Giving More to Get Back More

The number of people failing to repay student loans is scandalous. The failure to increase direct federal aid to needy college students is scandalous as well. But one problem cannot be resolved without curing the other.

Clearly, action must be taken against deadbeat students and schools that do little to instill in students a sense of obligation to pay back their loans. The Department of Education reported last week that about one-third of the 7,295 institutions in the program had more than 20% of their student borrowers in default on their loans in 1985. Five hundred more have 50% default rates. Most are private for-profit trade schools, but between 600 and 1,000 community colleges and four-year schools are also on the list. It should be noted that the department’s figures are from 1985, before tighter rules were mandated. Nevertheless, because the loans are guaranteed by the federal government, taxpayers will be left holding $1.6 billion in bad debts this fiscal year. That’s triple the figure in 1983.

Education Secretary William J. Bennett warns the schools that they could be dropped from the loan program and lose all other federal aid as well if they don’t bring their default rates below 20% by 1990. That would not be fair because it fails to recognize the special problems of recognized educational institutions serving a disproportionate share of low-income students. A school like California State University, Los Angeles, with a 20.5% default rate, according to the department’s figures, serves a particularly large number of students in financial need. Under Bennett’s proposal, the 22,000 Cal State L.A. students would lose eligibility for federally guaranteed loans because 417 students are in default.

Part of the problem with the federally guaranteed loan program is that the colleges have little to say about who gets a loan and nothing to do with collecting. There may be more that the colleges can do in counseling students on finances. There certainly is more that the guaranty agencies, set up around the country to oversee lenders’ practices, can do. They need to get tough when collection efforts by the lenders don’t meet appropriate standards. Otherwise, it is too easy for lenders to forget bad debts and collect federal compensation for any losses.

Another student-loan program, providing federally funded loans directly to colleges and through them to students, gives colleges incentive to collect bad debts because they take the loss. Pasadena City College, with what the department calculates as a 28% default rate on the guaranteed loan program, has only a 6.6% default rate on these direct loans. Many colleges resist implementing the direct loans because of the costs entailed. And the program has been further handicapped because it is woefully under-financed.

In addition to the student-loan crisis, there is a student-grant crisis. More Pell Grant money is required for low-income students if the nation is to honor its commitment to equal educational opportunity. The direct grants are named for Sen. Claiborne Pell (D-R.I.), who helped create them. The Reagan Administration has consistently tried to cut the money available for these grants and Congress has just as consistently resisted cuts. But having to fight off cuts means Congress has not been able to increase the pool of grant money to keep up with rising education costs. That has forced more low-income students to seek loans they probably will never be able to repay.

Controlling the gigantic student-loan debt obviously involves more than vigorous pursuit of the debtors. One solution to the default rate on guaranteed loans is to move more money into the direct-loan program that is administered by the colleges themselves. There will be no solution to the loan program, however, until more adequate funding for grants is available for those low-income students who should not be asking for a loan in the first place.