Loan Laws Aim to Cut Default Rate

As a result of new federal regulations designed to cut down on loan defaults, students with Harvard loans must pick up their vouchers within ten days of notification by the Office of Financial Aid, or their loans will be cancelled.

R. Jerrold Gibson, director of fiscal services, said yesterday, for the first time this year students must endorse the actual loan checks instead of merely signing promisory notes.

If a student fails to sign his check in time, it becomes invalid, and the student must reapply for a loan, he said.

Congress enacted a series of educational amendments in 1976, which are responsible for changes in loan policy, because of high default rates on federally insured loans, Gibson said.

The national default rate is currently about 13 per cent. The figure for vocational schools is 75 per cent.

Harvard has only a 7 per cent default rate, he added.

The new laws require students to sign checks because, "People never saw the money they were loaned before, and they did not realize what they were signing when they signed promisory notes," Gibson said.

If students fail to sign the checks in time, they will be able to reapply for aid, Ruth Galen, a financial aid staff memeber, said yesterday. However, if the new loan did not come through in time for spring term registration, outstanding term bills could prevent students from registering.

The financial aid office has begun to notify students with loans to sign their loan checks, and will continue to do so through December. Students who do not receive notification by Christmas should contact the financial aid office, she added.

The new regulations also require financial aid officers to discuss the loan payment schedule with each loan recipient.

"I think it is important for our students to understand about repayment, but it has increased our work load by about 3000 students," Martha C. Lyman, acting director of financial aid, said Monday.

The new regulations have also burdened the Office of Fiscal Services by increasing the volume of paperwork officers must handle, Gibson said.

Rob the Bank

Also, because of the new regulations, first-time applicants for loans must first try to get bank loans before approaching their college or university for money. Gibson said bank policies on granting loans to students vary from state to state, but some applicants have already succeeded in obtaining bank funds.

Financial aid officials said this week they don't know if the new regulations will cut down on loan defaults.

"There are so many reasons why people default on loans," Gibson said. "Sometimes they figure the government has plenty of money. Sometimes they are mad about something that happened while they were here, and they aren't going to pay no matter what," he added.

Students contacted yesterday said they were concerned about the ten-day deadline, but they did not think the new provisions would help reduce the default rate.

"I don't intend to default anyway," Eric Cornwell '79 said yesterday. "But if I did, interviewing me wouldn't help," he added.

The University grants about $10 million in loans a year, Gibson said. The new regulations apply to all undergraduate and graduate loan recipients, although Gibson said the default rate was generally higher for undergraduates