Student-Loan Program Back to Speed As Fears of S.&L.-LikeDebacle Ebb

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By Mark Pitsch

WASHINGTON--Recent anxiety over the stability of the federal student-loan program seems to be waning as lenders begin issuing their first aid checks of the semester and negotiations to salvage what remains of one of the nation's largest student-loan guarantors come to a close.

Student financial-aid offices, lenders, and guarantors say they are operating on a business-as-usual schedule to bolster the credibility of the program and to make sure eligible students receive their loans on time.

"There is a continuous flow of student-loan money right now," said Laurie Quarles, a staff associate with the National Council of Higher Education Loan Programs, an association of guarantors.

"We haven't had any major calls by anyone about any major disruptions," added Dallas Martin, president of the National Association of Student Financial Aid Administrators.

The announcement in July that the Higher Education Assistance Foundation of Overland Park, Kan., was on the brink of financial collapse and had asked for federal assistance caused lenders to question the lengths to which the government would go to underwrite the loan program.

The Education Department's response--that the student-loan program stood on strong ground and that the department would not go out of its way to save HEAF, loser of $44 million in 1989 and possesor of a loan portfolio of $9.6 billion--caused unease among many lenders and guarantors. (See Education Week, Aug. 1, 1990.)

But the mood has shifted from apprehension to assurance, student-loan officials say, as the department acknowledged that it might cost the government $100 million to restructure HEAF, and other key parties told Senate panelists that the kind of debacle facing the nation's savings-and-loan industry was not in store for the student-loan program.

"When this first happened, everybody was a little crazy, and then things died down," said Susan Macey Thompson, assistant to the chairman at United Student Aid Funds Inc., one of two companies that appear to be favored to assume HEAF's operations. "We don't seem to be getting the phone calls that we were, from lenders or the press."

A spokesman for Richard C. Hawk, HEAF's chairman, said the Education Department, which has studied takeover proposals by the Student Loan Marketing Association (Sallie Mae) and USAF, told HEAF that either plan was acceptable and left Mr. Hawk free to negotiate the details.

The spokesman, Lynn Greenwood, said it was unclear when a final resolution would be achieved, but added that Mr. Hawk's resignation would likely be part of any agreement.

Etta Fielek, an Education Department spokesman, refused last week to acknowledge that negotiations had gotten that far, and said other players were still involved.

Lax Enforcement?

The dimensions of the student-loan issue are underscored by the fact that 44 percent of the program's proposed $4.6-billion budget for fiscal year 1991 will go to cover defaults.

Critics of the program's administration--some of whom have drawn parallels between the savings-and-loan crisis and the HEAF collapse because of what they see as lax government oversight in both instances--have assailed the Eduon Department's enforcement of accrediting standards for trade schools, whose students account for a major share of loan defaults.

Secretary of Education Lauro F. Cavazos has pledged to step up the department's enforcement and accrediting standards, issued new regulations that make it easier to suspend schools that misuse financial-aid funds, and dispatched investigators to gather information on other guarantors.

Mr. Cavazos last week issued a handbook for reducing student-loan defaults. In it, he said that postsecondary institutions should provide loan counseling and work closely with lenders to monitor defaults; that lenders should research loan risks, keep in contact with student borrowers, and closely follow loan servicers; and that guarantors should monitor lenders and schools, and enforce default laws and regulations.

Senate Hearings

The Senate Subcommittee on Education, Arts, and Humanities and the Senate Banking Committee held hearings this summer on the HEAF crisis, and the Education Department received much of the blame for not anticipating the problem.

But Mr. Cavazos said HEAF, lenders, accrediting agencies, and schools were equally responsible, and maintained that those parties should have been stricter in enforcing federal regulations.

The Secretary and other witnesses at the subcommittee hearing dismissed comparisons of the HEAF situation to the multi-billion-dollar troubles of the savings-and-loan industry.

"There is no way in the world we can compare this situation to the S.&L. crisis," Mr. Cavazos said. "There is absolutely minimum risk to the taxpayer."

Vol. 10, Issue 1

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