Federal Student Loan Default Rate Hit New Low in '98 - Brief Article - Statistical Data Included

Black Issues in Higher Education, Oct 26, 2000

The nation's student loan default rate fell to another new low in 1998, as only 6.9 percent of former students were behind on federal loan repayments.

The 1998 figure reported by the U.S. Department of Education is a steep drop from the record 22.4 percent recorded in the early 1990s, when the federal government imposed tough sanctions on high-default schools. Overall, the default decline and increased loan collections have saved taxpayers about $18 billion, Education Department officials say.

Since 1993, about 850 post-secondary institutions have lost eligibility to participate in federal loan programs because of high defaults. This year, only 11 new schools are facing possible default sanctions, and most of these are small for-profit trade schools.

Historically Black colleges and universities continue to have an exemption from default penalties, a provision set to expire in 2002. Advocates want to extend that exemption through 2004. The House of Representatives approved such a change in a Higher Education Act amendments package this year, but that package is unlikely to make it through the Senate before Congress adjourns for 2000.

The current exemption affects HBCUs that may have default rates higher than 25 percent for three consecutive years. Most colleges with such high rates must have default management plans in place to address the issue.

President Clinton notes that the default rates fell to their lowest level ever, despite the fact that more loans were issued.

"This is an amazing, amazing thing," Clinton says. "This lesson of invest more, have more accountability, and have the programs work based on how the real world, the real lives of these students are unfolding ... that's the kind of thing I think we should do in education generally."

Clinton attributes the ongoing decline to an increase in the amount of scholarships, tax credits and other financial assistance available to students -- including more affordable loans; better flexibility in repayment plans and efforts to better educate borrowers about their responsibilities.

But GOP leaders have their own spin on where credit is due.

Rep. Bill Goodling, R-Pa., who chairs the House Committee on Education and the Workforce, says efforts to lower the default rate began during the Bush administration when the Education Department, schools, banks and agencies that guarantee loans began to implement congressional mandates.

Goodling also says the largest decrease was the 4.6 percent drop from fiscal 1990 to fiscal 1991, during the Bush administration.

"This administration taking credit for the decrease in student loan defaults is like Al Gore inventing the Internet," Goodling says.