Student loan program being tightened Plan aims to cut student loan default rate.

April 09, 1991|By New York Times

WASHINGTON -- The Education Department says it will tighten up the Guaranteed Student Loan Program, which now has a 17 percent default rate on its $55 billion in loans.

Under the plan, the oversight functions and staff in the Office of Postsecondary Education would be expanded, and educational institutions participating in the student aid programs would be more closely monitored to eliminate some trade schools that have high default rates. The average default rate at trade schools is 27 percent, as against 6 percent among four-year colleges.

Education Secretary Lamar Alexander also announced yesterday that Michael J. Farrell, a New Hampshire business executive, will become deputy assistant secretary for student financial aid.

"The programs he will manage are vast and complicated, and affect close to six million Americans, just about 50 percent of all students who are continuing their education beyond high school," Alexander said.

Farrell, who served on the White House staff in the Nixon and Ford administrations, will be responsible for all student aid operations and will report directly to Alexander. The post had been held by an acting deputy assistant secretary, Ernest Canellos. Canellos will be in charge of day-to-day operations.

When Alexander took office last month, he said he would be reorganizing the department.

According to a report issued yesterday by the Department of Education and the Office of Management and Budget, the problems of the loan program are rooted in poor management at the department. The student financial aid programs are the largest component of the department, employing about 1,000 people who oversee $10 billion in appropriations.

Under the Bush administration plan, 150 staff members would be added, returning staffing levels at the loan office to their pre-1980 levels.

By the end of 1991, more than 22 million Guaranteed Student Loans totaling $55 million will be outstanding. The gross cumulative default rate has risen to nearly 17 percent, with the net default rate approaching 12 percent.

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