Awhile back, I wrote an article about the great benefits of federal Perkins loans. These are loans that are intended for students with the greatest financial need, and they are lent to students directly by their college or university with federal financial support. The “perks” of these Perkins loans include a relatively low interest rate, subsidized interest while you’re in school, a generous 9-month grace period after graduation, and loan cancellation options specific to the Perkins loan program. This makes Perkins loans great options for borrowers.

But there is a dark side to Perkins loans, and I’ve been seeing more and more of this in my practice over the years. While the consequences of defaulting on federal student loans are quite severe, the federal government rarely sues student loan borrowers. But that can no longer be said of federal Perkins loans. Unless you consolidate your Perkins loans with other Direct federal or FFEL federal loans, you will not be able to repay your Perkins loan under an income-sensitive repayment plan such as Income-Based Repayment (IBR) or Pay-As-You-Earn (PAYE). This can cause financial distress for borrowers who cannot afford the regular Perkins loan monthly payments. And increasingly, colleges and universities are suing their former students who default on their Perkins loans. Obtaining judgments against defaulted Perkins loan borrowers gives the schools greater powers to collect, and it allows the schools to tack on enormous collections costs, court fees, and legal fees on top of the existing Perkins loan balance, dramatically increasing the amount that the borrower will have to repay. Pretty insane.

To read more, check out these articles from Bloomberg News and The Huffington Post.