The Education Department outlined a program for putting its own house in order so that the federal student aid program, plauged by billions of dollars in loan defaults, fraud and abuse, will be run more effectively.
"We are serious, and we are aggressive," Acting Deputy Secretary Ted Sanders said.The Education Department and the Office of Management and Budget reviewed the federal guaranteed student-loan program and reported finding "real problems."
Chief among the problems, the study said, is that "too many shoddy schools" were in the student-loan program. Because of woefully unsatisfactory oversight by the Education Department and others, there has been ever-rising loan defaults - most of which have been at trade schools.
By the end of 1991, there will be more than $55 billion in outstanding loans and $2.7 billion in loan defaults. The overall default rate now is about 17 percent, but trade schools averaged a 27 percent default rate in 1989.
Starting in July, all schools that have average default rates over 35 percent will be eliminated from the program. Sanders said he would like new legislative authority to cut off schools with default rates over 25 percent.
Oversight of guarantee agencies and lenders will be improved to provide an early warning of problems and timely departmental intervention.