Student Defaults Threaten Aid at 1,200 Schools

As many as 1,200 trade schools and colleges nationwide--including 148 in California--are in danger of losing federal aid or being dropped from student loan programs because too many of their graduates have defaulted on government-backed loans, the Department of Education warned Friday.

“These are tough measures, but they are necessary and appropriate steps to reduce the unacceptably high cost of loan defaults,” said Carolynn Reid-Wallace, assistant secretary for post-secondary education.

The department released a stream of statistics to underscore the problem. Nationwide, 22% of students receiving federal aid defaulted on their loans in fiscal 1990, up from 17.2% in 1988. Student loan default rates began rising sharply in the mid-1980s, after hovering for two decades at about 10%.

More than three-quarters of the schools on the Education Department’s list are so-called “proprietary schools,” or for-profit trade schools. Forty-one percent of the students at those schools defaulted on their loans.

Officials at the Department of Education emphasized that these warnings are an effort to crack down on schools rather than students.

“Schools need to ensure that borrowers fulfill their responsibility to pay back loans to the government,” William Hansen, acting assistant secretary for management and budget, said at a news conference. “If students get a shoddy education, it’s going to be difficult for them to pay their loans back.”

But the president of an association that represents trade schools took exception to the department’s conclusions about the cause of the problem. “The student loan default rate is only one small piece of this larger economic downturn,” Stephen J. Blair, president of the Career College Assn., said in a statement.

“These are people who entered the job market at a time of shrinking opportunities,” Blair said. “They did what was asked of them: They went to school, learned a skill. . . . They fulfilled their end of the bargain. Our economy hasn’t reciprocated.” Education officials, however, said the figures released Friday date back to before the recession and were not affected by a shortage of jobs for recent graduates.

The department divided schools into categories based on their default rates.

The worst offenders are 85 schools that stand to lose eligibility for student loans, including Stafford loans for students and Parent Loans to Undergraduate Students, for three years and would be denied access to student grants, including Pell Grants, as a punitive measure for an indefinite period.

Students at another 473 schools would not be eligible for federal grants for indefinite periods, while loans would be denied to students at 36 other schools.

The remaining 606 schools would lose one category of loans, Federal Supplemental Loans, for one year.

Schools have been told they can remain eligible for some federal programs if they meet certain guidelines, including counseling their students to repay loans and reducing their default rates.

In California, 23% of schools receiving federal student aid have unacceptably high default rates, compared with a nationwide figure of 17%.

Of the 148 California schools, 10 would be dropped from all loan and grant programs, 46 would lose grants and six would be denied access to student loans. Eighty-six schools are at risk of losing Federal Supplemental Loans.

None of the California schools are four-year institutions. Thirty are one- or two-year colleges and the other 118 are trade schools.

One institution sure to appeal is the state’s largest community college, Long Beach Community College. The Department of Education placed the school’s fiscal 1990 default rate at 44.8%, but Toni Du Bois, the school’s director of financial aid, insisted Friday that the figure is wrong.

“I believe our true default rate to be around 20-25%,” said Du Bois. “We serve a lot of disadvantaged students. Some of them make it, some don’t. I don’t want to take opportunities away from the 75% who make it.”

Some schools, Du Bois said, add extra, and illegal, hurdles for students applying for loans, such as denying loans for first-year students in order to keep their default rate down. The college has appealed default figures in each of the past two years and is awaiting word on a 1988 recalculation. The problem, Du Bois said, is that the California Student Aid Commission, which administers student loans in the state, submitted misleading data to the Department of Education.

Commission spokesman Dan Parker, however, said his group stands by its data. In fiscal 1989, he said, just 26 schools successfully appealed default rates that were based on the commission’s data.

Other local schools in danger of losing aid include Compton Community College and Barstow College.

Recent legislation has given the Education Department new powers to crack down on schools and students. Although figures are not yet available, department officials said default claims are on the way down. The department estimates that student loans will cost the taxpayers $2.9 billion in fiscal 1992.

The California Targets

Here is a list of schools that may lose their eligibility for the Federal Family Education Loan program, formerly called the Guaranteed Student Loan program. These schools had loan default rates of 35% or more for three consecutive years. The list indicates the types of schools and the percentage of student loans that were in default for fiscal 1990:

School Location Type Default rate Banking Institute Los Angeles Trade 36.8 Barstow College Barstow College 61.1 California Paramedical and Technical College Long Beach Trade 39.1 Canada College Redwood City College 52.8 Compton Community College Compton College 62.1 Kenneth’s College of Hairstyling Vallejo Trade 55.0 Lassen College Susanville College 36.3 Long Beach Community College Dist.-Long Beach City Col. Long Beach College 44.8 Marinello Schools of Beauty Arleta Trade 58.1 Merritt College Oakland College 39.4 National Business Academy Van Nuys Trade 51.6 Palo Verde College Blythe College 40.8 Southwest College San Francisco Trade 77.0 Southwest College Hayward Trade 67.9 Universal College of Beauty Los Angeles Trade 56.5 Van Nuys College of Business Van Nuys Trade 44.6

Source: Department of Education