Who's Default?

THE PUBLIC this week was treated to the familiar sight of U.S. Secretary of Education William J. Bennett on the warpath. On this, his latest campaign, Bennett is addressing a disgraceful problem largely ignored by educators, namely the increasingly high rates of default on student loans. As usual, Bennett is getting a lot of attention--not the least of which is coming from Congressmen and university administrators.

The figures are shocking. More than 13 percent of all federal loans to students--totalling $5.6 billion--is going unpaid. By the end of the decade, annual government payments on defaulted loans will increase 10 times, from $209 million in 1978 to $2 billion. Bennett is right on the money in calling for a crackdown on students who borrow and don't repay.

The principle of paying back your debts remains one of the foundations of our society. Enforcement of contracts is one of the primary functions of the modern liberal state. What would happen if banks refused to honor their checks or the government stopped paying interest on savings bonds? It is disturbing that college graduates, the future leaders of America, pay such disregard to one of the basic tenets of our society.

Unfortunately, Bennett's plan for dealing with the problem is greatly flawed. If more than 20 percent of a college's students were to default on their loans, the college would lose all federal student aid. This should provide enough incentive for most colleges to keep their students on a short leash.

SOME SCHOOLS, however--especially, for instance, community colleges and Black colleges--suffer high default rates because many of their students come from low-income backgrounds. Ivy League universities have lower rates of default simply because their students--and the schools themselves--have more money. Elite schools, for instance, can afford to set up special bureaucracies to deal with student loan-takers. Bennett's solution most hurts the weakest link in American higher education, and puts too little pressure on students at well-endowed schools whose failure to repay their debts is particularly offensive.

Bennett's plan also makes a mistake in linking institutions to the activities of their students. True, colleges and universities can do more to solve the debt problem by counseling borrowers and by supplementing financial aid packages out of their own coffers. Perhaps more effective ethics instruction in the Core could better educate students about their social obligations. But completely cutting off schools where some students fail to honor their loans only penalizes the great majority of incoming students who would pay up.

In a time of belt-tightening on Capitol Hill, congressmen want to see their education money used wisely before they decide to spend more. Universities would further their own interests by taking the loan situation more seriously. Why should any senator or representative allocate funds for student aid programs when he knows many of the borrowers never will pay back their loans?

THE ALARMING loan problem is a powerful indictment of Bennett and the administration more than it is of colleges. During the last seven years, federal aid to students has dropped, and most of what needy students are receiving is coming in the form of loans rather than outright grants. The Reagan Administration's pursuit of short-term budget savings has saddled students with staggering debt burdens.

To best solve the debt crisis, the federal government needs to make a decision. Will it continue to fund students with loans or with grants? Heavy indebtedness forces graduates to choose higher-paying careers instead of public service jobs and to delay their marriages and family decisions. Grants would open access to higher education to students from all income levels and racial backgrounds, producing a workforce that will return more to the nation than $5 billion in repaid loans.