Slight Decrease in Student-Loan Defaults Recorded

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Washington--The percentage of students defaulting on their federally guaranteed college loans decreased slightly in fiscal 1988, according to new figures, but federal officials were hesitant to claim progress in the costly battle against defaults.

The Education Department last week reported that the percentage of students defaulting on their Stafford Student Loans fell from 17.3 percent in fiscal 1987 to 15.6 percent in 1988. (The default rate was calculated by counting those who defaulted in 1988 or 1989 on loans that entered repayment in 1988.)

Last year, Secretary of Education Lauro F. Cavazos announced new regulations aimed at making postsecondary institutions partially accountable for the number of their students who defaulted on federally guaranteed loans. (See Education Week, June 7, 1989.)

However, because of the lag time involved in calculating default rates, the new figures were not affected by the secretary's initiative, department officials stressed.

"Our problem with student-loan defaults is too serious for hasty judgments about trends in the default rate," said Leonard L. Haynes 3rd, assistant secretary for postsecondary education. "We don't want to claim victory, and we don't want anyone else to claim victory either."

Officials acknowledged that about one percentage point of the drop in the default rate was the result of technical changes, such as the exclusion from the figures of schools with fewer than 30 borrowers, those that no longer participate in federal student-aid programs, and foreign institutions.

"We wanted to look only at those institutions regulated under the default initiative," said Roberta Dunn, deputy assistant secretary for student financial assistance.

Other possible factors in the decline, officials said, were increased default-prevention efforts by schools and improved loan-servicing requirements.

In releasing default rates for 5,266 schools, the department for the first time included information on the actual dollars in default. The change was made in response to criticism that many large institutions may have lower default rates but have many more dollars in default.

The department also reported that, of the more than $9.2 billion in student loans that entered repayment in 1988, more than $1.06 billion went into default through 1989, a rate of 11.6 percent.

Department officials noted that that figure should not be confused with the approximately $1.8 billion budgeted by the federal government this year to cover defaults throughout the history of the program.

The department has not yet broken down the default-rate information by sector, saying it needs another few weeks to complete such an analysis.

Vol. 09, Issue 30

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