In Brief: Gov’t, Industry Even in Student Loan Default

WASHINGTON — The federal government is matching the industry’s student loan default rate performance, a General Accounting Office study showed.

The Federal Direct Loan Program, which makes loans directly to consumers, had a 6.6% default rate in 1998 and the Federal Family Education Loan Program, which guarantees student loans by private lenders, had a 6.7% default rate that year. Researchers compared the two programs using school default rate data from two years ago; they are the most recent data available.

Though the data implied that the two loan programs are equally successful, banking industry officials used the study’s results to argue that more private-sector competition had driven default rates down from a high of 22% in 1992 for student loan defaults.

“The industry can largely take credit for cleaning up the default rate, not the Department of Education,” Joe Belew, president of the Consumer Bankers Association, said. He added that the numbers contradict the government’s claim that its direct loan program is superior as judged by defaults. “It shows competitive equality between the two,” he said.

The direct loan program would have shown higher default rates if the direct loan program did not have an income-contingent repayment plan that eases terms for lower-income borrowers, said John E. Dean, the association’s special counsel. Under that plan, borrowers’ monthly payments are based on adjusted gross income, family size, and total outstanding loans, and they have 25 years to repay the debt.

The GAO study, released Thursday, said student loan defaults were estimated to have cost the programs a combined $4.3 billion in fiscal 1999. Together the programs provided about nine million student loans during that fiscal year, totaling $42.9 billion.