Sallie Mae to the Rescue
Lender Offers HBCUs Help With Loan Default Rates

Historically Black colleges and universities' decade-long protection from federal loan default sanctions ended July 1. But more financial and management assistance for HBCUs should be made available, according to a report by Sallie Mae.
SLM Holding Corp., better known as Sallie Mae, is recommending new steps to help HBCUs prevent defaults — and thereby remain eligible for federal grant and loan programs. Yet it also points out that these institutions and their students may need more financial aid after an era of stagnating federal support.
Federal funds for HBCUs "have declined in inflation-adjusted value and have not kept pace with the increases in college costs," says the study, Supporting the Historically Black College and University Mission, which cites the need for funding increases. The report also says that Congress should consider more money for general student financial aid, since aid after inflation has increased just 4 percent from 1988 to 1998.
But those provisions, while helpful, are simply two ideas to promote a high-priority requirement — that HBCUs do more to curb defaults, particularly after new changes in federal law.
For nearly a decade, HBCUs enjoyed a blanket exemption from federal sanctions that affected other schools with high student-loan default rates. Last year's Higher Education Act Amendments continued the exemption only through July 1999, after which the government would assess institutions on a case-by-case basis.
In anticipation of the change, Sallie Mae began an HBCU default management project, with special attention to 14 colleges and universities most at risk. "Recently enacted federal laws now threaten" these 14 institutions since they have had default rates above 25 percent for each of the past three years, its report says.
Under federal law, these colleges could lose access to all student aid, grant, and loan programs, making it virtually impossible to serve low-income students. Federal law also requires these institutions to have in place comprehensive default management plans if they want to remain eligible for aid.
The 14 affected institutions are: Allen University, Arkansas Baptist College, Barber-Scotia College, Central State University, Huston-Tillotson College, Jarvis Christian College, Lane College, Mary Holmes College, Miles College, Paul Quinn College, Southwestern Christian College, Texas College, Texas Southern University, and Wiley College.
As part of this initiative, Sallie Mae collected information from all 14 institutions and found that most lacked effective default management strategies. In other cases, entrance and exit counseling was not comprehensive enough, and colleges had insufficient communication between admissions and financial aid offices.
But these institutions and other HBCUs also face special hurdles based on their own finances and the characteristics of their students. For example:
•52 percent of HBCU undergraduates come from families with annual incomes of less than $20,000, compared with 39 percent of students at all four-year colleges and universities.
•HBCUs typically had an endowment of only $4 million, compared with $67 million at the typical four-year college.
•HBCUs generally had low graduation rates and limited access to technology.
To help reduce default problems, Sallie Mae provided a guide for HBCUs when developing default management plans. It also listed loan repayment and collection activities helpful in reducing defaults as well as information colleges could use to improve entrance and exit counseling for borrowers.
More academic advising, an increased emphasis on peer counseling and tutoring, and default management teams made up of major campus leaders are other techniques to help curb defaults, the report says.
HBCU leaders offered support for Sallie Mae's proposals.
"This valuable study gives us greater insight into the types of tools that HBCUs can use to help reduce student loan default rates," says William H. Gray III, president and chief executive of The United Negro College Fund.
However, Gray notes, "Sallie Mae's recommendations cannot be implemented without additional costs to the respective HBCUs."
The report acknowledges the need for additional funds and technical assistance, Gray says, and such help is essential "to make this default management effort work successfully."
The 14 institutions in the program already have received some supplemental financial assistance. They will share $275,000 in a grant from Microsoft Corp. for software to better track financial aid records.
The complete Sallie Mae report can be obtained by calling (703) 810-3000.