State Unit Zeroes In on Unpaid Student Loans

The California Student Aid Commission announced Thursday an aggressive campaign to recover more than $310 million in defaulted student loans, including action to remove from the program a San Francisco stenography school.

“We want to make it clear from now on that it is not business as usual,” said Samuel M. Kipp III, newly appointed executive director of the commission. The commission administers the program of low-interest, federally guaranteed loans to students from banks and other financial institutions, and serves as collection agent if a student defaults on the loan.

In the first action of its kind, the commission said Thursday that it is taking steps to bar the San Francisco Academy of Stenographic Arts from the program because the school did not repay lenders more than $170,000 for students who had dropped out.

If a student who has obtained a loan through the commission drops out of school, the school must return to the lender a refundable portion of the tuition. The lending institution in turn is required to credit the student’s account.

At a press conference, Kipp said loans in default as of last November totaled more than $310 million and warned that the problem of non-payment “threatens the integrity of the entire program.” He said the worst offenders were community college students, who default on 31.6% of their loans.

The default rate at vocational schools is 29.8%, he said, followed by independent two-year colleges at 16.9%; California State University, 12.8%; independent four-year colleges, 10.3%; out-of-state schools, 9.7%, and the University of California, 7.6%.

Under the terms of the guaranteed loans, a student must begin repayment within six months after he or she completes school, falls below half-time status at school or drops out. The loan must be repaid in 10 years at a minimum rate of $600 a year.

During 1985, the commission’s five full-time investigators conducted 89 routine reviews of the 627 California schools participating in the program. The investigators are looking at several possible violators in addition to the one in San Francisco, Kipp said.

He said the San Francisco academy failed to refund the tuition of 167 students. Academy officials, who declined comment, can appeal the commission’s action, which would become final Feb. 19.

Kipp said the commission’s campaign includes several new tactics to encourage repayment of loans, including:

- Supplying the Internal Revenue Service with names of students who have failed to repay their loans. The IRS then can deduct the outstanding loan balance from the students’ federal income tax refunds. Kipp said the commission has reported 14,000 students to the IRS.

- Diverting California Lottery winnings toward payment of outstanding loan debts. Commission records show that $9,000 was collected during the first month of the lottery, the only month for which figures are available.

- Reporting the names of delinquent student borrowers to national credit bureaus, so that the defaulted loans are recorded on the students’ credit rating.