E.D. Cites 178 Postsecondary Institutions for Default Rates

By Mark Pitsch — July 31, 1991 2 min read

Washington--The Education Department has notified 178 postsecondary institutions, the majority of them proprietary schools, that their students will no longer be eligible for Guaranteed Student Loans because of excessive loan-default rates.

Each of the schools had default rates of more than 35 percent between 1987 and 1989, the department said.

As a result, the schools will be barred under the 1990 deficit-reduction law from participation in the $12.5-billion program, which includes Stafford Student Loans, Supplemental Loans for Students, and Parental Loans for Students. The provision is aimed at cutting the cost to the department of student-loan defaults, which is estimated for fiscal 1991 at more than $3 billion.

The notification signals the start of a new campaign to make the aid programs work better, Michael J.Farrell, acting assistant secretary For postsecondary education, said at a news conference here this month.

“With this initiative, we’re taking one step toward taking better care of the taxpayers’ money and protecting the students,” said Mr. Farrell, who was brought to the department by Secretary of Education Lamar Alexander to strengthen the management of financial-aid programs.

Other steps the department is taking to make the program more efficient, Mr. Farrell said, were to tighten management and more vigorously scrutinize schools, lenders, and accrediting agencies; put schools at risk of losing gsl eligibility on notice; step up collection efforts from defaulting students; and ask the Congress for authority to establish minimum standards for state licensure of accrediting agencies.

“The key to this initiative is shared responsibility and accountability,” he said. “All the participants in this program will make a better program if they all contribute to the results.”

Appeals Allowed

While suggesting that the listed schools were not “candidates for the Malcolm Baldrige Award"--a Commerce Department program for recognizing business excellence--Mr. Farrell noted that those cited will have 30 days to appeal. Some of the schools will not lose eligibility, he predicted.

Schools may appeal by showing that the data used against them are inaccurate, or by pointing to such “mitigating circumstances” as recent improvement in curbing defaults or a record of successful service to students from disadvantaged backgrounds.

Etta Fielek, a spokesman for the department, said officials delayed their announcement, which included a three-inch-thick booklet detailing the rates for each participating school in the country, in order to make changes in the list of accept able mitigating circumstances.

The Congress exempted historically black colleges and universities and tribally controlled colleges from losing eligibility until 1994. It also put the default-rate threshold at 30 percent in 1993.

In addition to the 178 schools, whose students would remain eligible for Pell Grants and other aid programs, the department identified 76 schools with default rates greater than 60 percent in fiscal 1989.

Those schools may lose eligibility to participate in all federal aid pro grams, under a default initiative launched by the department in 1989. Of the 76 schools, 29 had de fault rates of greater than 35 per cent between 1987 and 1989, and thus would also be covered under the Congressional provision.

A version of this article appeared in the July 31, 1991 edition of Education Week as E.D. Cites 178 Postsecondary Institutions for Default Rates