Magazine article Black Issues in Higher Education

Student Loan Defaults Declining, Riley Says

Magazine article Black Issues in Higher Education

Student Loan Defaults Declining, Riley Says

Article excerpt

Student Loan Defaults Declining, Riley Says.

U.S. Secretary of Education Richard W. Riley has announced that the costs associated with defaulted student loans have declined for the third straight year, reducing taxpayers' burden by millions of dollars. That pleased the Coalition for Student Loan Reform (CSLR), a group of state and nonprofit guarantors involved in the federal Family Education Loan Program.

According to Education Department statistics, national default rates have dropped substantially, from 22.4 percent in fiscal year 1990 to 15 percent in 1992. The fiscal 1992 default rates are the most current data available, Riley said. They represent a "snapshot in time" of borrowers scheduled to begin loan payments in fiscal year 1992, and who defaulted in either that year or the following year.

In releasing default rates for each of the 8,504 schools that participate in federal student aid programs, Riley hailed the progress. "After years of rising defaults, it's going the other way," Riley said. "We can see substantial progress through the cooperative efforts of Congress, schools and the Education Department. Yet, more progress needs to be made."

Daniel S. Cheever, CSLR chairman, called the report "good news for the guaranteed student loan program and the American taxpayer. It clearly demonstrates," Cheever said, "that the reforms enacted by Congress several years ago, and the stepped up efforts by education loan organizations to prevent defaults, are working."

The U.S. Treasury will pay out an estimated $2 billion to cover defaulted student loan costs in fiscal year 1994. Default costs hit an all-time high of $3.6 billion in fiscal year 1991, but have dropped steadily each year since.

Riley said that a substantial increase in collections this year should help reduce costs further. In fiscal year 1994, the department expects to collect more than $500 million on both old and newly defaulted loans, a 189-percent increase over last year's collections of $173 million. As a result, the net default costs are projected to be an estimated $1.4 billion this year.

Better Collection Methods

Increased collections are attributed to more effective collection methods, reflected by indicators such as a four-fold increase in the amount of money collected from federal income tax refunds withheld. This year, the department also began collections on many of the 1 million accounts assumed from the now-defunct Higher Education Assistance Foundation (HEAF), once the largest guarantor of student loans. …

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