EARLIER THIS YEAR there were startling reports that the District government owed local banks millions of dollars in unpaid loans that it had guaranteed under its student loan program. The Department of Human Resources, charged with administering the program, wasn't able to find those students who owed the banks money - so the debts went uncollected. Local banks became so outraged that they filed a suit against the city for the $3 million they claimed was due them. In an effort to straighten out the muddle, the U.S. Office of Education took over the administration of the program, and the city launched an examination of the entire student loan procedure to determine the stumbling blocks.
You will not be surprised to hear that the situation today is actually worse than it was three months ago. The Office of Municipal Audit and Inspection now tells us that, instead of the anticipated one-third of all student loans being in default, the figure is closer to one-half, totaling almost $4 million. Efforts to recover the money have resulted in a return of less than $500,000. The auditor's report also identifies some factors - other than the simple failure of the students to repay their loans - that contributed to the astoundingly high rate of defaults: DHR had insufficient staffing, no formal operating procedures, inadequate accounting records, ineffective collection procedures and delinquent responses to default claims of the participating banks. The conclusion of the auditor's report is the most troubling. It recommends that the U.S. Office of Education continue to administer the student loan program because the District government simply isn't up to the job.
This strikes us as a dismal state of affairs. It is clear that the student loan program is but one of a host of matters that DHR has managed so effectively to mismanage. But it should be equally clear that there can be a way to run the program and recover the outstanding debts without having to rely on the federal government to do the job.
To resolve the matter, two steps might be considered. First, the city's Corporation Counsel should pay particular attention to those students who have not repaid or made some attempt to repay their loans - and those persons should be sued. This may seem to be a harsh measure, but it is necessary one. Undoubtedly there will be individual cases that warrant special attention because of unusual circumstances, but they will be far more the exception than the rule. Students should be tracked down, through their schools if need be, and told of the consequences of nonpayment. While this may not result in the immediate collection of outstanding funds, it would at least indicate that the city is serious about repayment of the loans - and prepared to take legal action if necessary.
The other action that might be explored is the creation of a special corporation to administer the student loan program, which is the way such programs are handled - successfully - in a number of states. The city's colleges and universities and the banking community could be asked to form a non-profit corporation for the sole purpose of handling the student loans. District government representatives could serve on the corporation in an ex officio capacity. Handling the loans in this fashion would be considerably more efficient than administration by DHR - and might also restore the banks' confidence in the program.
Many jurisdictions across the country are wrestling with similar difficulties without surrendering the whole program to the federal government. There is no reason what we can think of to make an exception of the District of Columbia.