Loan Default Rate Highest at Dominguez Hills : Education: Compton College default rate of 52.7% also is high among two-year schools. Some campus administrators question the validity of the U.S. Education Department’s figures.

For the second consecutive year, the federally guaranteed student loan program at Cal State Dominguez Hills has the highest default rate among California’s public universities, according to the U.S. Department of Education.

High default rates also were recorded at Compton College, one of the community colleges considered a feeder school for Cal State Dominguez Hills. Compton’s default rate in 1988, the last year that rates are available, climbed to a whopping 52.7% from 46.7% the previous year. That means more than half of the Compton students who were to begin repaying a loan in fiscal 1988 had failed to make payments in 1988 or 1989.

The default rate at Cal State Dominguez Hills is 19.7% for 1988, up from 16.8% in 1987.

About 140 of the loans--known as Stafford Loans--issued to Cal State Dominguez Hills students and totaling more than $708,000 are considered to be in default, according to the Education Department. There are 9,200 students at the university.

Officials at the Carson campus say the university’s default rate is due in large part to the makeup of its student population: many of the borrowers are low-income, first-generation college students who sometimes do not complete their studies. Worsening economic conditions, campus officials say, also have contributed to the difficulty even successful students have in starting careers after school and repaying their loans.

Another factor, said James Hartman, dean of student enrollment services, is that state and federal grant money has not kept pace with increasing enrollment and the university has a limited pool of scholarship money. Consequently, students who would be better served by scholarships or federal grants must turn to the loan program.

Default rates are also up at El Camino College, another community college considered a feeder school for Cal State Dominguez Hills, but two others, Los Angeles Harbor and Los Angeles Southwest colleges, recorded declines.

In the last two years, both Congress and the Department of Education have approved rules that would penalize student aid programs at schools that do not maintain certain minimum default rates.

The department said in 1989 that a school whose default rate is greater than 60% could become ineligible or face other sanctions on all its federally backed financial aid programs; that rate will be lowered annually by 5% until it reaches 40%.

Congress took further steps, and in November, 1990, adopted a separate rule that automatically terminates Stafford loans if a school exceeds a 35% default rate for three years running. The program would be retroactive.

Interestingly, campus-administered loans, known as Perkins loans, have a default rate almost half the national average on bank-administered Stafford loans.

The programs differ in that the Perkins loans are funded with federal and school funds, and the loans are repaid directly to the schools. The Stafford loans are funded and administered privately by institutions, such as banks, credit unions or saving and loan associations. The Perkins loans, which are for the most disadvantaged students, carry 5% interest rates, while there is an 8% interest rate for the Stafford loans.

At Dominguez Hills, a committee of students, faculty and administrators recommended early this year that the school speak with students about repayment before granting loans and also at graduation. That policy is now in effect.

University officials are also looking at improving the school’s dropout rate.

“This whole concept of how people are doing academically is at the heart of the issue,” Hartman said. “If we can increase their academic performance levels there is much higher probability that they will remain enrolled, eventually graduate and get a job, which will allow them to repay.”

At a time when default rates will be used to penalize campuses, the accuracy of the data itself is coming into question. Campus administrators have criticized the data, saying federal default figures often count students more than once and do not remove loans from the default category if the student starts to repay the debt.

At the same time, the top federal official overseeing the loan program says default figures for many of California’s 250 institutions may be artificially low. Bill Moran, director of the student assistance program in the office of postsecondary education, said a number of schools have loans that were not listed because claims were never made on them by their servicing or collection agency.

Many of these problems stem from foul-ups by United Education & Software, a servicing operation that federal officials said had failed to properly handle more than $1 billion in student loans. United Education was accused by federal officials of failing to send out thousands of letters to delinquent borrowers and sending letters to wrong addresses. The Encino-based firm has blamed the errors on software problems.

The 1988 figures, Moran said, are currently being recalculated for all California institutions in the loan program, and it is unknown how the changes will affect rates at schools in the South Bay.

Although Dominguez Hill’s default rate has increased in each of the last two years, it remains just under the 20.6% it reached in 1985, the highest at the school in a five-year period. James Woods, Cal State Dominguez Hills financial aid director, said that when he takes into consideration the makeup of the borrowers he “feels good that the rate was as low as it was” in 1988. The figure was 13% in 1986.

Several Los Angeles County institutions--including Compton College and Los Angeles Southwest College--are among those whose programs are threatened if their rates do not improve.

Although Compton College’s default rate increased, the Southwest College rate dropped to 38.3% from 1987’s 41.5%. Los Angeles Harbor College had a big decrease; its 1988 rate is 19%, down from 33.8% the previous year. El Camino College’s rate in 1988 increased to 25.2% from 23.2% the previous year.

At Compton College, Financial Aid Director W. O. Jones said he has found discrepancies in about half of the 70 student loans that are listed as being in default for 1988. In some instances, Jones said, student loans have been counted twice and figured into the school’s rate and a $202,000 default loss. About 5,000 students attend the school.

Woods said he has found similar discrepancies in the data on the university’s loans.

Education Department officials would not comment on the cases of individual schools, saying only that the institutions have the right to challenge the accuracy of the data through the department’s due process provisions.

Jones said Compton’s $202,000 in defaults, with a 52.7% rate, is small when compared with other schools that have a lower rate of nonpayment. For example, Southwest College in San Marcos, with a rate of 35.1%, had $3.6 million in loans in default.

Charles Bossler, financial aid director at Harbor College, said: “We’re ecstatic that we’re down, but I’m not sure that (the 1987 data) was correct.”

About 10% of the school’s 8,900 students receive financial aid, according to Harbor College officials, and Bossler said he often counsels students not to take a loan. “I don’t think it meets the needs of the students,” he said, explaining that the programs burden students with debt when they leave school.

In 1989, defaults nationally on student loans cost taxpayers almost $2 billion, said Rodger Murphey, a spokesman with the Education Department, explaining that for every dollar loaned, 37 cents is not repaid.

The highest dollar loss in California, with a default rate of 47%, was the $7.8 million posted by the Lawton School for Medical and Dental Assistants in San Jose, according to the Education Department.

Perhaps the most frequent criticism of the government crackdown is that it penalizes institutions, which are not responsible for collecting the loan. Under the Stafford loans, the institutions disburse the privately funded loans and the lender is responsible for collection. Federal sanctions underscore the fact that the federal government wants schools to take some responsibility for reducing default rates.

The Stafford loans are becoming more popular. In the California State University and University of California systems, the number of Stafford loans increased 11.2% and 12.7%, respectively, from the 1988-1989 fiscal year to 1989-1990.

To qualify, undergraduate or graduate students certify that they are earning less than $30,000 a year and are enrolled in six units (generally two courses) of study at an accredited school or college.

CAL STATE STUDENT LOAN DEFAULTS

Figures show the percentage of borrowers whose loan payments were to begin in fiscal 1988 and who failed to make loan payments in fiscal years 1988 or 1989. Percentages are shown for California State University campuses and institutions--universities, colleges and trade schools--nationwide. Bakersfield: 15.4 Chico: 7.3 Dominguez Hills: 19.7 Fresno: 8.1 Fullerton: 9.6 Hayward: 9.3 Humboldt: 9.4 Long Beach: 10.0 Los Angeles: 17.1 Northridge: 10.2 Pomona: 8.1 Sacramento: 6.7 San Bernardino: 12.7 San Diego: 8.6 San Francisco: 12.6 San Jose: 8.7 San Luis Obispo: 5.0 Sonoma: 9.1 Stanislaus: 9.1 Nationwide: 15.6 Source: U.S. Department of Education