Federal Officials Tout Plunge in Loan Defaults

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The default rate on federal student loans plunged from 22.4 percent in fiscal 1990 to 11.6 percent in fiscal 1993, Department of Education officials said last week.

They credited steps taken by the Clinton administration for the drop, including stricter applicant screening, tougher sanctions against schools with high default rates, and improved internal-accountability procedures.

"The program was hemorrhaging, the numbers were completely unacceptable," Secretary of Education Richard W. Riley said at a news conference last week.

The shift was the largest single-year drop in student-loan default rates since officials began tracking such data in 1988, he added.

Six hundred schools, mostly trade schools, have been eliminated from the program since 1993 because of high default rates. And thousands of applicants who previously defaulted on student loans have been prevented from getting new ones.

The net cost of such loan defaults has dropped by more than two-thirds, from $1.7 billion in fiscal 1992 to $400 million in 1995.

Mr. Riley said that the new default rates do not include direct loans because the two-year-old program has not been around long enough for repayments to begin. But he said the trend shows that the department is ready to manage an expansion of the direct-lending program, under which students bypass banks and receive loans from the federal government through their schools.

Some GOP leaders want to cap direct loans at 10 percent of total student-loan volume, arguing that the department is not capable of managing the program efficiently. Supporters of direct lending say cutting out private lenders' profits will save money. President Clinton has called for open competition between direct lending and the older guaranteed-loan program.

"From our end, it would appear that the Clinton administration is taking credit for efforts started in the Bush administration," said Cheri Jacobus, the press secretary for the House Economic and Educational Opportunities Committee.

Tobacco Restrictions

As part of the Clinton administration's push to protect children from access to tobacco products, federal officials have issued a final rule for how states must control the sale of those products to minors.

The rule, issued by the Department of Health and Human Services, provides regulations to guide the enforcement of a 1992 law.

In order to receive all of their substance-abuse block grants, states must have on the books laws that forbid the sale of tobacco products to minors, including sales made through vending machines. All states now have such laws. But the states must also enforce the laws by conducting annual, unannounced random inspections of sales outlets.

Still pending are rules proposed last summer by the Food and Drug Administration that would restrict the sale, distribution, and promotion of tobacco products to minors. (See Education Week, Sept. 6, 1995.)

Sports Equity

The Department of Education's office for civil rights has issued final guidelines that officials hope will clear up confusion over enforcement of gender equity in intercollegiate sports.

Under the clarification, which was released this month, the OCR will continue to use a three-prong test to determine if colleges and universities are complying with Title IX of the Education Amendments of 1972, which outlaws sex discrimination in education institutions that receive federal money.

The guidelines stress that higher-education institutions need to use only one of the three tests to prove that they are providing or progressing toward equal opportunities for male and female athletes. Included in the document are examples of acceptable and unacceptable accommodations.

"The clarification does not provide strict numerical formulas or 'cookie-cutter' answers to the issues that are inherently case- and fact-specific," writes Norma Cant£, the assistant secretary for civil rights, in an accompanying letter. "Such an effort not only would belie the meaning of Title IX, but would at the same time deprive institutions of the flexibility to which they are entitled."

The clarification was designed for colleges and universities, but the document notes that elements of the policy will also apply to elementary and secondary schools.

Racial Bias

The U.S. Supreme Court agreed last week to decide whether to broaden the availability of punitive damages for racial discrimination under a Reconstruction-era law.

At issue in the case of Merrill v. Barbour (Case No. 95-27) is the Civil Rights Act of 1866, which bars racial discrimination in private contracts. The law, better known as Section 1981, is used as a basis for lawsuits alleging race discrimination in employment, although such suits are more often brought under Title VII of the Civil Rights Act of 1964. Punitive damages were not available under Title VII until it was amended in 1991. (See Education Week, May 4, 1994.)

The case involves a black hospital manager who was passed over for a promotion in 1989. He sued under Section 1981 and won, among other remedies, punitive damages of $25,000. The U.S. Court of Appeals for the District of Columbia Circuit upheld the award.

The hospital appealed to the high court, arguing that punitive damages were not appropriate because the man did not prove any "evil motive or intent." The high court granted the appeal to determine whether punitive damages should be available in every Section 1981 case in which intentional discrimination is found.

Unspent Head Start Funds

The General Accounting Office has found that in fiscal 1992 through 1994, about two-thirds of Head Start grantees did not spend all the money they were awarded under the preschool program.

Such "carry-overs" amounted to about between 4 percent and 6 percent of total Head Start awards for those years, which ranged from $2.2 billion to $3.2 billion.

The GAO also found, however, that most of the unspent balances resulted from differences between a grantee's budget estimates and actual expenditures, from delays related to building construction or renovation, and from late disbursement of funds.

The findings are included in a report requested by Rep. John R. Kasich, R-Ohio, who chairs the House Budget Committee.

The GAO studied 107 grantees and gave estimates for nearly 1,200. That is the number of programs in place in 1994, excluding the four largest programs, those in existence for less than three years, and programs for American Indian and migrant children.

In 1993 and 1994, about $139 million was carried over, the GAO estimated. About $97 million was added to the grantees' awards for the following year, allowing them to spend more. The other $42 million was subtracted from later allotments and redistributed.

Copies of "Head Start: Information on Federal Funds Unspent by Program Grantees," are free from GAO, P.O. Box 6015, Gaithersburg, Md. 20884-6015; (202) 512-6000.

Vol. 15, Issue 19

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