Washington — The nation’s student loan default rate has reached
its lowest level ever, according to the U.S. Education Department (ED),
which nonetheless identified more than 300 colleges and universities
that could lose their right to participate in student-aid programs
because of excessive defaults.
Only 10.7 percent of former students were in default on their loans
in 1994, the most recent year for which data were available. This rate
is less than half the 22.4 percent rate recorded in 1990.
ED officials credited new enforcement power, improved collections
and an improving economy for the turnaround. “We have used every tool
available to slash the default rate and save taxpayers hundreds of
millions of dollars, and these efforts will continue,” said Education
Secretary Richard Riley.
However, ED also has the power to deny schools access to financial
aid dollars if their default rates exceed 25 percent for three
consecutive years or 40 percent in the most recent year.
Historically Black colleges and universities and tribally
controlled schools and colleges are exempt from these rules through
July 1998. However, Congress will re-examine the exemption during
reauthorization of the Higher Education Act (HEA).
College officials already have told ED about the need to continue
the exemption beyond next year, said Elizabeth Hicks, deputy assistant
secretary for student financial assistance. ED solicited input at a
series of regional hearings that ended in December. The department will
use these comments when designing their own reauthorization proposals,
which are expected by spring.
During the past year, ED has deemed 144 schools as no longer
eligible to participate in student loan programs because of high
default rates. Private trade and technical schools make up the bulk of
these institutions.
