Defaulted loans cause decreased student aid

By Jill Stocker

More than $2 million, which could go in the form of financial aid to help needy NIU students or potential students, has been accumulated by students who have defaulted on their NIU Perkin’s Loans.

The Perkin’s Loan is a state and federal deferred, campus-based, long-term revolving loan program. Recipients of the loan must exhibit a financial need, and the amount loaned is restricted to the availabililty of funds.

Ron Elliot, NIU loan collection supervisor, said about 2,000 NIU students receive the Perkin’s Loan each year. The loan’s interest rate stands at five percent, and students have either a six or nine-month grace period (depending on whether they are new or old borrowers) before they must begin paying back the amount they borrowed, plus interest.

Although the federal government awards new money each year to schools for lending purposes, Elliott said the Perkin’s Loan depends mainly on former students’ repayments to supply the money needed to make loans to present students.

For example, in 1987 NIU received only $18.89 from the government, but they lent $1.3 million to students in need. In 1988, NIU received $100,000 and lent $1.3 million.

“You can see how much we rely on former students repaying their loans,” Elliott said. “We could greatly increase lending if people in default would pay.”

Historically, there is a national problem with defaulting, Elliott said. Since the early 1960s, when the Perkin’s Loan was started (it was called the National Direct Student Loan until July 1987), NIU has made 22,000 loans. More than 11,000 of these loans have been paid back in full, about 6,000 are presently in a repayment status and the remaining 5,000 students with the loan still are attending college.

“Of the 6,000 loans in repayment status, about one-half of the people are paying on time, and the other half aren’t,” Elliott said. This money not being paid back could be going toward other students’ educations.

NIU’s loans receivable office employs professional debt collecton methods to collect money from delinquent payers in addition to an attorney to litigate against those who default on their loans.

“Before taking this action, though,” Elliott said, “we try to establish communication with students and remind them about the contractual agreement they signed before receiving the loan.”

If a collection agency becomes necessary, the student who has defaulted on his loan is not only responsible for repayment of the loan plus interest itself, but also for any costs incurred by a collection agency.