The federal government yesterday warned it will cut off the guaranteed student loan program at colleges and universities when large numbers of students have defaulted on loans.
U.S. Commissioner of Education Ernest L. Boyer said the crackdown will be made next fall on institutions where 15 per cent or more of the students have defaulted on such loans for two consecutive years.
The crackdown is part of an effort to collect $500 million in unpaid loans. As of June, 344,000 students, 12.2 per cent of those receiving federally insured loans had defaulted on them.
In testimony before the House subcommittee on higher education. Boyer blamed this on a variety of factors, including "a growing opinion on the part of students that they do not have to pay back their loans, based upon the ease with which many have been able to avoid payment."
However, he added, "a high percentage of our defaults can be centered around a cluster of institutions." Boyer didn't single cut any colleges or universities, but he expressed concern that some of the schools "are really using the loans sometimes for self-instiutional benefit and not for student benefit."
Only about 150 colleges and universities serve as lenders under the program, which is primarily handled through banks and savings and loan companies, according to Leo Kornfeld, head of the new Bureau of Student Financial Assistance. He said no figures have been compiled to indicate how many schools have high default rates, or where they are located.
Other steps underway include eliminating correspondence schools as lenders, barring schools from making loans to more than half their undergraduates, doubling the number of federal officials overseening the program and cracking down on schools using commissioned salesmen to persuade students to take out loans.
"Part of the problem wih defaults clearly is a feeling by students that they aren't getting what they paid for from some schools," said Kornfeld. "They're dissatisfied with the service they received and don't think they should pay for it."