Universities Sue Students Over Unpaid Loans

Jacqui Kenyon
Posted

student loansThe University of Pennsylvania, Yale University and George Washington University are coming after former students who defaulted on their Perkins loans—with their lawyers, Bloomberg reports.

This year, Perkins borrowers—who were all found to have extraordinary financial hardship when they qualified for the program—defaulted on almost $1 billion in federal loans, a new record.

Michelle Brown-Nevers, the associate president of Penn, told Bloomberg that the school exhausts “all practices possible” before taking former students to court. A Yale spokesperson stated that colleges are bound by law to recover all unpaid Perkins money.

The default on Perkins loans sets a troubling cycle in motion. Perkins loans, unlike other types of educational loans, are administered by individual colleges and universities. Schools use the funds repaid by Perkins beneficiaries to administer loans to the next generation of Perkins loans.

If you examine the nature of Perkins loans, the scale of this default makes a bit more sense. First of all, the beneficiaries of Perkins loans come from impoverished backgrounds, so if they are unable to find jobs after graduation, they do not have outside financial support to fall back on. Also, Perkins loans borrowers are not eligible for an income-based repayment schedule like Stafford loan borrowers are. Finally, Perkins students with other federal loans may choose to pay other loans off first, since they tend to have much higher interest rates than Perkins loans.