E.D. Gave Millions in Loans to Defaulters, Study Finds

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Washington--The Education Department has violated regulations that govern the student-loan program by distributing millions of federal-loan dollars to college students who have already defaulted on one loan or who have exceeded the annual loan limit, according to a federal study released last month.

Compounding the problem is the fact that the department lacks the ability to identify such students, states the General Accounting Office report, "Stafford Student Loans: Millions of Dollars in Loans Awarded to Ineligible Borrowers."

The report is the latest in a series of critical reviews of the department's management of the student-loan program by the g.a.o., Capitol Hill aides, lobbyists, and members of the private sector.

"I continue to be disappointed with the way the guaranteed student loan program has been managed. This report reinforces the need for better program management and continued oversight by the Congress," said Senator Sam Nunn, Democrat of Georgia, who had called for the g.a.o. report.

As chairman of the Senate subcommittee on investigations, Mr. Nunn held hearings last fall on the state of the student-loan program, and the report is certain to fuel the debate over how to revamp federal-aid programs.

The report comes as the Bush Administration, the Congress, and the Education Department prepare their proposals to reauthorize the Higher Education Act of 1965. Title IV of the act governs federal student8financial aid. (See Education Week, Jan. 16, 1991.)

According to the report, student-loan defaulters may have obtained $109 million in loans over the past 25 years, and millions more dollars have been loaned above the legal limits.

The gao report says the department's data base on student loans is so incomplete that it cannot accurately say how many students or how many dollars are involved, and that the loan figure could be higher or lower than $109 million.

In analyzing more than 30 million files, the gao found that about 32,000 students defaulted on loans totaling $54 million and later obtained new loans of about $109 million. In addition to paying for the deel10lfaults, the government was subject to paying $65 million in interest subsidies over the life of the loans, the report says.

According to the report, student-loan default dollars increased from about $800,000 in 1980 to about $40.2 million in 1988.

The gao also notes that "the problem of students obtaining loans for more than the annual or total limits doesn't appear significant, but still needs to be controlled."

Up to $5 million in loans could have been made to students above their limits between September 1987 and August 1988, costing the government as much as $1.8 million in subsidies over the life of the loans.

For example, one graduate student received a $7,500 Stafford loan, the yearly maximum, but also received a total of $27,500 in loans from three other guarantee agencies. In addition to going into default on the $7,500 loan, the student previously had defaulted on $12,500 in loans.

The report notes that the department plans to implement a new data system in 1993 that will help it identify fraud and abuse and suggests that, until then, the department identify abusers by cross-checking loan and default records and working closer with guarantee agencies.

A department spokesman declined to comment on the report, but a response from the department included in the report acknowledged the high rate of defaults.

But the department maintains that its data system was "not designed to be used to prevent the making of loans to ineligible borrowers." It faults the Congress for failing to give it authority until December 1989 to develop a wide-ranging data base, such as the one that will be in operation in 1993.

Vol. 10, Issue 20

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