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Cavazos Cautions Trade Schools Over Defaults

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Washington--When Secretary of Education Lauro F. Cavazos addressed the annual legislative conference of a major trade-school association here last week, he was greeted with a standing ovation.

His appearance--and much of what he said--was a welcome contrast for those assembled to the barrage of criticism the proprietary-school industry had endured under his predecessor, William J. Bennett.

And it came at a time when bad publicity, legal actions against unscrupulous schools, and Congressional inquiries into student-loan defaults are making many uncertain of the sector's continued access to federal financial-aid dollars.

In his speech to the National Association of Trade and Technical Schools, Mr. Cavazos appeared to embrace the industry as a significant member of the postsecondary community. But he also picked up on many of Mr. Bennett's themes.

"Most private career schools are doing a competent, conscientious, professional job," the Secretary said. "But many clearly are not, judging by default rates and by the letters of complaint we get."

He warned that loan defaults, which now consume nearly 45 percent of the $3.3 billion annual cost of the Stafford student-loan program, continue to be federal officials' major concern about proprietary schools.

In 1986, 1,741 schools had default rates above 20 percent, and 57 percent of those were private career schools, according to Education Department statistics.

"Half of all Stafford loans going into default are from students who attended private career schools, and 40 percent of all defaulted loan dollars are from loans made to these students," Mr. Cavazos said.

Media 'Black Eye'

Representatives at the conference were eager to put the best face on such statistics and to counter what they admitted was a public-relations "black eye" they have suffered in recent months, as media reports have focused on the fraudulent practices of some in their field.

In one such case this month, the Education Department acted to revoke the student-loan eligibility of four correspondence courses offered by a major trade school, Superior Training Services Inc. Officials charged that the Indianapolis-based company had misrepresented the length of the courses.

Last week, a federal judge granted Superior a temporary restraining order delaying the department's action, according to Ward Degler, a spokesman for the company.

The conference-goers here presented to the assembled media representatives and Congressional aides successful trade-school graduates who stressed how important access to student loans and other government aid had been to them.

Daryl Crawford, a former construction worker in Seattle, said he was able to use a Stafford loan to enroll at the Seattle Art Institute, a proprietary school, and then fulfill his dream of becoming a graphic artist.

"I have a creative and demanding job," he said. "I know that the help I received was not only good for me but also for the nation."

But of more immediate concern than public relations to conference-goers was the forthcoming battle in Congress over loan defaults. The organization listed its desire to "control debate" in those discussions as the first item on its legislative agenda.

Seeking To 'Control Debate'

As their share of student-aid dollars has grown in recent years--and as the default problem has eaten away at the funds available for aid--proprietary schools have come under increasing scrutiny from federal officials, some of whom have questioned whether taxpayers are getting their money's worth.

The schools, which offer courses as varied as cosmotology, auto mechanics, secretarial skills, and fashion design, have also had their participation in student-aid programs questioned by some higher-education leaders, most recently the president of the American Council on Education.

The National Association of Trade and Technical Schools countered last week by releasing an analysis of its own that brought into question some of the government's facts and assumptions about loan defaults.

One claim made in the study is that one successful "high risk" student who attends postsecondary school on a guaranteed loan will cover the cost of 65 defaults, since high-school dropouts ultimately cost society in reduced tax revenue and higher welfare costs.

"Saving a few million dollars now by reducing opportunities for these students will cost billions of dollars in the future," says the report, prepared by jbl Associates of Chevy Chase, Md.

Regulations on Hold

Last year, the Education Department delayed proposed regulations that would have cracked down on postsecondary schools with loan default rates in excess of 20 percent.

Also included in the proposed regulations was a provision stating that institutions offering non-degree training programs would have to provide information to prospective students on the passing rate of recent graduates on state licensing exams and students' completion and job-placement rates.

In return for the department's delaying action on the regulations, backers of a House bill to address the loan-default issue pulled their measure, essentially agreeing to let the new Administration grapple with the problem.

The department solicited comments on the proposed regulations--and the overall default problem--and has received more than 1,250 responses. The deadline for comments is Feb. 28.

The letters received--from hundreds of college and trade-school leaders, bank presidents, lobbyists, and other interested parties--fill several cardboard boxes in an office in the department.

A review of some of the comments indicates that there are many ideas, but no easy answers, for the problem.

One correspondent, in response to an Education Department suggestion that schools be given the authority to prevent loans from going to students considered likely to default, said the department was attributing "deific powers" to financial-aid administrators.

"While we all may be candidates for sainthood, we are not gods, and are not capable of determining in advance who will or will not default on their student loan," wrote Patricia Garrett Watkins, financial-aid director of Fisher College in Boston.

Mr. Cavazos said the department would give careful consideration to all comments before offering any new proposals.

Senate Default Bill Due Soon

In the Senate, however, a loan-default bill that won unanimous support in the last Congress, but died when the House tabled its measure, will be reintroduced within the next few weeks, aides said.

"We feel student-loan defaults are a problem, and we need to be responsive and do something on the issue," said Sarah A. Flanagan, an aide to Senator Claiborne Pell, chairman of the Subcommittee on Education, Arts and the Humanities.

Aides on the House side, however, said they would stick to their agreement to let the Education Department come up with a new proposal.

"Secretary Cavazos is taking a much more cooperative approach to a number of issues," said Richard Jerue, staff director of the House Subcommittee on Postsecondary Education. "We're just going to give him a chance to review all the comments and see what he would like to propose."

Congressional aides said there was little chance that a more sweeping proposal for dealing with the whole question of student aid for proprietary schools would be considered in the immediate future.

An 'Elitist' Proposal?

Last month, Robert H. Atwell, president of the American Council on Education, called for a separate federal program, or "mechanism," for assistance to students in proprietary schools.

"One of the reasons that Pell Grant and campus-based program dollars have not increased for students in our colleges and universities is that students in proprietary institutions, most of them very needy, are receiving an increasing share," Mr. Atwell said.

"About 40 cents of every new federal grant dollar can now be expected to go to students in proprietary schools," he said, "and these students now receive more Pell Grant dollars than students in private nonprofit colleges and universities."

Stephen Blair, president of the natts, said that the Atwell proposal "is nothing more than elitist, and is wrong."

"It's nothing more than the old 'separate but equal' argument," he said.

Trade schools are serving more of the neediest students in society, Mr. Blair argued, and federal aid is intended to help the needy.

Mr. Jerue of the House postsecondary subcommittee said the panel would consider Mr. Atwell's suggestion, if he makes it a formal proposal, when it takes up the reauthorization of the Higher Education Act, which is not scheduled until the next Congress.

But Ms. Flanagan of the Senate education subcommittee said: "We are not interested in [Mr. Atwell's] proposal. Most trade schools in this country do a very good job. It's very easy to take potshots because of the bad publicity of a few schools."

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