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Administration Revamps Student-Aid Program Management

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Washington--The Bush Administration, acknowledging widespread abuse by "shoddy schools," the loss of millions of dollars to defaults, and inadequate supervision by the Education Department, last week announced that it is reorganizing the management of federal student-aid programs.

The restructuring strategy resulted from a multiagency review of the Guaranteed Student Loan program led by officials at the Office of Management and Budget. While Education Department officials said they accepted the report's findings, it is unclear if every recommendation it contains will be enacted.

The review team's report recommends that the office of postsecondary education be reorganized into two offices--an office of student financial assistance and an office of higher education programs--each headed by a deputy assistant secretary.

In addition, the Administration hopes to eliminate schools with high default rates from the program by adding 150 staff members to the Education Department over the next two years to monitor lenders and guarantee agencies.

The new employees will be assigned to "financial, analytical, and compliance-related activities" that include certifying agencies, reviewing their work, and levying sanctions against them.

The multiagency review noted that problems with the student-loan program, which are expected to cost the federal government $2.7 billion in default payments this year, have largely stemmed from the department's lax oversight of the agencies and lenders the department relies on to validate schools for participation in the program.

The report calls for more severe fines against accrediting agencies, the implementation of minimum financial-solvency requirements for guarantee agencies, and an examination by the department of the criteria accrediting agencies must meet to become certified.

Meanwhile, a report by the Edu8cation Department's inspector general concluded that the process by which the department certified accrediting agencies "did not provide adequate assurance that the Secretary or the public could rely on all accrediting agencies as authorities on the quality of education," according to a cover letter with the report.

In particular, the letter said, the i.g. review found that the department did not adequately monitor the agencies that accredit trade and vocational schools, which have disproportionately high default rates.

In addition, the report by the multiagency team specifically faulted the department's failure to prevent the collapse of the Higher Education Assistance Foundation last year and the department's record keeping.

The restructuring also is designed to improve the Education Department's student-loan database and consolidate its aid operations under one official who is responsible only for student aid.

'A Turning Point'

The moves "mark a turning point in our stewardship of federal student financial-aid programs," Deputy Secretary Ted Sanders said at a news conference announcing the changes. "This department will return accountability and financial management to the financial-aid programs we administer."

Mr. Sanders introduced Michael J. Farrell, a New Hampshire businessman tapped by Secretary Lamar Alexander to be deputy assistant secretary of student-financial aid. Mr. Farrell, who will report directly to the Secretary, will also serve as acting assistant secretary for postsecondary education until a new assistant secretary is confirmed.

Ernest C. Canellos, a former chairman of the Education Appeal Board who has been acting assistant secretary for financial aid, will supervise a team charged with day-to-day operations.

A former assistant to Presidents Nixon and Ford, Mr. Farrell was the managing director of administration for Wheelabrator Technologies Inc. Mr. Farrell said he met the Secretary while working for Mr. Nixon and wrote Mr. Alexander a letter when he was nominated for the job expressing his willingness to join the department.

"Mike is an experienced, first-rate manager, which is precisely what we need," Mr. Alexander said in a statement. "His mission is to use his organizational and managerial skills to put these programs on track and keep them there for the benefit of taxpayers and students."

Critics have called on the department to better manage the student-aid programs since last year, when the problems with heaf became public and Senate subcommittee hearings on the programs revealed mismanagement within the department.

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