Monday, Sep. 26, 1977
Go Now, Don't Pay Later
Those delinquent student loans
In 1966 the Federal Government offered a generous and farsighted plan to help low-income students through college. Under the terms of the guaranteed student loan plan, they could go to college or trade school now and pay later, borrowing money from their schools, banks or other lending agencies while the Government guaranteed repayment. In 1972 the plan was even extended to students whose parents earned more than $15,000. The terms were easy: students were allowed to defer payment until ten years after graduation.
So far, about 8.8 million loans have been granted. But about 390,000 loan recipients have also taken advantage of the Government by not repaying. Ex-students have defaulted on $413.6 million worth of debt, either by declaring bankruptcy or simply refusing to pay. Neither the colleges nor the Government has yet seemed able to enforce repayment. But the loan default rate, now 12.3% and climbing, has finally frightened the Office of Education into some scare tactics of its own.
As of December, the Government has announced, it will turn over delinquent accounts to a private collection agency, which will receive a percentage of any money it manages to collect. Debtors are to receive a final warning letter in October; if they do not begin repaying according to the contracted schedule, the agency will be called in. Should even the collection agency fail to recover the money, the Government warns, the delinquent accounts will be turned over to the U.S. Attorney General.
For the defaulters there is the danger that pursuit by the collection agency may seriously damage their future credit rating. But the real damage, the Government points out, is to future students who need money for college. Says Leo Kornfeld, deputy commissioner for student financial assistance at the Department of Health, Education and Welfare: "These defaults taint the entire program and make it all the more difficult for the next generation to get loans."
This file is automatically generated by a robot program, so viewer discretion is required.