Colleges sue impoverished recent grads over unpaid Perkins loans

Three of the highest-profile colleges in America are suing students over unpaid student loans, according to a Tuesday report in Bloomberg News.

Yale University, George Washington University and the University of Pennsylvania have all filed lawsuits recently over loans to students that have fallen into default.

The lawsuits all focus on recouping money lent through the Perkins loan program, which offers loans subsidized by the Department of Education with colleges serving as the lenders of record. These loans are focused on students with "exceptional financial need" and offers an interest rate of 5 percent, no default fees and options for loan forgiveness.

One of the plaintiffs, Aaron Graff, who graduated from George Washington in 2010, received $62,500 worth of scholarships from the university but has now defaulted on $5,000 in Perkins loans.

"I live on the bare minimum," Graff told Bloomberg, saying he earned about $800 teaching high-school equivalency courses. "It’s not like I’m defaulting on my student loans to live the lavish life. I’m defaulting on my loans because I really don’t have it."

George Washington's student loan office declined to comment on specific lawsuits, but the school has drawn attention in recent years for having one of the most expensive "sticker prices" in the country. Though the school does offset the cost for poorer students with grants and loans, a 2010 feature in the Washington Monthly revealed that the school made a conscious effort to increase tuition in order to promote it's profile in national rankings.

The University of Pennsylvania filed a suit against Kyle P. Lopinto over $7,000 in Perkins loans, $15,039 in unpaid tuition charges, $3,027 in attorney fees and $387 in court fees.

Though Lopinto didn't respond to Bloomberg's email requests for an interview, the reporter confirmed he graduated in 2010 from the university's design school and that it's standard practice for the university to refer Perkins loans to a collections agency after 120 days.

Both the University of Pennsylvania and Yale, which is suing Elizabeth M. Triggs for some $8,255 taken out under the Perkins loan program, are among universities with the largest endowments in the country. Yale's is second only to Harvard, with $19.3 billion as of June 2012. Penn's endowment ranks 11th in the country at $6.8 billion.

The Obama administration proposed changes to the Perkins loan program, which expires in 2014, which included expanding the lending pot to $8.5 billion per year over its current $1 billion annual lending program and taking over loan servicing from the colleges to manage the program directly. As a result, the loans' interest rate would increase from its current 5 percent to 6.8 percent. These changes would make the Perkins program more like the unsubsidized Stafford loan program.

When Inside Higher Ed reported on the proposed changes in 2011, they wrote, "Department officials said the changes would make the loans more efficient, as well as saving money that could be used to expand Pell Grants. Others at the panel said transforming the Perkins program was the only way to save it: Terry Hartle, senior vice president for government and public affairs at the American Council on Education, said the proposed changes are the loan program’s 'last best hope.' That's because small Education Department initiatives could be an easy target for budget cutters looking to trim the deficit or pay for other priorities."

[Frustrated female student via Shutterstock]