Congress to cut student loans
By Michelle Gueritey
MIT will not be affected by recent congressional legislation cutting federal loan money from schools with the highest student loan default rates.
The recently introduced federal budget package cuts off student loan funding for the next two years from institutions with default rates higher than 35 percent in fiscal year 1989. Beginning in 1993, the cutoff rate will decrease to 30 percent.
The programs affected will include the Perkins/National Student Loan Program and the Stafford/Guaranteed Student Loan Program. The latest data available from the Department of Education show that 330 institutions had a default rate above 35 percent for loans due in 1988, and 600 institutions had a rate above 30 percent.
Bursar Shirley M. Picardi said that "MIT has very low default rates for these federal programs." She quoted figures that show MIT with a default rate of 1.2 percent for Perkins loans and 1.8 percent for Stafford loans in FY 1990. While national averages were not available for 1990, the previous year's figures showed a default rate of 6.8 percent for Perkins loans and 14.7 percent for Stafford loans.
"We have always been low, but we are definitely better than we were in the past," Picardi added.
According to Kate Wilson,
associate bursar for alumni services, the low default rate can be attributed in part to "a very good staff which has new standards and expectations."
In addition, MIT has changed the process by which loans are collected. "We now use an outside servicer which does a lot of the early collection work such as sending letters," Wilson said.
"We have very good borrowers who are very diligent," she added.
Picardi agreed, saying that "I think we do have very conscientious borrowers who really want to honor their obligations. This makes our job pretty easy."
The government has also introduced legislation which requires all institutions to conduct a loan-counseling session or entrance interview with students who receive student loans. This legislation is aimed at decreasing the confusion some students have about their loan commitments.
"We are just starting [the entrance interviews] with freshmen this year," Wilson said. MIT has also developed a nine-minute video program that tells students about the obligations of their loans.
"MIT's total loans receivable -- the total amount of money that is out there in some form of loan -- is about $44 million,"
Picardi said. Of that total, $22 million is in the Perkins loan program, $3 million is in the Stafford loan program, and the rest is institutional money mostly in the form of loan funds.
She added that this amount is comparable per person to Ivy League schools. "About 51 percent of the student population receives some form of student loan," Picardi said.
Many institutions, especially for-profit trade schools, have much larger default rates. "A lot of the abuse comes from small schools that promise applicants certain types of jobs when they graduate, and then students graduate and cannot get the jobs they were promised and are alienated from the schools," Picardi said.