THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Saturday, January 25, 1997 TAG: 9701250032
SECTION: FRONT PAGE: A10 EDITION: FINAL
TYPE: Editorial
LENGTH: 50 lines
Five years ago, heavy breathing editorials bemoaned scandalous default rates on federally guaranteed student loans. Well, good news. Dramatic improvements have occurred. The reasons for the improvement are instructive.
In 1990, the default rate on student loans was 22.4 percent. Two weeks ago, President Clinton was able to announce that by 1994 the rate had been more than cut in half, to 10.7 percent.
This matters to all of us because defaults on student loans cost taxpayers $1.7 billion in fiscal 1992. That was down to $249 million by fiscal 1996. Still too high, but a really remarkable change. And all of this was taking place even as the volume of loans was increasing by 88 percent from $12.3 billion in 1990 to $23.1 billion in 1994.
So what explains this stellar performance? An expanding economy, job growth and no recession for the past six years didn't hurt. But there's more to it than that.
Essentially, the government put its foot down. Until 1988, reliable statistics on loan defaults weren't even kept. But starting in 1990, Congress adopted legislation that held schools and loan recipients to account.
If default rates exceeded acceptable thresholds for three consecutive years, the schools could become ineligible for federal loan programs - a serious blow. And the Department of Education duly followed through.
In the past four years, 672 educational institutions have been barred from participating in all student financial-aid programs, and another 203 institutions have been removed from loan programs only.
Improved tracking has prevented non-payers from escaping without penalty. And those caught have been liable to harsher collection methods including wage garnishment. As a result, defaulters have begun to pay up. The number of delinquent loans that have returned to repayment status has increased 68 percent in two years.
Colleges and universities, threatened with expulsion from the programs, have also taken their responsibilities to counsel students about loans and repayments much more seriously.
This is a story of governmental tough love. Student-loan programs have helped millions of students, but those granting the loans exercised lax oversight and those accepting them were defaulting without sufficient consequence.
The programs are still admirable, but those who participate must now behave in a responsible manner and treat their obligation to the government as seriously as any other debt. The lessons learned in combatting student-loan defaults ought to be applied to other government programs that are too loosely administered. Accountability and sanctions work.