Education Secretary Lauro F. Cavazos acknowledged yesterday that "inadequate federal oversight for many years" was partly to blame for accumulated problems in student loan programs, which experienced $2.4 billion in defaults in the last fiscal year.
But Cavazos, education secretary for two years, placed some of the blame on his predecessors and on Congress, which he charged has granted "inadequate legislative authority" to permit him to control the growing cost of defaults.
"We have failed many times as a department, but I really feel during our watch we have addressed the issue," Cavazos told the permanent subcommittee on investigations of the Senate Governmental Affairs Committee.
Cavazos's acknowledgment of his department's deficiencies came at the final hearing in the subcommittee's yearlong investigation of student loan programs. After a hearing two weeks ago, a department spokesman expressed surprise that Sen. Sam Nunn (D-Ga.), the subcommittee's chairman, had denounced federal management of loan programs, which provided $11.5 billion to 4 million students in the fiscal year that ended Sept. 30.
Nunn repeated his indictment of the Education Department yesterday and backed up the charge of mismanagement by citing specific delays in issuing regulations and upgrading computer technology under Cavazos.
"Unfortunately, through all these hearings, we did not hear of even a single major component of the guaranteed student loan program that is working efficiently or effectively," Nunn said.
In response to Cavazos's criticism of Congress, Nunn charged that the department has failed to take administrative steps recommended by its inspector general or the General Accounting Office. "There is tremendous authority in the Department of Education that has not been utilized," Nunn said.
Cavazos said Congress has not approved five of eight proposals he made last year for curbing defaults, particularly at proprietary trade schools. The proposals not adopted would ban sales commissions for student recruiters, require credit checks on older loan applicants, allow loan guarantee agencies to attach defaulters' wages, mandate independent testing of borrowers without high school diplomas and make lenders offer flexible repayment schedules.
Nunn said he generally agreed with that list. He and Cavazos opposed one stronger measure contained in the initial budget deal between President Bush and congressional leaders -- a ban on loans to students lacking high school diplomas or the equivalent.
Currently, such students are often given "ability to benefit" tests by schools they plan to enter -- a practice that Nunn compared to "sending someone to a lawyer and having them ask, 'Can you help?' " Nunn said an independent body, not the schools, should administer such tests.
Cavazos supported another provision of the budget deal, credit checks on student borrowers over 21, but stepped back from a third that would ban loans to students of correspondence schools. He called for restricting such lending.
Sen. Edward M. Kennedy (D-Mass.), chairman of the Labor and Human Resources Committee, told Cavazos that his committee is prepared to grant the authority that the department needs to combat defaults. But Kennedy also said the department has not always used existing authority and has lagged in issuing regulations.
Cavazos recommended that Congress take comprehensive actions on loan defaults when it moves to reauthorize higher education programs next year, rather than continuing to "patch and patch" loopholes in regulations.
Nunn criticized the department for keeping poor computer records of student loan defaults despite congressional approval to upgrade them in 1986. Ernest Cannellos, deputy assistant secretary for student financial assistance, said a computer conversion would not be complete until 1993.
"Is that normal, seven years?" Nunn asked. "That seems like a very long time to correct the system."
Cavazos responded by again blaming Congress, saying authority to expand the computer system to cover all defaults was not granted until last year.
On another issue, Nunn cited the Nebraska Student Loan Program, a state agency, as likely to be the next guarantor to encounter financial difficulty.
The department recently announced a plan for outside management of the Higher Education Assistance Foundation in Overland Park, Kan., one of the nation's largest guarantors of student loans. Department officials have said up to seven other unidentified guarantors were experiencing similar, but less severe, financial troubles.
Cannellos agreed with Nunn that 90 percent of the Nebraska agency's guarantees were for trade school loans. Cannellos said its default rate was only 2.9 percent in 1989, but Nunn said it was 45 percent in 1990. A combination of numerous defaults and trade school loans undermined the other guarantor, known as HEAF.