U.S. Halts Loans for Trade School Run by UES : Education: Investigators found that courses at National Technical Schools’ courses do not meet U.S. standards.

The California Student Aid Commission said Monday that one vocational school owned by Encino-based United Education & Software would no longer be eligible for government-guaranteed student loans because a federal investigation showed that courses at the school did not meet federal standards.

The 16-month investigation by the Department of Education focused on a mail-order computer training course run by National Technical Schools in Los Angeles.

A federal audit committee said UES could be liable to repay $21.8 million in government-backed student loans because NTS’s students were either ineligible for the federal guarantee program or because the company improperly refunded tuition after students dropped out.

The state Student Aid Commission, which is responsible for administering the federal student loan program, said any students enrolling at National Technical Schools after Monday would not be eligible for government-guaranteed student loans.

The investigation, which was conducted from August, 1987, to November, 1988, found that National Technical Schools’ computer training courses were too short to meet the federal minimum course length of six months. The audit also said the school didn’t make proper refunds on loans, misrepresented school costs and admitted students who were academically unprepared for the study programs and that National Technical Schools had only a 3% graduation rate. The school’s loan default rate is nearly 20%, the study said.

UES, which runs 26 trade schools, has operated National Technical Schools since January, 1986. The school, which offers study-by-mail courses in personal computers and electronics, continued operations Monday, UES said.

C. Ronald Kimberling, UES’ senior vice president and chief compliance officer, said in a statement that the government’s action was “precipitous and unwarranted” because UES hasn’t had a chance to respond to the audit report at a hearing. He said that the report was seriously flawed and that UES would seek a court injunction against the student loan program ban.

UES has 15 days to respond to the state student aid commission.

Sefton Boyars, regional inspector general for audit at the U.S. Department of Education’s San Francisco office, said the audit “arose out of some allegations we received” that National Technical Schools wasn’t complying with federal regulations.

Boyars said the Department of Education should determine within six months the amount of UES’ liability to the federal government for loans that didn’t meet government regulations. In addition to the $21.8 million in loans under review, UES might also be liable for any processing fees, interest, or other funds that have been paid by students or the government.

The developments are another blow to the problem-plagued trade school operator. Last year a federal government review uncovered widespread bungling at UES’ student loan servicing subsidiary. The problems, which included failure to properly notify delinquent borrowers, led to an announcement by Bank of America that it and other banks that backed the student loans could lose as much as $650 million because the federal government said it would not honor the loans.

UES sold the loan financing business to Bank of America last year, but UES has been named as a defendant in suits brought by the banks that backed the loans.

The problems have ended UES’ profits and the surges in its stock prices. In the fiscal second quarter that ended July 31, UES reported a net loss of $5 million on revenue of $17.5 million, compared to net income of $1.2 million, on revenue of $20.1 million, in the same period a year earlier. UES’ stock, which traded as high at $16.375 in 1988, closed Monday at $1.25.