Education Secretary William Bennett sent Congress legislative proposals Thursday to cut student loan defaults, which at $1.6 billion this year is about half of the Guaranteed Student Loan budget.
Bennett said the legislative package, "Student Aid Integrity and Accountability Amendments of 1988," is part of an effort to bring under control excessive levels of defaults on government student loans.The bill, department officials conceded, focuses mainly on students by tightening eligibility requirements for the loans. But officials stressed government regulations also are being tightened regarding accreditation of higher education institutions, particularly trade and business schools, and their handling of the loan programs.
"These reforms are urgently needed in order to address a number of serious problems that threaten the integrity and viability of our student aid programs," said Bennett in letters to House Speaker Jim Wright, D-Texas, and Vice President George Bush, the Senate's president.
"Such problems include an alarming rate of student loan defaults, the exploitation of unqualified students by some schools, and a lack of institutional accountability for educational results in the student aid programs.
Last year, Bennett complained that default payment have become the department's third largest expenditure, projected to increase from $531 million in fiscal year 1983 to $1.6 billion in fiscal year 1988. The cumulative default rate for this year is around 13.7 percent, officials said, and projected to climb to 14.4 percent.
Among the statutory changes, the bill would stipulate that students who receive federal loans for higher education have a high school diploma or its equivalent. Currently, students may receive loans to enter trade or vocational schools as long as they earn a high school degree in the process.
That rule, said Bennett, "has become an open invitation for some unscrupulous schools to exploit ill-prepared, disadvantaged students."
Also, the bill, which would change provisions of the Higher Education Act of 1965, would reduce the federal insurance and reinsurance rates for student loans. Currently, institutions that make student loans are completely protected from the cost of default but the bill wants to reduce that to 90 percent.