The Nation - News from Sept. 14, 1988

The Department of Education took a step closer toward a plan to penalize colleges and trade schools with student loan default rates above 20%. The agency released proposed rules that will appear in the Federal Register later this week spelling out the sanctions, which would start in July, 1991, based on default rates in fiscal 1989 and 1990. The proposed rules, which the Reagan Administration hopes to make final in January, would allow the Department of Education to toss a college or trade school out of the loan program, subject to appeal to an administrative law judge. The department also released a list of banks and other lending agencies with high default rates on student loan. The worst rates were generally among banks that lent to large numbers of students attending private, for-profit trade schools. Bruce Carnes, a deputy under secretary of education, said, the banks are “doing what the law authorizes, permits, encourages.” But Carnes added that the Reagan Administration hopes to see the law changed so that banks would share in the risk of defaults. Currently, the government insures 100% of the loans.