Records kept by the D.C. government on its college student loan program are so spotty incomplete, U.S. officials said yesterday, that the federal government can not begin to help the city pay off the $2.5 million it owes to banks for loan defaults.
The low-interest loans to about 14,000 city residents attending college are guaranteed by the D.C. government. Because of a high default rate, the city has not budgeted nearly enough money to cover the defaults, even though it would get 80 per cent of it back from the government.
To get the stalled program moving again, federal officials promised last month advance their 80 per cent share of the loan guaranty, but only if city records on the loans were in order.
Yesterday, Kenneth Kohl,director of the U.S. Office of Guaranteed Student Loans, said a spot-check two weeks ago of city records on about 50 defaulted loans showed that all of them were incomplete.
"There was no sense in looking at any more of them (records)," Kohl said, "and wishing they were complete. They're not, and we can't use them as the basis to pay any claims . . . We can be creative sometimes, you know, but not that creative."
kohl said most of the missing information concerned whether the banks and the city have made the "diligent" efforts required by law to collect money from the nonpaying students, which amount to about 30 per cent of those whose loans are due.
Kohl said the banks are trying to gather the information that is missing from the city files, but so far have not assembled it.
Meanwhile, the D.C. Bankers Association, which put together a pool of money from nine banks to make the student loans, has demanded that the city government pay off all the defaults by Feb. 15.
In a letter Friday to Mayor Walter E. Washington, the bankers group complained it has been unable to make arrangements to get the money in its dealings since last May with the Department of Human Resources, the city agency that handles the loan program.
It said the unpaid defaults now cover 2,003 loans to about 700 different students. If the city does not pay 15 the letter said, the banks will take "appropriate action to protect their rights," probably a lawsuit.
A spokesman for he city government said, Mayor Washington has not yet replied.
The banks stopped making loans million and the city government failed to honor its guaranty agreement to cover them. About 1,500 students applied for the loans for the current academic year.
In mid-January Mayor Washington accepted a federal offer of direct U.S. guarantees to encourage the banks to make new loans.
But yesterday Joseph H. Riley, president of the bankers association, said none of the nine big banks will make any more student loans, even with a federal guaranty, until the defaulted loans are paid off.
"We won't participate in anything until we get paid," Riley said. "We just have too much money outstanding. Then we'll look into something else to help worthy students."
Federal official said Washington has about 175 smaller banks, credit unions, and savings and loan associations that are eligible to participate in the student loan program, but have not previously done so. Kohl said he plans to send letters in the next few days, urging them to take part.
Since the student loan program began in 1965, about $10 billion has been borrowed by about 10 million students nationwide. In the District of Columbia, $14.2 million has been borrowed by about 14,000 students since 1967.
The 30 per cent default rate here is about three times higher than the nationwide average. Federal officials said Washington is the only place in the country where student loans now are not being made.
Under the program, students can borrow up to $1,000 a year for undergraduate studies and $1,500 for graduate work. The interest rate is 7 per cent, about 4 per cent less than consumer loans. Borrowers do not have to start repaying until they graduate or drop out of school.