When former college students fall so far behind on student-loan payments that the state sues them, the confusing universe of federal loans — in particular, a supplemental loan program aimed at the poorest students — often is to blame.
Those Perkins loans are federal money, but unlike in the much larger Direct Loan programs, the 1,700 participating U.S. schools handle the decisions and paperwork for them. Many students have both kinds of loan.
When they graduate or leave school and payments come due, they have to pay Direct loans back to the U.S. Department of Education and Perkins loans back to their schools.
Sometimes, Perkins loans fall through the cracks because former students don’t understand that they’re separate from other student loans.
Cory Tinkham, who handles debt collections for Ohio University’s bursar’s office, sees it over and over: “They may get a deferment or make a payment (on Direct loans) and think everything is covered, but it’s not. What I hear daily is, ‘I thought they were all together.’ ”
When those loans go unpaid long enough to be turned over to the Ohio attorney general’s office for collection, fees for the office and for outside bill collectors or law firms can add exponentially to the amounts former students owe. A Dispatch review of court records showed that, since 2013, private law firms hired by the attorney general’s office sued more than 3,400 people who were delinquent on student loans or other debts owed to colleges and universities.
The collection fees added to the principal and interest owed ranged from 7 percent of the original amount due to 78 percent.
After The Dispatch reported on cases in which former students were hit with proportionately huge fees for decades-old debts, Miami University’s assistant vice president for student enrollment management, Brent Shock, said confusion over Perkins loans contributes to a lot of delinquent debt.
“It’s a systemic failure that actually started when the federal government implemented the Perkins program,” he said.
The Perkins program has been a political football for years, with critics saying that the participating colleges and universities are disproportionately clustered in the Northeast. Congress voted last year to allow the program to expire, but after heavy lobbying by colleges and universities, a bipartisan compromise revived it through September 2017.
Ohio State University considers the Perkins program an important source of aid for poor students. “It has provided flexibility for schools to offer additional assistance to students who often had no other funding alternative,” Diane Corbett, OSU’s executive director of student financial aid, said in a written statement.
Ohio State made about 2,500 Perkins loans last year.
The state’s largest schools insist that, when students are declared delinquent on their loans or overdue tuition payments, it isn’t for lack of effort on the schools’ part. Officials at Ohio State, Ohio University and Miami all described multistep information efforts that begin when students first accept loans or sign up for classes.
Terms and responsibilities of each loan are explained when students sign the paperwork, but the information sometimes doesn’t stick. “Unfortunately, with a lot of students, they just need to cover their (tuition) balance and they may not be paying attention to everything they’re told,” Tinkham said.
At all three schools, graduating students are required to have one-on-one exit interviews with a financial-aid staffer who explains when their loans will come due (Perkins and Direct loans have different timetables) and what could happen if they don’t pay them. Students can’t get their grades or transcripts if they don’t make the appointments.
Even after debts go unpaid long enough to be declared in default and turned over to the attorney general, college officials said, they continue to call or email former students regularly.
For those students who work with the colleges, relief usually is available, Shock said. Working out a payment plan usually can stop the clock that ticks toward a lawsuit.
“The toughest part about default for me is, the government is so lenient about what you can do, there’s really no reason for anyone to go into default,” he said.
Through student loan refinancing, borrowers can refinance high-interest student loan debt and potentially score a lower rate, saving thousands of dollars in interest over time. Those savings can then go toward extra payments to get out of debt even faster. Additionally, borrowers can select a longer term to obtain a lower monthly payment as well.