WASHINGTON — Secretary of Education William J. Bennett today threatened to expel universities, colleges and trade schools from all federal student aid programs if they allow future student loan default rates to exceed 20%.
Bennett said defaults in the Guaranteed Student Loan program cost taxpayers more than $1.6 billion a year and have become "intolerable."
He released a campus-by-campus list of default rates at 7,295 colleges, universities and trade schools for fiscal 1985. Thirty-two percent of the institutions had default rates over 20%, including 500 with default rates above 50%.
Bennett said that the primary responsibility to repay the loans rests with the former students but that institutions bear a responsibility as well.
He has ordered an immediate review of the programs at all institutions with default rates above 50% and instructed his inspector general to "focus audit and investigative efforts on those institutions where the program review suggests the existence of waste, fraud or abuse."
Bennett told a news conference that the new federal sanctions might force some "fly-by-night institutions" to shut down.
He said federal aid provides "80% to 90% of the cash flow at some institutions."
Asked what would happen to students those institutions normally would enroll, Bennett said, "For most kids, they will be going to other institutions. In most instances, this will be doing the kids a great favor."
"It's a buyer's market," he said.
Bennett added that he was waiting until after 1990 to crack down on institutions with high default rates in order to give them "fair warning that from this day forward" they must do a better job of instructing students to repay loans.
The government counted as a defaulter anyone who was supposed to begin repaying student loans in fiscal 1985 and who had failed to do so by Sept. 30, 1986, the end of fiscal 1986.
The overall default rate in the heavily subsidized loan program is about 13%, but rates vary greatly from school to school.
Contrast Between Schools
In West Virginia, for instance, Bennett's department said that 49.8% of the loan recipients from West Virginia State College had defaulted. That compared with just 9.95% of the borrowers from West Virginia University.
In general, beauty colleges and other trade schools dominated the default list, although some public and community colleges also had high rates. Four-year universities generally had below-average default rates.
For example, in California, the default rate among 3,481 borrowers from UCLA was 9.27%, and at Berkeley the rate was 7.7% among 2,217 borrowers. The rate was 66.4% for 1,208 borrowers who went to the Sierra College of Business, 55.9% for 1,055 from Webster Career College and 54.5% for 1,146 from the United College of Business.