Just when you thought Sallie Mae was tough, some universities are now showing who’s tougher. Bloomberg and other news sources are reporting that George Washington University, Temple University, Yale University and the University of Pennsylvania have all filed lawsuits against students who defaulted on their Perkins loan repayments.
Unlike its loan counterparts, Stafford or direct federal student loans, which are distributed by the government, Perkins loans are administered by the colleges themselves. According to the Bloomberg report, during the 2011 fiscal year the Perkins defaults have skyrocketed to $964 million.
“If you borrow to go to school, it may not be just the government that ends up coming after you if you can’t pay,” said Deanne Loonin, an attorney with the National Consumer Law Center, a nonprofit advocacy group in Boston. “We offer credit very easily.” If the student doesn’t benefit financially from the education, “the government or the school comes after them very aggressively.”
Although President Barack Obama has proposed to remake the Perkins loan program by rewarding institutions that rein in tuition and produce good student outcomes, this is not doing much for students currently stuck in Perkins Loan hell. Under Obama’s proposal not only would the loans be serviced through the Department of Education, instead of individual colleges, the pot for Perkins loans would increase to $8.5 billion from about $1 billion.
When you’re only given a 9 month grace period to pay back a loan, it doesn’t make it easy on students. In this economy trying to find a job isn’t the easiest thing to do. Aaron Graff is one student Bloomberg cites as an example:
Aaron Graff, a farmer’s son from Denver, graduated from George Washington in 2010 with the help of $62,500 in scholarships over two years, according to his financial-aid award letters. He defaulted on $4,000 in Perkins loans. Graff, 30, said he hasn’t been able to find a full-time job. He earns $800 a month from teaching high-school equivalency courses and restores basements for extra money. He said he is trying to pay off other student loans first because they were co-signed by his parents.
“I live on the bare minimum,” he said. “It’s not like I’m defaulting on my student loans to live the lavish life. I’m defaulting on my loans because I really don’t have it.”
Maybe there should be a student-loan bailout soon?