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

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