The demise of a long-standing college loan program will hit the bottom line at small colleges and standalone law schools especially hard, a new report shows.
The Perkins Loan program, the U.S. government’s oldest student aid program, expired two weeks ago, leaving small schools that depend on tuition without a lifeline. Expect “greater pressure on university financial aid budgets and enrollment volatility” at those institutions, said the report, published on Thursday by Moody's, the credit rating agency.
Senator Lamar Alexander, a Republican from Tennessee, said the Perkins Loan Program, launched in 1958, was “outdated and unnecessary” and refused to allow the Senate to vote on an extension of the program.
Perkins loans were disbursed based on a complicated formula that included the level of student need and how much money a school had historically received through the program. The student need level, however, had been calculated partly based on tuition, so schools that charge their students a lot tended to benefit more from the program, said Ben Miller, an education expert at the Center for American Progress.
“Everything about the formula and its distribution was designed to give lots of money to schools that do not need it as much,” Miller said. “The program desperately needed a new formula to make it more equitable.”
The loans only accounted for $1.2 billion of the $150 billion in aid the government doles out to colleges annually. But Moody’s says the aid supported a significant chunk of low- income students, who may not have gone to the schools without the extra funds.
For small, private colleges that are already having trouble keeping their dorm rooms filled, the loss will be particularly acute.
“Impact on enrollment will be most significant for small private liberal arts colleges,” Moody’s wrote. At Earlham College, in Richmond, Ind., 41 percent of full-time students depend on Perkins loans, the report said. A third of students take out the loans at Wheaton College in Massachusetts.
Some law schools are also staring down scary numbers. At the University of California, Hastings College of the Law, for example, 7 percent of revenue comes from Perkins loans––but 80 percent of students rely on them.