WASHINGTON -- In an effort to reduce the growing number of student loan defaults, the administration announced a plan yesterday to restructure the Department of Education's student financial aid programs.
The management reforms include ensuring that only legitimate institutions participate in the student aid programs and monitoring lenders and guarantee agencies more closely.
The recommendations were suggested in a report by an Education Department and Office of Management and Budget team, which found that poor managerial practices in the Guaranteed Student Loan program have resulted in high loan default rates, fraud and abuse. Loan defaults will total approximately $2.7 billion in 1991, up from $151 million in 1981.
Some schools that abuse the federal programs advertise for students, promising to help them obtain government-financed student loans to pay for their education. The students, many of whom are not able to obtain employment after an inadequate training program or who drop out before finishing, cannot repay the government loan.
The team found that too many schools with high default rates, including many trade and vocational schools, participate in the student aid programs.
Secretary of Education Lamar Alexander "intends to implement each and every one of the recommendations contained in the report," Deputy Secretary of Education Ted Sanders said at a news conference.
Already, he said, the department has taken "emergency action" against more than 40 institutions with large default rates and ended their participation in federal student loan programs.
"We are serious, and we are aggressive," Mr. Sanders said.
In addition, the report found that the Department of Education has not sufficiently monitored lenders and guarantee agencies such as the Higher Education Assistance Foundation, whose recent failure cost the government $30 million.
The department also suffers from poor financial management and inadequate data collection and analysis, the report said.
The department estimates that 300 schools in 1989 had default rates above 35 percent, the level at which an institution can be legally barred from participation in a program.
Mr. Sanders said that he would like to see the legal limit reduced to 25 percent.
Trade and vocational schools carried the highest default rates, with an average of 26.9 percent for 1988. Public and private four-year institutions, by contrast, had rates around 6 percent.
All student aid operations will be centralized under Michael Farrell, a businessman from New Hampshire, appointed deputy assistant secretary for student financial aid by Mr. Alexander.
Mr. Farrell will report directly to the secretary. The department also will hire as many as 150 staff members.