With the wind down of the Federal Perkins Loan Program and announcement that the Federal Capital Contribution (FCC) (the federal funds contributed to the loan program over time) will begin to be repaid, higher education institutions must now decide how to handle these outstanding loans. The Department of Education’s (DOE)’s plans to recover their FCC (or “distribution of assets”) in the coming 2018-19 year can be found here, with the Fiscal Operations Report and Application to Participate (FISAP) playing a crucial role in the close-out excess cash calculation. Colleges and universities are now faced with two options:
|1.||Continue servicing their loans, refunding future FCC excess cash as loans are repaid, or|
|2.||Assigning loans back to the DOE (subject to certain requirements)|
Colleges and universities have been evaluating these options since the decision was made to not renew the loan program. There are many considerations when deciding which path to choose:
|•||Continuing to service loans has the disadvantage of ongoing administrative costs. While there is potential an administrative cost allowance could be paid to institutions that continue to service loans in the future, legislation would need to be enacted for this to occur.|
|•||In assigning loans back to the DOE, the institution will lose any Institutional Capital Contribution (ICC).
It is important to note the decision of whether or not to assign loans has not reached “now or never” status. You can assign loans your institution continues to service to the DOE in the future.
NACUBO recently published advisory guidance on the Perkins Loan Program close-out. This guidance provides a broader look at the close-out process, and explores the ramifications of how the two options above can impact alumni relations. The guidance also provides a useful cost/benefit calculation template and sample accounting entries for the close-out process.
Need help or have additional questions? Our experience with Perkins Loan liquidation/closeout can help as you plot a course through the Perkins wind down.