perkins Loans received for attendance at that
institution who default on their loans before the end of the next award year. Cohort
default rates are calculated over a three-year period for institutions with less than 30
students entering repayment in any one year.
Stafford Loans. Stafford Loan borrowers are considered to be in default after
failing to comply with the terms of their promissory note or failing to make payments
for 270 days (for loans repayable monthly) or 330 days (for loans repayable less
frequently).
An institution’s cohort default rate is defined as the percentage of a school’s
borrowers who enter repayment during a fiscal year and default on their loan prior
to the end of the next fiscal year. IHEs with less than 30 students entering repayment
in any one year have their cohort default rates calculated over a three-year period.
PLUS Loans and Consolidation Loans are not directly included in the calculation of
cohort default rates (although Consolidation Loans may have some indirect effect on
the calculation).
Cohort default rates for the Federal Perkins Loan program and the FFEL/DL
programs are presented in Table 8 for the period from 1996 through 2003. Perkins
Loan cohort default rates have consistently been several percentage points higher
than cohort default rates for FFEL/DL loans. Differences between programs in
cohort default rates may be explained in part by the different periods of time before
which a borrower is considered in default, and by differences in the characteristics
of borrowers, especially considering that borrowers of Unsubsidized Stafford Loans
may borrow regardless of financial need.
Table 8. Federal Perkins Loan Program and FFEL/DL Program
Cohort Default Rates, 1996-2003
Loan type
1996
1997
1998
1999
2000
2001
2002
2003
Perkinsa
12.57
12.95
12.48
11.54
10.61
9.99
8.35
8.85
FFEL/DLb
10.7
10.4
9.6
8.8
6.9
5.6
5.9
5.4
Sources: ED, Federal Campus-Based Programs Data Books, 1996 through 2004; U.S. Department
of Education, Official Cohort Default Rates for Schools, National Student Loan Default Rates.
a. Perkins Loan cohort default rates are for the two-year period ending June 30 of the year indicated.
b. FFEL/DL cohort default rates are for the two-year period ending September 30 of the year
indicated.
Loan Rehabilitation
Perkins Loans. A borrower who has defaulted on a loan may rehabilitate the
loan by making 12 consecutive on-time payments. Rehabilitated borrowers are

CRS-16
returned to regular repayment status, begin a new 10-year repayment schedule, and
have the default removed from their credit history.
Stafford Loans. Borrowers may rehabilitate a defaulted loan by making 12
consecutive monthly payments. Upon rehabilitation, a borrower’s loan may be either
sold or reinstated. Borrowers whose loans have been rehabilitated regain full
borrower privileges.
Conclusion
According to the criteria used to compare Perkins Loans and Stafford Loans
(both Subsidized and Unsubsidized), this report has shown that there are distinct
differences between the types of loans. Still, Subsidized Stafford Loans might be
considered as being somewhat more similar to Perkins Loans than Unsubsidized
Stafford Loans, because they are need-based and because the federal government
pays the cost of interest as it accrues during in-school, grace, and deferment periods.
This report has also shown that far fewer institutions offer Perkins Loans than make
available Stafford Loans under either the FFEL or DL programs; and that far fewer
students receive Perkins Loans than receive Stafford Loans.
The extent to which Perkins Loans may be considered duplicative of Subsidized
Stafford Loans depends on a range of factors, some of which are institution- and
student-specific, and others which are programmatic. Perkins Loans might be more
easily considered duplicative of Subsidized Stafford Loans in instances where an
institution offers both loan products and a student’s financial need is less than the
annual loan limit applicable to either loan type for a given year of study (i.e., less
than $2,625 for a 1st year undergraduate student). On the other hand, Perkins Loans
and Subsidized Stafford Loans might be considered as supplementing one another,
rather than being duplicative, in instances where an IHE participates in both
programs and a student’s financial need is greater than could be met entirely with
either type of loan.