Washington's troubled student loan program has been revived again under an unusual arrangement worked out by the federal government.
The program, which halted for two years and then resumed briefly last summer, now will offer government-subsidized 7 percent loans to all D.C. residents attending colleges, universities and post-secondary trade schools anywhere in the nation the Department of Health, Education and Welfare has announced.
Students from throughout the country attending schools here also are eligible for the loans, which are being processed by federal officials at a special office at 7th and D streets SW.
Because of a high default rate, local banks stopped making the low-interest student loans in mid-1976. The program was started again last June 1, but a $1 million special fund for new borrowers was exhausted by the end of July.
Officials said about 60 percent of the loan money that was distributed beginning in June on a first-come, first-served basis went to about 300 students attending the Lacaze-Gardner Business School, at 710 14th St. NW. Students at many other colleges and trade schools, who applied later, had to be turned away, they said.
Leo Kornfield, deputy U.S. education commissioner for student financial assistance, said yesterday that the new program here is the first in the United States to guarantee that all eligible students will be able to get education loans.
One local bank, Union First National, has agreed to make all the loans that federal officials approve and guarantee. In turn, the Student Loan Marketing Association, a quasi-government agency, has agreed to buy all the loans as soon as they are made, thus repaying the bank immediately.
"We felt it was absolutely essential that everybody in Washington who is eligible for a loan be able to get one," Kornfield explained. "Many District residents have had no access to these loans, and consequently, if they were poor, no access to education. The purpose of these new procedures is to erase that terrible inequity."
An undergraduate will be able to borrow as much as $2,500 a year based on need and total college costs up to a maximum of $7,500. Graduate students may borrow as much as $5,000 a year to a maximum of $15,000.
Although there is no limit on the amount of money to be disbursed, Charles D. Daniel, president of Union First National, said he expects that 500 to 2,000 borrowers will receive a total of $1 million to $4 million.
The loans must be repaid within 10 years after a student graduates or drops out of school.
From 1967 to 1976, a group of nine District banks made about $14.2 million in student loans to about 7,800 city residents.
The money was guaranteed by the city government. But in mid-1976, the default rate topped 33 percent - about triple the average for student borrowers nationwide - and the city government failed to honor its guarantee agreement because of a shortage of funds. The city would have been eligible for an 80 percent federal reimbursement.
The banks stopped making new loans and sued the city to collect about $4 million in defaults.
In a March out-of-court settlement, the federal government agreed to reimburse the banks for 80 percent of the loan defaults, the city promised to pay its 20 percent and the banks agreed to start the loan program again under a 100 percent federal guarantee.
Yesterday Harry W. Sipe, chairman of the policy committee of the D.C. Bankers Association, said the $1 million promised in the settlement for new borrowers ran out quickly, primarily because of the heavy borrowing from Lacaze-Gardner.
"It was first-come, first-served," he said. "We didn't have any idea that we would be flooded with one school, but we just felt we couldn't change the rules."
Sipe said the group of local banks also promised to lend up to $4 million to students who previously had borrowed money from them, but he said that few students sought additional loans and that so far only $110,000 of the $4 million had been disbursed.
The banks decided not to use any of the money left over from the $4 million to make more loans to new borrowers, he said, because "we had such a poor experience with the old program that we didn't want to do anything more than we promised to do."
Under the new arrangement, Sipe said, Union First National "will just be a conduit for the money. The government will do all the paperwork."
Detailed information about the new loans is available at 245-2350.