THE OFFICE of Education's new crackdown on so-called student "deadbeats" is drawing near-universal praise, but much of it is undeserved. Granted, on the surface it seems an outrage: Here are about half a million students who took out federally insured loans and defaulted, Uncle Sam was stuck with the bill and is trying to pressure the students to pay it back by sending out collection letters and hiring a private collection agency.
The Problems is that the defaulter is typically seen in the public eye as a smart-aleck college kid who perhaps became a doctor or lawyer and is now thumbing his nose at Uncle Sam and the rest of us by refusing to pay for his education. Supporting that view, a recent Washington Post editorial called OE's campaign "good news", and concluded: "Surely these ex-students must be made to acknowledge their responsibilities.They have a debt to pay." A front-page story in The Washington Star was guaranteed to make any respectable taxpayers blood boil; it was headed: "460 D.C. Employees Are College Loan Deadbeats." The headline, in fact, was erroneous. Nowhere did the story say the defaulters were "college students." The truth is that most defaulters are not.
Most of the students likely to be pursued by Uncle Sam's new debt collectors are not privileged youngsters who attended four year colleges. They are lower-income students who took out federally insured loans to attend private vocational schools. Figures show that vocational students account for 50 per cent of the defaults, although they have only 37 per cent of the loans. A statistical analysis of the employees of the Department of Health, Education and Welfare who have defaulted on student loans shows that the largest concentration is among GS 4s, earning between $8,300 and $10,800.
Of course, it's reasonable to expect these vocational school students to repay their loans, school students to repay their loans, too - if they were justly treated. But many were not. It has been well known for years that the guaranteed student loan program was in prime aspect a scandal. The uncontrolled release of federal funds for private vocational of deception and fraud, entrapping many students whom OE now wants to pay up. OE officials generally did little or nothing to protect students - they depended on self-serving accrediting agencies to approve the schools - and in many cases even collaborated in their entrapment.
A massive study of the problem by the Brookings Institute in 1974 noted: "Federal financial support . . . has played a major role in the growth of the private vocational school industry with only the most minimal safeguards . . . Thus, government itself has underwritten the development of school abuses . . ." Numerous investigations by the Federal Trade Commission showed that students were subjected to misleading advertising, deceptive salesmanship and substandard schools; many consquently dropped out and many other who graduated could not get jobs because they were ill-treated or the jobs promised by the schools did not exist.
DESPITE REPEATED warnings by Federal Trade Commission attorneys, OE refused to cut off loan approvals for shoddy schools. In many cases they participation of OE was so great that the legitimacy of many of the loans is questionable. It's probable that if the government were a private bank or finance company, a court would declare the debts uncollectible because OE had or should have had prior knowledge that the loans it was approving were faulty.
A big user of federal loan money was Weaver Airline Personnel School in Kansas City. The FTC found that in 1971 the school had enrolled 15,000 students, graduated 2,000 and that only 102 got airline jobs. The FTC concluded that the students' educations were worthless and that many were recruited through deception. The school at the time was even under an FTC assurance of compitance for deceptive practices. Yet the very next OE approved nearly $200,000 in federally insured loans for Weaver.
OE continued to approve student loans for Atlantic Schools, a correspondence school based in Kansas City, during the time it was under an FTC order for deceptive practices and was being sued by the Justice Department for $80,000 in civil penalties for violating the order.
Despite warnings from its own field personnel, OE granted $135,000 worth of "high risk" loans for the International Business Academy of Oklahoma City. An OE memo notes that the school scoured low-income housing projects signing up "anybody they could find," including the unemployed and welfare recipients, for courses paid for with federally insured loans.
OE officials knew that Western Technical College in Denver was on the verge of bankruptcy, but collaborated with the Small Business Administration to try to save the school by continuing to insure student loans. In 1971, SBA finally foreclosed on the school, leaving about 1,300 students with incomplete educations. More than 100 other vocational schools, supported by insured loans, went out of business. Many of the students, unable or unwilling to pay for their partial educations, went into default.
WHEN STUDENTs complained of being cheated, OE sent out harsh letters, demanding that they repay the loans and pointing out that OE had no responsibility for the quality of the loans or the schools.
Many students, fearful of the federal government's vast retaliatory resources, paid under protest and many undoubtedly still are paying. Not long ago, OE reportedly even asked the FTC for the names and addresses of cheated students who received schools. Under a new policy, the TFC requires vocational schools that sign consent orders to make at least partial restitution to their victims. Reportedly, OE wanted to see if there were any loan defaulters on the list and, if so, to track them down and try to obtain their refund checks.
OE's collection chief, Maury Tansey, now says that students who have a "valid defense" may not have to pay off their loans. But there is no firm policy about how students can prove that, and no effort has been made by OE to identify or notify such students who may be paying unnecessarily. OE has never even gotten around officially to writing off the loans for students of vocational schools, like Western Tech, that went defunct. HEW Secretary Joseph Califano said recently that such loans "may be written off." In the meantime, Tansey confirms that such defaulters, as well as others with legitimate reasons for not paying, may be caught in OE's collections dragnet.
Such students already have wasted their time, their money and seen their dreams of a better life through a vocational school education shattered. After years or irresponsibly funneling federal money to disreputable vocational schools, OE should try to make amends to these students by cancelling their loans instead of inducing further hardship and anguish by subjecting them to threatening letters and the fury of private debt collectors. An added tragedy is that these are the very people, in contrast to the college students, who have the least sophistication, knowledge and resources to resist.