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NEW YORK (CNN/Money) -
College students take note - your government loan options might be shrinking.
On Wednesday, lawmakers are expected to determine the fate of the Federal Perkins Loan program, which typically provides lower-income students with low-interest loans.
Under scrutiny by the House's Education and Workforce Committee, the loan program, which was started in 1958, could be trimmed altogether when Congress considers changes to the Higher Education Act.
During the 2003-2004 academic year, the program provided approximately 700,000 students on both the undergraduate and graduate level with federal loans, according to the Coalition of Higher Education Assistance Organizations (COHEAO).
Students are allowed to borrow as much as $4,000 for the first two years of school under the loan program and $6,000 per year for the second two years. A Perkins loan, which averaged $2,000 in the 2003-2004 academic year, is typically repaid over 10 years at a fixed interest rate of five percent.
If dissolved, says Harrison Wadsworth, the executive director of COHEAO, which has conducted a letter-writing campaign in an effort to save the loan program, some students might rethink attending college.
"It is just going to hurt students who need the financing to pay for college," said Wadsworth "I think it will prevent some low-income student from being able to attend school."
Wadsworth noted that those students who rely on the Perkins loan will now be forced to approach private lenders to pay for school which would mean paying higher interest rates or higher fees.
Filling the gap
At the same time, President Bush has proposed replacing the Perkins loan program with a $100 yearly increase in appropriations for pell grants over five years.
Stephanie Geisecke, the director for budget and appropriations at the National Association of Independent Colleges and Universities (NAICU), said that the proposed increase in pell grants would fail to makeup the money lost by eliminating the Perkins loans program.
"He would have to make a huge increase in pell grants to cover this," said Geisecke. "For a student who gets a full (financial aid) package that's a big hole to fill."
On average, the government awards five million pell grants per year, which range anywhere from $450 to $4050, according to NAICU, and students can receive only one grant per year. Grants are based on financial need.
Since the inception of the Perkins loan program, the federal government provided funds that were matched by participating universities. Students who took out these loans would then repay the amount into a revolving fund that was earmarked for future Perkins' loans. If the government cancels the program, it would be able to reclaim the capital and interest it used to fund the loans from universities.
The expected amount the government would save by cutting the program is estimated at $3 billion over five years.
Students who typically rely on Perkins' loans should not expect their loan needs to be affected for this coming academic year since any changes to the Higher Education Act would not occur until September.
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