A Federal Report article yesterday incorrectly reported that several dozen medical schools had been suspended from a health professions student loan program. About two dozen health professions schools have been suspended, including four medical schools.
The inspector general of the Health and Human Services Department has warned that unless abuses in a little-known medical-student loan program are corrected, HHS may be burdened with an unexpected $100 million outlay over the next five years.
Inspector General Richard P. Kusserow says half-hearted recovery efforts by lenders and sloppy university policies threaten to drive up the default rate of the Health Education Assistance Loan (HEAL) program and force the government to make up the difference.
HEAL is one of several loan programs designed to help students pursue medical, dental, osteopathic, veterinary or other health professions. Since 1979, loans totaling $560 million have been made to 41,000 students.
HHS has suspended several dozen medical schools from participation in another program of direct student loans because their default rates were high.
The HEAL program, however, provides federal loan guarantees rather than direct loans.
The student borrows from a bank after the school certifies his enrollment. The loan is made at a rate 3.5 percentage points above the 91-day Treasury bill rate; currently the loans are being offered at 12.5 percent.
On top of that, students pay a one-shot insurance fee of 2 percent of the value of their loan.
No matter what their income level, students can borrow up to $20,000 a year for up to four years of medical and dental school and $12,500 a year for other schools.
Theoretically, the program is not supposed to cost the government anything, because the insurance fee is designed to pay off lenders if the student borrowers default.
But after auditing several banks and seven colleges, Kusserow and his staff concluded that, if abuses are not curbed, the 2 percent fee may soon be inadequate to cover losses.
George Washington University was one of the audited institutions, but officials there quoted the IG as saying he found no fault with their loans.
The IG said the default rate was 8 percent as of January 1984 and could rise to 10 to 15 percent. In that case, he said, the insurance fee would have to rise to 8 percent to maintain the insurance fund, or HHS might have to pay as much as $100 million over the next five years to keep the fund sound.
Tom Hatch, director of the Bureau of Health Professions, which runs the program, said his office has been working closely with the IG and has warned universities and banks to take a much closer look at the loans.
In addition, the Reagan administration has proposed limiting new loans to $100 million in fiscal 1986.
Hatch said the bureau believes that the default rate is about 5.6 percent of outstanding loans and can be held to under 6 percent. Thus, the administration is asking Congress to increase the insurance fee to 5 percent to keep the fund solvent through 1991.
Among problems the audit described:
* Although the program is designed for U.S. citizens and permanent resident aliens, one Latin American student claimed to be a citizen of Puerto Rico and received $96,000 from HEAL and other programs. "Some non-citizens have defaulted and fled the country," the report said.
* At one loan institution, 77 loans totaling $350,000 were made as students graduated. The IG audited 16 of them, worth $100,000, and found that the financial aid officer had not bothered to verify whether the applicant needed the money to make overdue tuition payments or other obligations incurred during schooling; in about half the cases, the IG found, the borrowers "had no discernible debt."
* Loans were made for "personal reasons" not related to education: moving expenses, dental work, starting a dental practice and, in one case, car repairs ($1,100), divorce costs ($3,000), traffic tickets ($192) and church counseling ($250). A student borrowed $1,550 to travel to Europe for "personal development"; another borrowed for a son's tuition ($4,000) and for support of