Student loan default rates fall dramatically – includes related article on default violations of schools - Higher Education


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Student loan default rates fall dramatically – includes related article on default violations of schools

by Charles Dervarics

Washington — The nation’s student loan default rate has reached
its lowest level ever, according to the U.S. Education Department (ED),
which nonetheless identified more than 300 colleges and universities
that could lose their right to participate in student-aid programs
because of excessive defaults.

Only 10.7 percent of former students were in default on their loans
in 1994, the most recent year for which data were available. This rate
is less than half the 22.4 percent rate recorded in 1990.

ED officials credited new enforcement power, improved collections
and an improving economy for the turnaround. “We have used every tool
available to slash the default rate and save taxpayers hundreds of
millions of dollars, and these efforts will continue,” said Education
Secretary Richard Riley.

However, ED also has the power to deny schools access to financial
aid dollars if their default rates exceed 25 percent for three
consecutive years or 40 percent in the most recent year.

Historically Black colleges and universities and tribally
controlled schools and colleges are exempt from these rules through
July 1998. However, Congress will re-examine the exemption during
reauthorization of the Higher Education Act (HEA).

College officials already have told ED about the need to continue
the exemption beyond next year, said Elizabeth Hicks, deputy assistant
secretary for student financial assistance. ED solicited input at a
series of regional hearings that ended in December. The department will
use these comments when designing their own reauthorization proposals,
which are expected by spring.

During the past year, ED has deemed 144 schools as no longer
eligible to participate in student loan programs because of high
default rates. Private trade and technical schools make up the bulk of
these institutions.

For-profit trade schools also make up the bulk of the more than 300
institutions identified as at risk of losing eligibility in ED’s latest
report. About two dozen schools are public or private two- and
four-year colleges. Most of the non-trade schools are two-year
community colleges or small, four-year, religiously affiliated
institutions.

The lower national default rate earned praise from President
Clinton, who hosted Riley and college students in an Oval Office
meeting to draw attention to the progress in combatting defaults. “We
have tracked down defaulters and made them pay,” the president said.

Overall, total collections on defaulted loans increased from $1 billion in 1992 to $2.2 billion in 1996.

College students who attended the White House event also credited
the Clinton administration’s new direct loan program with helping lower
default rates and improve efficiency. Under this program, the
government provides loan capital directly to institutions without
requiring help from banks.

Students have various options to repay their direct loans such as
income-contingent repayment, in which borrowers have smaller payments
immediately after they finish college and repay more of their debt as
they earn higher wages.

“This is government policy at its best,” said Fiona Rose, student
government president at the University of Michigan. By cutting out
banks, the direct loan program also allows for more timely loans to
students, she said.

Nonetheless, Rose acknowledged many college and university students
remain apprehensive about college costs and their mounting debt
burdens. “It’s making me rethink plans for graduate school,” she said,
adding that most of her fellow students remain concerned about heavy
debt after they leave college.

The three volumes of data ED released at the White House ceremony
also contain school-by-school default rates on more than 8,000 colleges
and universities. Data lists student default rates from 1992 through
1994.

For example, data show Hampton University in Virginia with a
default rate of 12.1 percent for 1994, which was slightly higher than
rates for the previous two years. The rate at Harvard University was
about 1 percent.

To find out more information about an individual institution, contact ED’s Office of Public Affairs at (202) 401-1576.

Default Rates Selected schools listed in the White House Report

SCHOOL               YR.     PERCENT

HARVARD '94 1.3
'93 1.4
'92 1.1

BROWN '94 3.8
'93 2.7
'92 2.4

HOWARD '94 10.8
'93 11.8
'92 11.1

UDC '94 17.9
'93 16.8
'92 19.0

FISK U '94 20.6
'93 16.6
'92 20.0

KNOXVILLE '94 43.5
'93 44.8
'92 49.4

WAYNE ST. '94 7.6
'93 6.6
'92 7.5

MIAMI-DADE '94 15.6
'93 21.7
'92 17.5

CALIFORNIA STATE '94 11.5
'93 9.0
'92 9.0

RELATED ARTICLE: Terminated from Loan Program

The Education Department announced that hundreds of schools are
subject to termination from the student loan program. Of those, most
are private, proprietary schools. Those that are not are listed below.

There are 2 categories for termination — loss of access to student
loans (for those with 25 percent or higher default rates each of the
past three years) and loss of access to both grants and loans (for
default rates of 40 percent or higher in most recent year).

329 schools are subject to termination under the 25
percent/three-year rule; 157 are at risk under the 40 percent rule.
BUT, some schools fall onto both lists. The Education Department
estimates the overall number of institutions affected are more than 300.

Those schools that fall under the 25 percent, three-year default violations:

Los Angeles Southwest College, West Hills Community College,

Coalinga, California Fort Scott Community College,

Fort Scott, Kansas Shelby State Community College,

Memphis, Tennessee Douglas MacArthur State Technical College,

Opp, Alabama Barstow College, Barstow, California San Bernadino, Valley College,

San Bernadino, California Community College of East St. Louis,
Illinois Griffin Technical Institute, Griffin, Georgia Heald Business
College, Stockton, California Macon Technical Institute, Macon, Georgia
NAES College, Chicago, Illinois St. Augustine College, Chicago,
Illinois Remington College, Wichita, Kansas American Baptist
Theological Seminary,

Nashville, Tennessee

Colleges that fall under the 40 percent rule:

Community College of East St. Louis ([dagger]) Trenholm State Technical College,

Montgomery, Alabama Cleveland Community College, Shelby, N.C. (*) Little Hoop Community College, Ft. Totten,

North Dakota ([dagger]) Huston-Tillotson College, Austin, Texas John Patterson State Technical College,

Montgomery, Alabama ([dagger]) Arkansas Baptist College,

Little Rock, Arkansas Remington College, Wichita, Kansas Belzer Yeshiva, Brooklyn, New York Payne Theological Seminary,

Wilberforce, Ohio ([dagger]) Knoxville College, Knoxville, Tenn.

(*) will not be terminated because of an exemption for tribal colleges

([dagger]) will not be terminated because of an exemption for
historically Black colleges and universities Source: U.S. Department of
Education, 1997

COPYRIGHT 1997 Cox, Matthews & Associates



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