Highlights of Cavazos, Bennett, and Senate Proposals

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Following are highlights of proposals on student-loan defaults offered by Secretary Cavazos, former Secretary William J. Bennett, and the ''student-loan default-prevention and management act" passed by the Senate on March 17:

Default Rate


Authorizes limitation, suspension, or termination of student-aid-program eligibility for schools with default rates over 60 percent in the first year, with a phased (5 percent per year) decrease in this trigger over five years to 40 percent. (Final regulations.)

Authorizes limiting, suspending, or terminating eligibility of schools with rates over 40 percent that fail to reduce these rates by 5 percentage points each year until the rate falls below 40 percent. (Final regulations.)

Requires schools with default rates above 30 percent to delay certification and disbursement of loan funds for first-time borrowers by 30 days. (Final regulations.)


Schools with default rates over 20 percent would have been subject to limitation, suspension, or termination proceedings.

Included the institution's gsl and sls fiscal-year default rate as a criterion for selection of the institution for a program review.


Specifies the way in which a default rate is to be calculated, a feature sponsors said was aimed at providing a more accurate picture of the problem.

Requires development of a Default Management Plan for any institution of higher education, any lender, and any guarantee agency that reaches a default rate in excess of 25 percent.



Requires a pro rata tuition-refund policy for gsl borrowers at schools with default rates above 30 percent. (Final regulations.)

Requires each school with a default rate over 30 percent to use a pro rata refund policy for all recipients of departmental student-aid funds. This provision would not apply for any student who withdraws after the midpoint of the program or at the end of the first 6 months, whichever is earlier. (Legislation needed.)


Required all participating institutions to implement a pro rata refund policy.


Gives the Secretary of Education the authority to require refunds in cases where an institution has misrepresented its educational program to students.

Admissions Practices


Requires students admitted under the "ability to benefit" criterion to pass a test prior to enrollment to be formulated and administered by an independent third party. (Legislation needed.)

Prohibits schools from employing anyone other than salaried employees or volunteers to conduct recruiting or admitting activities; prohibits the paying of commissions, bonuses, or other incentives based on enrollment or student-aid volume to persons engaged in recruiting or admitting activities. (Legislation needed.)

Requires all vocational schools, regardless of default rate, to provide consumer information to all prospective students, including statistics on the program-completion rates of its students and job-placement rates of its graduates. (Final regulations.)

Lending Policies


Requires a lender to notify borrowers when it purchases a loan made to them if they will be required to send payments to a new address. (Proposed regulations.)

Requires lenders to provide graduated repayment options to borrowers. (Legislation needed.)


Required initial counseling by the school for gsl or sls borrowers at or before the first disbursement of loan proceeds.

Required that a school provide lenders or guarantee agencies, upon request, information on borrowers to assist in loan collection.

Required lenders to provide schools with a copy of each pre-claims assistance request in order to make the school aware that a former student might be about to default.


Requires institutions that receive loan checks to wait 30 days before cashing them and to return the checks to the lender if the student drops out during that period.

Requires the lender, in the parental-loan program, to determine the creditworthiness of the borrower before a loan is made.

Changes collection practices. Among the changes would be notifying a credit bureau when a student is delinquent, not waiting until he or she is in default.

Eliminates the consideration of home equity in evaluating need, and reduces from 70 to 50 percent the amount of income students would be expected to use for their education.

Limits Pell Grant eligibility to three years for students enrolled in programs of two years' duration or less.

Requires gathering more information on student borrowers, such as driver's license number and name and address of next of kin.

Implements a new 5 percent administrative fee for both the supplemental- and parent-loan program, to help offset the changes in needs analysis.

Defaulter Sanctions


Authorizes guarantee agencies to garnish a defaulter's wages, up to l0 percent of disposable pay. (Legislation needed.)


Provides for the withholding of academic transcripts from defaulters.

School Accreditation


Prohibits certification of schools for program eligibility after loss of accreditation. (Legislation needed.)


Toughens criteria, so that an institution that loses its accreditation cannot be re-accredited by another organization and thus retain federal-aid eligibility for at least two years.



Requires each private school that offers an undergraduate, non-baccalaureate vocational-training program to enter into a "teach out" arrangement with another school, under which the second school agrees to complete the training of any students enrolled in the first school free of charge if that school should close. (Proposed regulations.)

Vol. 08, Issue 37

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