Newspaper article THE JOURNAL RECORD

Student Loan Crackdown Targets Trade Schools

Newspaper article THE JOURNAL RECORD

Student Loan Crackdown Targets Trade Schools

Article excerpt

By Lou Anne Wolfe Journal Record Staff Reporter A crackdown on loans to students attending private trade and vocational schools by the federal Student Loan Marketing Association _ Sallie Mae _ does not bode well for Oklahoma students and schools in that category, warn officials of the Oklahoma Student Loan Authority.

Sallie Mae, credit provider for the Oklahoma authority, has decreed that the authority can loan a maximum of 33 percent of its portfolio to trade school students for the 1991-92 school year. That would be down from 50 percent for the 1990-91 school year, according to Robert Vincent, authority vice president of operations.

It's a drastic move, but it was prompted by severe problems nationwide. Information culled by the authority from a report by the U.S.

General Accounting Office showed that the default rate for students attending non-collegiate schools ranged from 29 percent to 62 percent. Characteristics of the typical loan defaulter portrayed a student who attended a vocational or trade school, never completed the program, had low income, lacked a high school diploma, or was unemployed at the time of the default.

Vincent said public vo-techs never have been heavy participants in the student loan program.

"Proprietary schools have been, over the last several years particularly, very heavy participants," he said. "I don't know what kind of effect it's going to have on the schools, but it's very clearly going to limit the number of students that can attend those type schools." Vincent said in Oklahoma, the default rate for collegiate institutions averages around 12 percent, while it's a whopping 30 percent-plus for proprietary schools. "Proprietary" schools refers to private, vocational and trade schools.

"It's literally those economic facts that's causing both the federal government and private lenders in this business to re-think their position," he said. "Oklahoma's certainly not isolated, and Texas has been without a lender of last resort for almost a year." The student loan authority is Oklahoma's lender of last resort.

Vincent said he's known of 40 or 50 active lenders in Oklahoma over the last 10 years, four or five of which made a lot of loans to trade schools.

"As far as I know, we're the only ones who've been doing a large volume of them for at least the last six months," he said.

Vincent said during the last four months of the fiscal year ended June 30, 65 percent of the loans the authority made were to proprietary schools, largely because the other lenders got out of the business of making loans to students at proprietary schools.

"This is not public money. It's all private capital. It's a business decision they (lenders) have to make, so I'm not criticizing them," he said. "The programs have to operate, in our case, not necessarily at a profit, but we at least have to break even." Vincent said the 33 percent ceiling would slash by about $7 million the amount of trade school loans for the 1991-92 school year. For the 1990-91 school year, the authority loaned about $16 million for trade schools, which represented 50 percent of total loan volume.

Oklahoma was able to persuade Sallie Mae to loosen up a little from an initial ceiling of 25 percent. Vincent said the absolute ceiling for Stafford loans (formerly the Guaranteed Student Loan Program) will be 33 percent of the loan volume, while supplemental loans, for upper-class students, will be capped at 39 percent of loan volume.

The authority received applications for about $40 million worth of loans for the 1990-91 school year, but a lesser amount was disbursed due to cancellations or loans that were carried over into the next fiscal year, he said.

"The restriction on financing determines the ceiling for proprietary schools," he said. "For collegiate schools, we have sufficient funds available, or we can arrange for sufficient funds to handle all the loans we receive applications for. …

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