For the second consecutive year, the federally guaranteed student loan program at Cal State Dominguez Hills has the highest default rate among California's public universities, according to the U.S. Department of Education.
High default rates also were recorded at Compton College, one of the community colleges considered a feeder school for Cal State Dominguez Hills. Compton's default rate in 1988, the last year that rates are available, climbed to a whopping 52.7% from 46.7% the previous year. That means more than half of the Compton students who were to begin repaying a loan in fiscal 1988 had failed to make payments in 1988 or 1989.
The default rate at Cal State Dominguez Hills is 19.7% for 1988, up from 16.8% in 1987.
About 140 of the loans--known as Stafford Loans--issued to Cal State Dominguez Hills students and totaling more than $708,000 are considered to be in default, according to the Education Department. There are 9,200 students at the university.
Officials at the Carson campus say the university's default rate is due in large part to the makeup of its student population: many of the borrowers are low-income, first-generation college students who sometimes do not complete their studies. Worsening economic conditions, campus officials say, also have contributed to the difficulty even successful students have in starting careers after school and repaying their loans.
Another factor, said James Hartman, dean of student enrollment services, is that state and federal grant money has not kept pace with increasing enrollment and the university has a limited pool of scholarship money. Consequently, students who would be better served by scholarships or federal grants must turn to the loan program.
Default rates are also up at El Camino College, another community college considered a feeder school for Cal State Dominguez Hills, but two others, Los Angeles Harbor and Los Angeles Southwest colleges, recorded declines.
In the last two years, both Congress and the Department of Education have approved rules that would penalize student aid programs at schools that do not maintain certain minimum default rates.
The department said in 1989 that a school whose default rate is greater than 60% could become ineligible or face other sanctions on all its federally backed financial aid programs; that rate will be lowered annually by 5% until it reaches 40%.
Congress took further steps, and in November, 1990, adopted a separate rule that automatically terminates Stafford loans if a school exceeds a 35% default rate for three years running. The program would be retroactive.
Interestingly, campus-administered loans, known as Perkins loans, have a default rate almost half the national average on bank-administered Stafford loans.
The programs differ in that the Perkins loans are funded with federal and school funds, and the loans are repaid directly to the schools. The Stafford loans are funded and administered privately by institutions, such as banks, credit unions or saving and loan associations. The Perkins loans, which are for the most disadvantaged students, carry 5% interest rates, while there is an 8% interest rate for the Stafford loans.
At Dominguez Hills, a committee of students, faculty and administrators recommended early this year that the school speak with students about repayment before granting loans and also at graduation. That policy is now in effect.
University officials are also looking at improving the school's dropout rate.
"This whole concept of how people are doing academically is at the heart of the issue," Hartman said. "If we can increase their academic performance levels there is much higher probability that they will remain enrolled, eventually graduate and get a job, which will allow them to repay."
At a time when default rates will be used to penalize campuses, the accuracy of the data itself is coming into question. Campus administrators have criticized the data, saying federal default figures often count students more than once and do not remove loans from the default category if the student starts to repay the debt.
At the same time, the top federal official overseeing the loan program says default figures for many of California's 250 institutions may be artificially low. Bill Moran, director of the student assistance program in the office of postsecondary education, said a number of schools have loans that were not listed because claims were never made on them by their servicing or collection agency.
Many of these problems stem from foul-ups by United Education & Software, a servicing operation that federal officials said had failed to properly handle more than $1 billion in student loans. United Education was accused by federal officials of failing to send out thousands of letters to delinquent borrowers and sending letters to wrong addresses. The Encino-based firm has blamed the errors on software problems.