Education Secretary Lauro Cavazos is seeking the advice of thousands of lenders, colleges and universities, and public officials on how to hold down the escalating default rate on student loans. The Education Department says taxpayers spent $1.5 billion to cover defaults on the guaranteed student loan program in the fiscal year that ended Sept. 30, almost 43 percent of the program's entire cost. The figure represents a 200 percent increase over the past five years in what is now known as the Stafford loan program, the department said. ``We want the advice of all parties _ the Congress, the public, schools, lenders, guarantee agencies and borrowers,'' Cavazos said in a statement. ``A lot has already been done, but clearly, additional action is necessary.'' The program has loaned about $40 billion since it began. Of the current $12 billion in outstanding loans, about $5 billion is overdue, the department said. Charles Kolb, acting deputy undersecretary for planning, budget and evaluation, said Cavazos has sent letters appealing for advice to more than 7,000 participating colleges and universities, 13,000 lenders, 54 agencies that guarantee student loans, 50 governors, and members of Congress. Cavazos, who was president of Texas Tech University until taking over as education secretary in September, is also accepting suggestions from students. He is especially concerned about those who defaulted on their loans because they were unable to earn a living after attending unscrupulous trade or other schools that award a certificate but do not provide necessary job skills. Kolb said some schools have 100 percent default rates, suggesting they may not be providing the kind of education necessary for students to hold a job and earn enough money to repay their loans. ``There are a lot of scams going on here,'' Kolb said. A school must be accredited to qualify students for guaranteed student loans, but Kolb said there are still ``fly by night operations'' that ``don't give students a technical background _ just a paper certificate, no skills, and a debt. ``It's getting just unbelievable. Schools are recruiting right out of welfare lines. They get the students to get federally backed loans and the school gets the money and the kid gets the debt,'' Kolb said. Kolb said former Education Secretary William Bennett had proposed that schools that fail to get their default rate below 20 percent could be cut from the program. Cavazos has extended the comment period on that proposal until the end of February. Kolb said of the 7,300 schools participating in the program, 30 percent have default rates above 20 percent. Cavazos also wants to know to what extent lenders, guarantee agencies and schools should share in the risk and cost of defaults; how communication can be improved among those participating; whether credit reports and co-signers should be required for borrowers with poor credit histories; and how consumer and personal financial counseling can be used most effectively.
