A r c h i v e d  I n f o r m a t i o n

      FOR RELEASE                Contact:  Stephanie Babyak (202) 401-2311       March 22, 1996                       Jane Glickman (202) 401-1307

Proprietary schools saw rates decline from 30.2 percent in fiscal year 1992 to 23.9 percent in FY93, a drop of 20.8 percent.

"Of course, these rates are still much too high," Riley said, "but the trend continues to be in the right direction. The department's tougher oversight measures are having a positive effect."

Today, the department released the FY93 student loan default rates of some 8,000 colleges, universities, and other institutions in federal student loan programs. The FY93 default rate is the most current data available, representing a snapshot in time of borrowers scheduled to begin loan payments in FY93, and who defaulted in either that year or the following year.

In January the department released the national borrower default rate for FY93, showing a decline from 15 percent in FY92 to 11.6 percent in FY93, marking the greatest one-year percentage drop and the lowest rate recorded since official student loan default reporting began with the FY88 rate.

The national default rate hit an all-time high of 22.4 percent in FY90; the default rate for proprietary schools that year was 41.2 percent, also an all-time high. The rates have continually declined since then.

Riley attributed the decline to a number of factors, including stronger oversight of "high-risk" schools, an improved process for granting eligibility and certification of schools and programs, and the department's default reduction initiatives. For example, schools are now required to provide financial counseling to student borrowers upon enrollment and at graduation.

Today the department also identified some 519 postsecondary schools that may be dropped from one or more federal student aid programs because of excessive default rates.

The Higher Education Amendments of 1992 (P.L. 102-325) mandate that schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the Federal Family Education Loan Program (FFEL). This year, 432 schools are affected by this provision. Historically Black Colleges and Universities are exempt from sanctions until July 1998.

In addition, under department regulations, a total of 222 schools (including some of the 432 that face loss of FFEL) with FY93 rates of 40 percent or greater may have their eligibility for all federal student aid programs, including the Federal Pell Grant Program, restricted or terminated. Schools have the right to appeal adverse actions by the department.

Tackling high default rates has been augmented by stiffer penalties against defaulters, Riley said. In addition to federal income tax refund offset, borrowers may have their wages garnished, become ineligible for further federal student aid (both loans and grants), and risk being denied credit cards or other loans due to poor credit ratings.

Riley also credited modern technology with helping to lower the default rate, citing the department's ability to verify immigration status and identify applicants who provide false information, previously defaulted on a student loan or received an overpayment. Last year, the National Student Loan Data System blocked the issuance of $230 million in loans to some 140,000 ineligible applicants. Riley said new incentives for guaranty agencies will also help students avoid default and should reduce defaults further.

"These results show our increased commitment to accountability is paying off," Riley said. "We'll keep working to cut defaults further and protect taxpayers' investment in higher education."

Students and parents with questions may contact the Federal Student Aid Information Center, weekdays from 9 a.m. to 5:30 p.m. EST. The toll-free number is 1-800-4-FED-AID. Hearing impaired callers may use TDD 301-369-0518.