College Loan Agency to Forgive Some Student Debt

About 600 students who went to college in Massachusetts in the early 1980s are in for a pleasant surprise this summer: Portions of their school loans are about to be forgiven.

The number of students who defaulted on loans issued by the Massachusetts Educational Financing Authority was so much lower than expected that, to avoid losing its nonprofit status, the agency is forgiving an average of $2,500 in outstanding loans for some borrowers.

The high repayment rate is attributed to an improved economy and a national crackdown on student loan defaults, which have fallen 50% since 1990.

The national student-loan default rate declined from a high of 22.4% in 1990 to 10.7% in 1994, according to the Education Department.

The Massachusetts loan authority requires students to co-sign the loan with their parents, who must be credit-worthy. The result: a 1.15% default rate.

So high is the repayment rate that the authority must now return $1.5 million to maintain its nonprofit status and continue selling tax-exempt bonds.

The agency can lose its tax-exempt status if it earns a higher-than-projected return on its loans. The allowable return is specified under the terms of the bonds.

So about 600 borrowers in good standing who secured their loans with home equity in the early 1980s will see an average of $2,500 of the money they still owe forgiven.