Bennett Warns of 'Alarming' College-Loan Default Rate

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Congressional action is urgently needed to stem an “alarming” increase in the rate of defaults on federally guaranteed loans to college students, Secretary of Education William J. Bennett told House and Senate leaders last week.

In letters sent to the leaders on Aug. 29, Mr. Bennett said a recent analysis by his department indicates a trend that will produce sharp increases in the annual rate of defaults on guaranteed student loans, which are made by private lenders and insured by the government.

According to the Secretary, projected increases in the rate are so dramatic that, if left unchecked, federal payments on defaulted loans could wipe out the entire $800 million in cost savings for the program called for in the Congress’s fiscal 1986 budget resolution.

Officials of the National Association of Student Financial Aid Officers, which has often been at odds with the Reagan Administration on student-aid matters, declined to comment on Mr. Bennett's assertions, saying they had not had an opportunity to review the new projections.

Elementary and secondary educators have paid close attention to the cost of the G.S.L. program in the past out of concern that increases in funding for it could force decreases in federal spending for other education programs. The government earmarked about $3.1 billion for the program for the fiscal year that ends on Sept. 30.

According to Mr. Bennett, the new projections indicate that the default rate for 1985 will reach 11.7 percent, up 1 percent from the 1984 rate of 10.7 percent.

“If the current trend is not checked, we expect that the default rate will continue to climb, rising to 13.6 percent in 1990," he said. "The financial implications of such an increase in the default rate are staggering. This means annual default costs could balloon to over $1.8 billion by 1990, with the cumulative total of student-loan defaults reaching almost $12 billion in just five years."

Earlier last month, the department announced a joint effort with the Internal Revenue Service designed to crack down on loan defaulters. Under the initiative, defaulters could have their federal income-tax refunds withheld and applied to their outstanding debts.

Vol. 05, Issue 01, Page 9

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