About 1,200 postsecondary schools may lose their eligibility for some federal aid programs and 558 of those may forgo their rights to all federal student aid programs because of high student loan default rates, the Education Department announced yesterday.
The department threatened to suspend all student loan programs, including Pell grants and work-study funds, for schools with default rates higher than 55 percent in 1990 and schools with rates higher than 40 percent that had not reduced those rates by at least 5 percent since 1989.
Last year -- the first in which the Education Department threatened to cut all student loans for schools with high default rates -- 74 schools were in this category. The cutoff point in 1989 for losing all federal student aid programs was 60 percent, and that cutoff will decrease by 5 percent each year.
Of the 74 schools from which the department threatened to withhold loan eligibility, more than half entered into termination hearings with the department. Twenty closed before any action was taken against them. William L. Moran, acting deputy assistant secretary for student financial aid, said yesterday that with the increase in delinquent schools this year the department will have to "prioritize" which schools it will take action against.
Although student loan default rates have remained steady at about 21 percent in recent years, department officials said the actual dollar amount will decline this year. In 1991 the department lost $3.6 billion in student loans; this year, they expect that number to be about $2.9 billion.
"These are tough measures, but they are appropriate," William D. Hansen, acting assistant education secretary for management and budget, said yesterday.
Most of the schools cited by the department are private, for-profit trade schools, but the list also included a handful of four-year colleges, among them Sojourner Douglas College, a four-year private college in Baltimore. Seven other Maryland schools, two District schools, and five Virginia institutions were cited.
An inner-city college with an older, predominantly African-American student body, Sojourner Douglas has improved its default rate by about 35 percent over the past eight semesters, said Wanda Williams, director of institutional advancement.
Williams said the school hired outside collection agencies and tightened its registration process to ensure that prospective students would be able to pay for their education.
Last year, the Education Department removed the Washington D.C. Beauty Academy from its Guaranteed Student Loan program. Larry Bernfeld, vice president of the one-year beauty school, said it would be "a deathknell" if the school were prohibited from receiving all student loan funds. Since last year, the school began granting its own loans to students.
But the school still depends on its students to receive Pell grants to help finance their education, and if they were no longer eligible for such funds, said Bernfeld, "We would be put out of business."
Officials at the Automation Academy, the other District school cited for high default rates, said losing federal grants would not affect their future because they stopped offering student loans last April. Lee Glusing, director of the Automation Academy, which teaches automated skills, said the school changed its policy to increase cash flow and reduce student worries about loans.