A significant rise in collections in the last few years has substantially reduced the net cost of defaults, which is the amount paid out by the U.S. Treasury to cover defaulted student loans minus the total amount collected by the Education Department, Treasury, and guaranty agencies. Riley said both the department and the guaranty agencies have taken an aggressive approach to the collection of defaulted student loans, employing a wide range of collection tools. In addition, since March 1996, the Department has resolved a backlog of 1,476 appeals of cohort default rates filed by 525 schools between fiscal years 1989 and 1993. Until appeals are resolved, schools continue their eligibility in the loan programs. The Department also identified today 357 postsecondary schools that may be dropped from one or more federal student aid programs because of excessive default rates in FY1994.
Schools have the right to appeal.
This year 329 schools are affected by this provision, including 108 new schools and 221 schools whose loss of eligibility was extended another year based on their 1994 rates. Historically Black Colleges and Universities, tribally controlled schools and Navajo community colleges are exempt from sanctions until July 1998. In addition, under Department regulations, schools with a one-year default rate over 40 percent may have their eligibility for all federal student aid programs restricted or terminated. Borrowers who default on federal loans face serious repercussions, such as the withholding of federal income tax refunds, wage garnishment, adverse reports to credit bureaus, denial of further federal student aid, and litigation. To avoid these sanctions, defaulters now have the option to consolidate their loans and establish an income based repayment plan that more realistically matches their ability to pay.