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Perkins loans are disbursed directly to the student by the college or university where the student is attending. The Perkins loan program was allowed to expire in 2015 in an effort to simplify the student loan system. It was then reinstated through September 30, 2017 for new borrowers. Those who are receiving Perkins loans will be allowed to continue to receive the loans through March 31, 2018.
Because of the school having control over the purse strings, Perkins loans are also considered a form of campus-based aid. Often, the school disburses the loan in two payments during an academic year.
Borrowing limits for the 2019-17 academic year for undergraduates is $5,500 per year and $27,500 in aggregate. For graduates, borrowing limits are $8,000 and $60,000, respectively. The $60,000 borrowing limit includes any Perkins loans received for undergraduate study.
Like Pell grants, FSEOGs, and Stafford loans, Perkins loans require the student to complete a Free Application for Federal Student Aid (FAFSA). However, Perkins loans are more competitive than Stafford loans because:
- Relative scarcity of subsidies. The federal government subsidizes the interest on Perkins loans (and subsidized Stafford loans) while students are in school. Since the federal government's budget is limited for these programs, the loan dollars are relatively scarce.
- Interest-free loan until loan repayment begins. From the student or parent's perspective, a subsidized Perkins loan is more attractive simply because it is a free loan. Students aren't charged interest on a Perkins loan until the loan repayment period begins. Borrowers of unsubsidized Stafford loans owe interest from the beginning of the loan period (when the loan is disbursed).
A Perkins (or other federal) student loan may be cancelled under certain circumstances. For example, if the student dies or is completely and permanently disabled, the government cancels the full amount of debt.
Other cases for receiving partial or full debt cancellation include military and corrections service; teaching in teacher-shortage areas or schools for low-income children; and certain cases of personal bankruptcy. You should check with the U.S. Department of Education (DOE) to learn more about canceling student debt.
You can take a deduction of up to $2,500 for interest expense paid on student loans over the entire loan term. For taxpayers filing a single return in 2020, your allowable deduction begins to phase out when your modified adjusted gross income (MAGI) reaches $70,000. The allowable student-interest deduction phases out completely when your MAGI reaches $85,000. For married taxpayers filing a joint return, the increased income limits are $140,000 and $170,000, respectively in 2020.
To take a student loan interest deduction, enter the amount of the deduction on line 20 of IRS 2019 Form 1040 Schedule 1.
If your income falls within the income limits shown above, see IRS Pub. 970 to calculate a partial deduction.
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.