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Education Department Halts Program to Restructure Itself

By Rene Sanchez
The Washington Post

The Education Department, long maligned by congressional Republicans who say its management is a mess, has given critics new reason to howl.

The department announced last week that it will not accept any more applications from recent college graduates trying to consolidate or refinance their tuition loans until the contractor it hired for the job clears up an enormous backlog of those requests.

There are more than 70,000 college students nationwide whose loan payments might soon be in limbo because of the lengthy processing delays, and the waiting list has been growing longer each month. The department said it had no choice but to suspend the popular program indefinitely in order to begin fixing the problem.

"It's a terrible embarrassment," said David Longanecker, the assistant secretary for postsecondary education. "We were falling farther and farther behind, but by doing this we are confident that we'll get on top of the problem soon."

The department faced a similar predicament last year when more than 900,000 student aid applications handled by private contractors it hired were delayed because of serious management problems. The incidents raise new questions about the department's ability to manage its direct lending program, which allows students to get tuition loans from the federal government and offers a range of repayment options.

Direct lending, one of President Clinton's most important education initiatives, has been under fire from Republicans and many private lenders ever since it was created five years ago. There have been several campaigns in Congress to abolish or severely limit the program, but it remains largely intact, serving more than 1,200 universities. Many college officials say they have been quite pleased with the program so far.

But to some Republican leaders, the latest trouble is proof the department is not up to managing college loans at a time when a record number of students - at last count, more than 7 million - depend on them.

"From the very start of the program, I doubted the department's ability to become one of the largest banks in this country," Rep. William F. Goodling, R-Pa., chairman of the House Committee on Education and the Workforce, said last week. He called the department's inability to consolidate student loans quickly and efficiently "irresponsible."

"Up to now, they've done a pretty good job on this," said Terry Hartle, a vice president for the American Council on Education, a Washington group that represents more than 1,500 universities. "But what we have here is a huge embarrassment in one of the president's signature education programs."

With tuition costs at most campuses continuing to exceed inflation, and college loan debt soaring, more and more students are taking advantage of new opportunities to restructure their loans over longer periods of time or in ways based on what they earn after graduation.

Education department officials said that often in the past year they have received nearly 15,000 applications a month from students to consolidate loans, a rate nearly twice what they said they had expected when the program began.

But they adamantly reject criticism that direct lending is in shambles.

"I can understand the frustration, but I think we have to keep it in perspective," Longanecker. "One reason we have this problem is because of the great popularity of the program."

Longanecker said the department is disappointed with the contractor it hired last year, Electronic Data Systems, which was founded by billionaire Ross Perot. Longanecker said there were start-up problems in processing student requests, and that ever since the volume of applications has overwhelmed the system.

Some officials said it had been taking more than seven months in some cases - an unpaid student loan falls into default after six months - to process applications.

The department has no estimates yet as to when the loan-consolidation program will be re-opened. But Longanecker said he expects it certainly will be before December, which is when the most recent class of college graduates are supposed to start repaying tuition loans.