Education Secretary Terrel H. Bell yesterday announced cutbacks in a federal student loan program that will block the award of further loan funds to 528 schools with poor student loan repayment records, including seven in the Washington area.
The cutbacks in the National Direct Student Loan (NDSL) program will prevent the schools from sharing in the $178 million the Department of Education expects to distribute to about 2,500 other institutions. The schools that will be ineligible to receive the new loan funds are those that failed to collect 25 percent or more of their overdue student loans in the 1980-81 academic year.
"I hope I don't sound sadistic about this," said Bell. "The economy is tough and people are struggling. But if we're going to do a better job on this, we're going to have to manage defaults."
The Department of Education has come under criticism recently for not cracking down on the 1.2 million former students who have defaulted on $896 million in NDSL loans since the program began in 1958.
The program of making federal money available to schools so they can lend it to students is separate from the much larger Guaranteed Student Loan program in which students obtain loans from banks and state lending agencies. About $1.7 billion worth of loans in that program is in default.
Bowie State College in Prince George's County and the University of Maryland, Eastern Shore, both with predominantly black enrollment, are among the schools slated to lose out on the loan funds because their default rates exceed the 25 percent limit as of June 30, 1981.
Most of the schools that have become ineligible are proprietary schools specializing in business, technical or beauty skills or two-year public colleges. Those in the Washington area are the Georgetown School of Science and Art, Southeastern University, and the Washington School for Secretaries, all in the District of Columbia; the Computer Learning Center in Springfield and the Control Data Institute in Arlington.
Bell said, "We're aiming in particular at the proprietary schools . . . The default rate in those private proprietary schools is appalling."
Ninety-two of the schools slated to lose such federal funds have sucessfully appealed and have retained their eligibility, according to an aide to Bell. About 800 institutions with default rates between 10 percent and 25 percent will receive less than their full share of the new funds.
Although Bowie State, with an enrollment of almost 2,400 last spring, received no NDSL funds during the past academic year, the school's financial aid director, Donald Kiah, said the absence of the federal funds this year will hurt because of cutbacks in other federal and state student loan programs. Those programs have been reduced this year between 12 and 15 percent.
Kiah said he expects Bowie State's enrollment to drop between 10 and 20 percent this year because of the shortage of federal and state financial aid.
He said the default rate among students at Bowie State--now 57 percent--was in the "mid-60s" before he took his job in August 1980. He said the high rate of overdue loans is due primarily to the fact that the school had no coordinator for the NDSL program until three years ago.
Schools with high default rates may turn over their debts to the federal government to remain eligible for new loan money. Bowie State was unable to transfer its files in time, due to a lack of personnel in its financial aid office, Kiah said.
The NDSL program was cut nationally from $186 million to $178 million this year.
Congress has 45 days to veto the new regulations barring the institutions with high default rates from receiving the funds. But disapproval appears unlikely, according to a congressional aide.
More than 1,600 schools with default rates below 10 percent will get larger shares of NDSL funds because of the penalties against the other institutions.