3/2/2017 Curbing Student Loan Defaults; Senate Panel Proposals Target Abuses at ForProfit Trade Schools washingtonpost.com search nation, world, technolog…
Curbing Student Loan Defaults; Senate Panel Proposals Target Abuses at ForProfit Trade Schools [FINAL Edition] The Washington Post (pre1997 Fulltext) Washington, D.C. Author: Cooper, Kenneth J Date: May 20, 1991 Start Page: a.09 Section: A SECTION A Senate Governmental Affairs subcommittee, concerned about rising student loan defaults, has recommended major legislative changes designed to curb abuses at profitmaking trade schools, protect student borrowers and mandate aggressive Education Department oversight of federal loan programs. The 27 recommendations in a report to be released today by the permanent subcommittee on investigations, chaired by Sen. Sam Nunn (DGa.), come down hard on forprofit trade schools, whose heavily poor and minority enrollments account for a disproportionate share of student loan defaults. The total of such defaults for all postsecondary students has increased from $445 million in 1983 to $2.7 billion in 1991, or 507 percent, according to the subcommittee. The cumulative total of defaults during that period reached nearly $13 billion, an amount the panel estimated "could have helped support the education and/or training of tens of thousands of our nation's youth." The subcommittee launched an investigation of guaranteed student loan programs in late 1989 and last year heard testimony from nearly 50 witnesses during eight days of hearings. A subcommittee aide said Nunn is preparing legislation based on the panel's extensive critical report. The subcommittee's recommendations could influence congressional reauthorization of student aid programs, which provide $17 billion a year to half of the nation's college students. Guaranteed student loans, made by private lenders and backed by a federal guarantee, form the largest source of such federal aid. The subcommittee's proposals on trade schools would ban the use of federal grants and loans to pay for correspondence courses, reduce student aid for highcost vocational programs, possibly exclude vocational training for unmarketable skills and require the Education Department, working through private accrediting bodies, to impose minimum quality standards on the schools. Any changes that would treat trade school students differently than their college counterparts are expected to encounter resistance from Rep. William D. Ford (DMich.), the new chairman of the House Education and Labor Committee. Ford, a lawyer who once attended an automotive trade school, has called vocational training an important source of economic opportunity for those who do not go to college. Nearly half of high school graduates do not. As for the Education Department, the subcommittee said it has "a dismal record" in managing guaranteed student loan programs. "In the past, the department has effectively abdicated its . . . oversight responsibilities to private accrediting bodies, state licensing authorities and {loan} guaranty agencies. Experience has proven that those bodies have neither the motivation nor the capabilities to effectively police the program," the panel concluded. It recommended that the Education Department require accrediting bodies to strengthen their procedures and develop uniform standards on rates of program completion, job placement and default. If the private accreditors do not "improve their ability to screen out substandard schools," the department should cease to rely on them to assure program quality, the panel said. The department also was urged to draft minimum standards for state licensing of postsecondary institutions and to strengthen its oversight of student loans by hiring auditors and banking specialists and training employees to do criminal investigations. The panel called for "a complete overhaul" of the department's management of student loan programs, including the appointment of an assistant secretary for student financial assistance, a new post, to oversee student aid programs. Currently, the assistant secretary for postsecondary education has that responsibility in addition to other duties. Michael J. Farrell, acting assistant secretary for postsecondary education, said many of the recommendations "complement the recommendations that Secretary {Lamar} Alexander and the Office of Management and Budget issued when I joined the department last month. This will make my job easier." Under Bush adminstration changes, Farrell, a former New Hampshire businessman, was put in charge of student aid programs as a deputy assistant secretary, his permanent position. Consumer protections the panel recommended include a requirement that financial institutions notify student borrowers when their loans are sold, as they often are to secondary markets such as the Student Loan Marketing Association (Sallie Mae). Some borrowers have complained that they have been erroneously declared in default because loan payments they sent to the original lender bank have not been forwarded to the purchaser. http://pqasb.pqarchiver.com/washingtonpost/doc/307392149.html?FMT=FT&FMTS=ABS:FT&date=May+20%2C+1991&author=Cooper%2C+Kenneth+J&desc… 1/2
3/2/2017 Curbing Student Loan Defaults; Senate Panel Proposals Target Abuses at ForProfit Trade Schools washingtonpost.com search nation, world, technolog…
The subcommittee also suggested that Congress expand the department's oversight of Sallie Mae and other secondary student loan markets. Other proposals could encourage lenders to take a tougher stance toward student borrowers. The panel suggested that the department test whether credit checks could identify unreliable borrowers, and urged Congress to let banks apply "the same reasonable care and prudence" used in making consumer loans. Illustration ILLUSTRATION Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
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