Student Loans: Characteristics of Students and Default Rates at
Historically Black Colleges and Universities (Letter Report, 04/09/98,
GAO/HEHS-98-90).

Pursuant to a congressional request, GAO reviewed several issues
regarding default rates at historically black colleges and universities
(HBCU), focusing on: (1) a comparison of freshman students at HBCUs with
those at all colleges and universities in terms of the academic and
socioeconomic characteristics that have been linked to student loan
defaults; (2) differences in socioeconomic characteristics among 4-year
HBCUs, for undergraduate students with higher default rates compared
with schools with lower default rates; (3) measures the Department of
Education has taken or planned to help HBCUs reduce their student loan
default rates; (4) number of HBCUs that are potentially at risk of
losing title IV student loan eligibility because of high default rates
in 1993-95, and how many of these were potentially at risk in 1988-90;
and (5) measures HBCUs have taken to reduce or minimize their student
loan default rates.

GAO noted that: (1) HBCUs have enrolled a higher percentage of freshmen
who compared with their peers at all institutions, are less prepared
academically and come from more disadvantaged socioeconomic backgrounds;
(2) the 1995 graduation rate for 4-year HBCUs (35 percent) was
substantially below that of non-HBCU students (54 percent); (3) students
at HBCUs were twice as likely to come from a home where parents were
divorced or separated, and their parents generally had lower education
and income levels than parents of students at all colleges and
universities; (4) when the analysis is narrowed to only HBCUs, the same
pattern is found; (5) in general, HBCUs with lower default rates
enrolled students with more academic preparation and higher
socioeconomic levels; (6) parents of students receiving federal
financial aid at HBCUs with lower default rates generally had higher
average adjusted gross incomes and more education and were more likely
to be married; (7) the Department of Education employs a number of
measures to help schools reduce student loan defaults; (8) these
measures apply to all schools, as the Department has no separate or
specific default reduction program for HBCUs; (9) the Department's
primary efforts were introduced in 1989 as its default reduction
initiative and include such activity as supporting schools' efforts to
provide financial aid counseling to student borrowers and followup with
delinquent borrowers; (10) according to the most recent computations
available (for 1993-95), 14 HBCUs were potentially at risk of losing
their student loan program eligibility because their default rates
remained at or above 25 percent for 3 consecutive years; (11) this is
fewer than the 33 HBCUs that GAO reported in August 1993 as potentially
at risk on the basis of their 1988-90 default rates; (12) of these 33
HBCUs, 8 remained potentially at risk on the basis of their 1993-95
default rates (6 more subsequently became potentially at risk), 19 were
no longer at risk and were eligible to participate in federal student
loan programs, and 6 were no longer participating in the program; (13)
financial aid administrators at 22 HBCUs GAO surveyed cited default
reduction measures promoted by the Department--loan counseling and early
intervention with delinquent borrowers--as the default reduction
measures they most often used in managing their student loan default
rates; and (14) this survey included administrators at 14 of the 33
HBCUs that GAO previously reported could be at risk of losing their
student loan eligibility--if they were not subject to the
exemption--based on their 1988-90 default rates.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-90
     TITLE:  Student Loans: Characteristics of Students and Default 
             Rates at Historically Black Colleges and Universities
      DATE:  04/09/98
   SUBJECT:  Student loans
             Loan defaults
             Loan repayments
             Black colleges
             Colleges/universities
             Student financial aid
             Government guaranteed loans
             Eligibility criteria
             Comparative analysis
             Disadvantaged persons
IDENTIFIER:  William D. Ford Federal Direct Loan Program
             Federal Family Education Loan Program
             
Student Loans: Characteristics of Students and Default Rates at
Historically Black Colleges and Universities (Letter Report, 04/09/98,
GAO/HEHS-98-90).

Pursuant to a congressional request, GAO reviewed several issues
regarding default rates at historically black colleges and universities
(HBCU), focusing on: (1) a comparison of freshman students at HBCUs with
those at all colleges and universities in terms of the academic and
socioeconomic characteristics that have been linked to student loan
defaults; (2) differences in socioeconomic characteristics among 4-year
HBCUs, for undergraduate students with higher default rates compared
with schools with lower default rates; (3) measures the Department of
Education has taken or planned to help HBCUs reduce their student loan
default rates; (4) number of HBCUs that are potentially at risk of
losing title IV student loan eligibility because of high default rates
in 1993-95, and how many of these were potentially at risk in 1988-90;
and (5) measures HBCUs have taken to reduce or minimize their student
loan default rates.

GAO noted that: (1) HBCUs have enrolled a higher percentage of freshmen
who compared with their peers at all institutions, are less prepared
academically and come from more disadvantaged socioeconomic backgrounds;
(2) the 1995 graduation rate for 4-year HBCUs (35 percent) was
substantially below that of non-HBCU students (54 percent); (3) students
at HBCUs were twice as likely to come from a home where parents were
divorced or separated, and their parents generally had lower education
and income levels than parents of students at all colleges and
universities; (4) when the analysis is narrowed to only HBCUs, the same
pattern is found; (5) in general, HBCUs with lower default rates
enrolled students with more academic preparation and higher
socioeconomic levels; (6) parents of students receiving federal
financial aid at HBCUs with lower default rates generally had higher
average adjusted gross incomes and more education and were more likely
to be married; (7) the Department of Education employs a number of
measures to help schools reduce student loan defaults; (8) these
measures apply to all schools, as the Department has no separate or
specific default reduction program for HBCUs; (9) the Department's
primary efforts were introduced in 1989 as its default reduction
initiative and include such activity as supporting schools' efforts to
provide financial aid counseling to student borrowers and followup with
delinquent borrowers; (10) according to the most recent computations
available (for 1993-95), 14 HBCUs were potentially at risk of losing
their student loan program eligibility because their default rates
remained at or above 25 percent for 3 consecutive years; (11) this is
fewer than the 33 HBCUs that GAO reported in August 1993 as potentially
at risk on the basis of their 1988-90 default rates; (12) of these 33
HBCUs, 8 remained potentially at risk on the basis of their 1993-95
default rates (6 more subsequently became potentially at risk), 19 were
no longer at risk and were eligible to participate in federal student
loan programs, and 6 were no longer participating in the program; (13)
financial aid administrators at 22 HBCUs GAO surveyed cited default
reduction measures promoted by the Department--loan counseling and early
intervention with delinquent borrowers--as the default reduction
measures they most often used in managing their student loan default
rates; and (14) this survey included administrators at 14 of the 33
HBCUs that GAO previously reported could be at risk of losing their
student loan eligibility--if they were not subject to the
exemption--based on their 1988-90 default rates.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-90
     TITLE:  Student Loans: Characteristics of Students and Default 
             Rates at Historically Black Colleges and Universities
      DATE:  04/09/98
   SUBJECT:  Student loans
             Loan defaults
             Loan repayments
             Black colleges
             Colleges/universities
             Student financial aid
             Government guaranteed loans
             Eligibility criteria
             Comparative analysis
             Disadvantaged persons
IDENTIFIER:  William D. Ford Federal Direct Loan Program
             Federal Family Education Loan Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

April 1998

STUDENT LOANS - CHARACTERISTICS OF
STUDENTS AND DEFAULT RATES AT
HISTORICALLY BLACK COLLEGES AND
UNIVERSITIES

GAO/HEHS-98-90

Student Loan Defaults at HBCUs

(104882)


Abbreviations
=============================================================== ABBREV

  FDLP - William D.  Ford Federal Direct Loan Program
  FFELP - Federal Family Education Loan Program
  HBCU - Historically Black Colleges and Universities

Letter
=============================================================== LETTER


B-276980

April 9, 1998

The Honorable William F.  Goodling
Chairman
The Honorable William L.  Clay
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives

The Honorable Edolphus Towns
House of Representatives

A group of more than 100 schools collectively designated Historically
Black Colleges and Universities (HBCU) has a long history of
providing higher education for low-income and educationally
disadvantaged students.  These public and private 2-year and 4-year
schools, generally established before 1964 to educate black
Americans, enrolled more than 277,000 students, about 82 percent of
whom were black, in the fall of 1995.  For many years, the Congress
has acknowledged the special role HBCUs have played in helping
promote equal opportunity through postsecondary education. 

Compared with students at other schools, students at HBCUs generally
rely to a greater degree on federal student loans.  Students
attending these schools received about $910 million in federal
student loans in fiscal year 1996.  Also, the average federal student
loan default rate for HBCUs has generally been higher (currently,
more than double) the average rate for other 2-year and 4-year
schools.  In general, institutions are prohibited from participating
in federal student loan programs if their default rates exceed
statutory thresholds, currently 25 percent, over 3 consecutive fiscal
years, but the Congress has exempted HBCUs from this restriction.  In
recent years, this exemption has kept several dozen HBCUs from being
dropped from the student loan program.\1 However, the current
exemption, which is part of title IV of the Higher Education Act of
1965, as amended, expires in July 1998.  Reauthorization of the act
is slated for consideration during the second session of the 105th
Congress. 

Over the past decade, a growing body of research has established that
various measures of students' academic preparation and socioeconomic
status predict how likely students are to default on their loans.  In
general, default rates tend to be higher among students who are not
as well prepared academically as others and whose families are not as
well off economically.  You asked us to address several issues
regarding default rates at HBCUs, including an analysis of these
kinds of links.  As agreed with your offices, we focused our work on
the following questions: 

  -- How do freshman students at HBCUs compare with those at all
     colleges and universities in terms of the academic and
     socioeconomic characteristics that have been linked to student
     loan defaults? 

  -- Among 4-year HBCUs, how do such characteristics for
     undergraduate students differ at schools with higher default
     rates compared with schools with lower default rates? 

  -- What measures has the Department of Education taken or planned
     to help HBCUs reduce their student loan default rates? 

  -- How many HBCUs are potentially at risk of losing title IV
     student loan eligibility because of high default rates in
     1993-95, and how many of these were potentially at risk in
     1988-90? 

  -- What measures have HBCUs taken to reduce or minimize their
     student loan default rates? 

To conduct our review, we analyzed available student databases with
data on various characteristics that previous studies had shown to be
related to the level of student loan defaults.  Much of the data we
analyzed were from the Department of Education, but some were
developed from surveys by other researchers.  Because the databases
did not all contain the same information, we were not always able to
apply the exact same set of characteristics.  For example, one
database might contain the high school grade point averages of
entering freshmen as an indication of academic preparation, while
another might have freshman retention rates or college graduation
rates.  Appendix I describes the studies we examined, including our
scope and methodology, and appendix II lists the specific academic
preparation and socioeconomic indicators we identified.  In
performing our analyses, we also interviewed representatives from the
Department, HBCUs, and other organizations.  We conducted our review
between June 1997 and January 1998 in accordance with generally
accepted government auditing standards. 


--------------------
\1 We previously reported on the number of HBCUs with default rates
above the 25-percent threshold for two such 3-year periods--fiscal
years 1988-90 and 1991-93.  See Student Loans:  Default Rates at
Historically Black Colleges and Universities (GAO/HRD-93-117FS, Aug. 
19, 1993) and Student Loans:  Default Rates at Historically Black
Colleges and Universities (GAO/HEHS-97-33, Jan.  21, 1997). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

HBCUs have enrolled a higher percentage of freshmen who, compared
with their peers at all institutions, are less prepared academically
and come from more disadvantaged socioeconomic backgrounds.  For
example, freshmen at HBCUs had lower high school grades and were more
likely to need (or already to have received) tutoring or remedial
work than freshmen at all colleges and universities.  The 1995
graduation rate for 4-year HBCUs (35 percent) was substantially below
that of non-HBCU students (54 percent).  Students at HBCUs were twice
as likely to come from a home where parents were divorced or
separated, and their parents generally had lower education and income
levels than parents of students at all colleges and universities. 

When the analysis is narrowed to only HBCUs, the same pattern is
found:  In general, HBCUs with lower default rates enrolled students
with more academic preparation and higher socioeconomic levels.  For
example, HBCUs with lower default rates retained a higher percentage
of their entering class and had higher percentages of students
graduate.  Similarly, parents of students receiving federal financial
aid at HBCUs with lower default rates generally had higher average
adjusted gross incomes and more education and were more likely to be
married. 

The Department of Education employs a number of measures to help
schools reduce student loan defaults.  These measures apply to all
schools, as the Department has no separate or specific default
reduction program for HBCUs.  The Department's primary efforts were
introduced in 1989 as its default reduction initiative and include
such activity as supporting schools' efforts to provide financial aid
counseling to student borrowers and follow-up with delinquent
borrowers. 

According to the most recent computations available (for 1993-95), 14
HBCUs were potentially at risk of losing their student loan program
eligibility because their default rates remained at or above 25
percent for 3 consecutive years.  This is fewer than the 33 HBCUs
that we reported in August 1993 as potentially at risk on the basis
of their 1988-90 default rates.\2 Of these 33 HBCUs, 8 remained
potentially at risk on the basis of their 1993-95 default rates (6
more subsequently became potentially at risk), 19 were no longer at
risk and were eligible to participate in federal student loan
programs, and 6 were no longer participating in the programs. 

Financial aid administrators at 22 HBCUs we surveyed cited default
reduction measures promoted by the Department--loan counseling and
early intervention with delinquent borrowers--as the default
reduction measures they most often used in managing their student
loan default rates.  This survey included administrators at 14 of the
33 HBCUs that we previously reported could be at risk of losing their
student loan eligibility--if they were not subject to the
exemption--based on their 1988-90 default rates. 


--------------------
\2 GAO/HRD-93-117FS, Aug.  19, 1993. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In total, 103 schools are currently designated HBCUs.  They range in
size and scope from 2-year colleges with relatively few programs to
4-year universities offering graduate degrees in several fields and
enrolling more than 10,000 students.  Although most students who
attend are black, about one student in every six is not. 
Collectively, HBCUs enroll about 16 percent of all black students
attending all 2-year and 4-year colleges and universities in the
United States. 

Title IV authorized the Department of Education to bar postsecondary
schools with high fiscal year "cohort default rates" from continuing
to participate in federal student loan programs.\3 Each year, the
Department assesses a school's eligibility on the basis of its three
most recent available cohort default rates.  In fiscal year 1998,
eligibility is based on default rates for fiscal years 1993, 1994,
and 1995.  A school remains eligible if its cohort default rate is
below the statutory threshold, currently 25 percent, in at least 1 of
the latest 3 consecutive fiscal years.  A school becomes ineligible
if its default rate equals or exceeds the default threshold in all 3
fiscal years.  The Higher Education Act exempts HBCUs from this
threshold requirement through June 1998. 

In addition to the cohort default rate threshold specified in the
Higher Education Act, the Department has established--through
regulation--a provision that allows it to start procedures to limit,
suspend, or terminate a school's participation in all title IV
federal student aid programs if the school's cohort default rate for
a single year exceeds 40 percent.  The exemption from the statutory
threshold for HBCUs does not extend to this provision. 

Students get federal loans from two major programs:  the Federal
Family Education Loan Program (FFELP) and William D.  Ford Federal
Direct Loan Program (FDLP).  Loans made under FFELP are provided by
private lenders and are ultimately guaranteed against default by the
federal government.  Loans made under FDLP are provided through
schools, and the Department services and collects loans through
contractors.  FDLP was originally authorized by the Higher Education
Amendments of 1992.  Since the first loans under FDLP were made in
the fourth quarter of fiscal year 1994, the fiscal year 1995 cohort
is the first cohort affected by FDLP defaults. 

Students at HBCUs make extensive use of these loan programs. 
Although HBCU students accounted for 1.9 percent of fall 1995
enrollments at all 2-year and 4-year public and private schools, they
were awarded 3.5 percent of the total dollar volume of student loans
under FFELP and FDLP in fiscal year 1996 (see table 1). 



                              Table 1
              
                  Comparison of Student Loans and
               Enrollment at 2-Year and 4-Year Public
              and Private HBCUs and Non-HBCUs, Fiscal
                             Year 1996

                                     HBCUs      Non-HBCU     Total
--------------------------------  --------  ------------  --------
Fiscal year 1996 FFELP and FDLP     $ 0.91        $25.26    $26.17
 awards, dollars in billions
Fiscal year 1996 FFELP and FDLP       3.5%         96.5%    100.0%
 awards, percent of total awards
Fall 1995 enrollment               277,301    14,195,019  14,472,3
                                                                20
Fall 1995 enrollment, HBCUs and       1.9%         98.1%    100.0%
 non-HBCUs, percent of total
 enrollment
------------------------------------------------------------------
On average, HBCUs have a higher student loan default rate than
non-HBCUs, but the difference has narrowed somewhat.  Between fiscal
years 1993 and 1995, the aggregate student loan cohort default rate
for HBCUs declined from 20.6 percent to 18.5 percent while the rate
for non-HBCUs increased from 7.4 percent to 7.8 percent (see fig. 
1). 

   Figure 1:  Aggregate Student
   Loan Cohort Default Rates for
   HBCUs and Non-HBCUs, Fiscal
   Years 1993-95

   (See figure in printed
   edition.)

Before 1987, little research had been published that identified the
factors that could predict high student loan default rates.  However,
in the past 10 years several empirical research studies have analyzed
student borrowers from proprietary (private, for profit) schools as
well as from public and private 2-year and 4-year colleges and
universities.  A key theme derived from these studies is that student
loan repayment and default behavior are primarily influenced by
individual borrower characteristics rather than by the
characteristics of the educational institutions they attend.  For
example, one study concluded that "student characteristics are of
overwhelming importance in correctly predicting defaulters, in
contrast to the institutions they attend, or the administrative
practices those institutions use to try to curb student defaults."\4

The studies indicate that characteristics playing an important role
in determining the level of student default rates are related to
students' academic preparation and socioeconomic background.  In
general, the higher the students' academic preparation and more
advantaged the socioeconomic background, the lower the likelihood of
defaulting on their student loans.  Factors indicating good academic
preparation, such as staying in college, earning good grades, and
advancing to graduation, significantly decrease the probability of
default.  Two of the most important factors accounting for different
college graduation rates among institutions are actually precollege
factors:  high school grades and college admissions test scores.  The
higher the grades and test scores, the greater the incidence of
college graduation.  Similarly, studies have shown that students who
come from a more advantaged socioeconomic background--indicated by
higher parental education and income levels and two-parent
families--have better high school grades and lower student loan
default rates. 


--------------------
\3 For a school with 30 or more borrowers entering repayment during a
fiscal year, the cohort default rate is a percentage that results
from two parts:  (1) the number of a school's student loan borrowers
who are supposed to begin repaying their loans in a fiscal year
divided into (2) the number of borrowers who default by the end of
the following fiscal year.  Borrowers are generally in default if
they fail to make any scheduled payments on their loans for 180 days,
if repayment is made monthly, and 240 days, if repayment is made less
frequently. 

\4 Wellford W.  Wilms, Richard W.  Moore, and Roger E.  Bolus, "Whose
Fault Is Default?  A Study of the Impact of Student Characteristics
and Institutional Practices on Guaranteed Student Loan Default Rates
in California," Educational Evaluation and Policy Analysis, Vol.  9,
No.  1 (spring 1987), pp.  41-54. 


   ACADEMIC PREPARATION AND
   SOCIOECONOMIC LEVELS OF
   FRESHMAN STUDENTS VARY BY
   SCHOOL TYPE
------------------------------------------------------------ Letter :3

Students attending 4-year HBCUs are less academically prepared and
come from a more disadvantaged socioeconomic background than their
counterparts attending all 4-year colleges and universities,
according to our analysis of an annual survey of the fall 1996
freshman class.\5 For example, relative to freshmen at all 4-year
colleges and universities, HBCU students had a lower high school
grade average and needed (or already had) more tutoring or remedial
work.  In addition, the rate at which students starting at the same
school graduated within a 6-year period was lower for HBCUs than for
non-HBCUs.  Relative to parents of freshmen at all 4-year colleges
and universities, parents of 4-year HBCU freshmen were more likely to
be divorced or separated, less likely to have a college education,
and more likely to earn less than $20,000 a year.  These findings
help explain why HBCU student loan default rates have generally been
higher than the rates for non-HBCUs. 


--------------------
\5 Linda J.  Sax, et al., The American Freshman:  National Norms for
Fall 1996 (Los Angeles:  University of California, Los Angeles, Dec. 
1996).  The fall 1996 freshman survey categorizations--"all 4-year
colleges" and "universities"--contained survey results from students
enrolled at 444 4-year colleges and universities, including survey
responses from freshmen at 14 HBCUs. 


      ACADEMIC PREPARATION
      CHARACTERISTICS
---------------------------------------------------------- Letter :3.1

Freshmen at HBCUs and 2-year schools reported similar high school
grades:  they were much less likely to earn A's and much more likely
to earn B's and C's than freshmen at all 4-year colleges and
universities (see fig.  2).  For example, the portion of university
freshmen with an A average exceeded the portion of HBCU and 2-year
freshmen threefold.\6 In contrast, over a quarter of HBCU and 2-year
freshmen had a C average compared with 5 percent of university
freshmen. 

   Figure 2:  Average High School
   Grade Among Fall 1996 Freshmen

   (See figure in printed
   edition.)

In six subject areas (English, reading, mathematics, social studies,
science, and foreign languages), an average of 11 percent of HBCU
freshmen had special tutoring or remedial work compared with 7
percent of 2-year, 6 percent of 4-year, and 4 percent of university
freshmen (see table 2).  In addition, HBCU freshmen were nearly twice
as likely to require additional tutoring or remedial work as freshmen
at all colleges and universities. 



                          Table 2
          
           Remedial Work Among Fall 1995 Freshmen

                                 Average %       Average %
                                having had       requiring
                                   special         special
                               tutoring or     tutoring or
School type                  remedial work   remedial work
--------------------------  --------------  --------------
HBCU                                   11%             21%
2-year                                   7              12
4-year                                   6              12
University                               4               8
----------------------------------------------------------
Note:  Information on remedial work was taken from Linda J.  Sax et
al., The American Freshman:  National Norms for Fall 1995 (Los
Angeles:  University of California, Los Angeles, Dec.  1995). 

A comparison of the average 6-year graduation rate--another measure
of academic preparedness--showed a 35-percent rate for 4-year HBCUs
compared with 54 percent for 4-year non-HBCUs, a difference of 19
percentage points.\7


--------------------
\6 The freshman survey mentioned in the preceding footnote defines
"university" as an institution that awards a certain minimal number
of earned doctoral degrees.  Institutions offering postbaccalaureate
programs but not awarding a sufficient number of earned doctoral
degrees are considered "4-year colleges."

\7 Comparable graduation rate information was not available for
2-year schools. 


      SOCIOECONOMIC
      CHARACTERISTICS
---------------------------------------------------------- Letter :3.2

The typical marital status of parents of HBCU freshmen differed from
that of parents of freshmen at all colleges and universities.  Nearly
half of all HBCU freshmen (49 percent) reported the marital status of
their parents as divorced or separated, while the majority of
freshmen at all schools reported that their parents were living
together (see fig.  3). 

   Figure 3:  Parents' Marital
   Status Among Fall 1996 Freshmen

   (See figure in printed
   edition.)

Fewer parents of HBCU and 2-year college freshmen had attained a
college degree than had parents of 4-year college and university
freshmen (see fig.  4).  About 20 percent of HBCU and 2-year college
freshmen reported that their parents had a college degree, compared
with 26 percent or more of 4-year college and university freshmen. 

   Figure 4:  Highest Level of
   Parental Education Among Fall
   1996 Freshmen

   (See figure in printed
   edition.)

Compared with parents of all freshmen, parents of HBCU freshmen were
more likely to have lower incomes.  The portion of freshmen with
parents who had incomes of less than $20,000 ranged from 29 percent
for HBCU freshmen to 9 percent for university freshmen (see fig.  5). 
In contrast, only 22 percent of parents of HBCU freshmen had incomes
of $60,000 or more, compared with 52 percent for parents of
university freshmen. 

   Figure 5:  Parental Income
   Among Fall 1996 Freshmen

   (See figure in printed
   edition.)

Note:  The freshman survey asked respondents for their best estimate
of their parents' total income, before taxes, from the previous year. 
See Linda J.  Sax et al., The American Freshman:  National Norms for
Fall 1996 (Los Angeles:  University of California, Los Angeles, Dec. 
1996). 

HBCU freshmen were much more likely to receive Pell grant aid than
their counterparts at all schools, another indicator of parental
income (see fig.  6).  Generally, the lower the parents' income, the
greater the amount of financial aid received.  Federal Pell grants,
available only to undergraduate students, under title IV, are
designed to help students who have the greatest financial need. 
Grants need not be repaid, and the maximum Pell grant award amount
for school year 1995-96 was $2,340. 

   Figure 6:  Pell Grant Aid
   Received Among Fall 1996
   Freshmen

   (See figure in printed
   edition.)


   HIGH-DEFAULT HBCUS HAVE
   STUDENTS WITH LESS ACADEMIC
   PREPARATION AND MORE
   DISADVANTAGED SOCIOECONOMIC
   BACKGROUNDS THAN LOW-DEFAULT
   HBCUS
------------------------------------------------------------ Letter :4

Although HBCU students as a group differ substantially from students
at all colleges and universities in their academic preparation and
socioeconomic backgrounds, our analysis indicates that the same kinds
of differences exist among students at individual HBCUs.  That is,
when HBCUs are divided into groups according to their default rates,
the characteristics of students at schools with the highest default
rates reflect less academic preparation and more disadvantaged
socioeconomic backgrounds.  These links between student
characteristics and the magnitude of default rates at HBCUs are
consistent with the research that has shown certain student
characteristics to be linked to student loan defaults. 

We based our analysis on undergraduate students at 83 4-year HBCUs
that conferred bachelor's degrees during the 1993-94 school year and
for which the Department had reported student loan default rate
statistics for the 1993-95 cohorts.\8 Collectively, the default rate
for these HBCUs averaged 20 percent over the 3-year period.  We
grouped the 83 HBCUs into low, medium, and high default categories to
facilitate comparisons of student characteristics among three groups
of HBCUs.\9 For the low group, the average default rate was 11.5
percent compared with 31 percent for the high group. 


--------------------
\8 The Department reported default rates on four other 4-year HBCUs
that we excluded from our review because they did not confer
bachelor's degrees in 1993-94. 

\9 The three default rate categories were (1) low, or less than or 15
percent; (2) medium, 15 percent to 24.99 percent; and (3) high, or 25
percent or more. 


      ACADEMIC PREPARATION
      CHARACTERISTICS
---------------------------------------------------------- Letter :4.1

Comparing the academic characteristics of students at HBCUs with low,
medium, and high default rates for fiscal years 1993-95 showed that
students at high-default-rate HBCUs consistently exhibited a lower
level of academic preparation than students at HBCUs with low default
rates.  For example, the 6-year graduation rate for low-default-rate
HBCUs was more than 1.4 times higher (at 41 percent) than the
29-percent rate for high-default-rate HBCUs.  A similar trend was
found for retention of freshmen at HBCUs.  Conversely, freshman
acceptance rates, an indicator of a school's selectiveness in
admitting academically qualified applicants, were lower at HBCUs with
low default rates (see fig.  7). 

   Figure 7:  Comparison of
   Student Characteristics Related
   to Academic Preparation at
   HBCUs With Low, Medium, and
   High Default Rates, Fiscal
   Years 1993-95

   (See figure in printed
   edition.)


      SOCIOECONOMIC BACKGROUND
      CHARACTERISTICS
---------------------------------------------------------- Letter :4.2

For this portion of our analysis, Department of Education data
covered only students who had received federal student aid during the
1995-96 school year at the 83 4-year HBCUs.\10 Our comparisons showed
that students at high-default-rate HBCUs consistently had more
disadvantaged socioeconomic characteristics than students at HBCUs
with low default rates.  For example, parents' average adjusted gross
income for high-default-rate HBCUs was $22,489, about 26 percent
lower than the $30,321 average for low-default-rate HBCUs (see fig. 
8).  Twenty-five percent of the students' parents at
high-default-rate HBCUs had adjusted gross income of $30,000 or more,
compared with 36 percent for parents of students at low-default-rate
HBCUs. 

   Figure 8:  Comparison of
   Student Federal Aid Recipients'
   Parents' Average Adjusted Gross
   Income at HBCUs With Low,
   Medium, and High Default Rates,
   Fiscal Years 1993-95

   (See figure in printed
   edition.)

Similarly, the extent to which parents' highest education level was
college or beyond and to which parents were married and not separated
were lower for high-default-rate HBCUs compared with low-default-rate
HBCUs (see fig.  9). 

   Figure 9:  Comparison of
   Student Federal Aid Recipients
   Whose Parents Attended College
   or Who Were Married at HBCUs
   With Low, Medium, and High
   Default Rates, Fiscal Years
   1993-95

   (See figure in printed
   edition.)


--------------------
\10 For our review, federal aid recipients included HBCU students who
received FDLP or FFELP loans or Pell grants during the 1995-96 school
year. 


      CARNEGIE SCHOOL
      CLASSIFICATIONS
---------------------------------------------------------- Letter :4.3

The Carnegie Foundation for the Advancement of Teaching developed a
system to classify American colleges and universities primarily based
on their academic missions, such as their highest degree offerings,
the numbers of degrees conferred, and in some cases the selectivity
of a school's admissions.  Although it is an institutional measure,
we consider the Carnegie classification to reflect the academic
preparation of a school's students based on the level of the degrees
it offers and confers and on the selectivity of the students it
admits.  To facilitate comparisons among 4-year HBCUs included in our
review, we consolidated the HBCUs' various Carnegie classifications
into two categories:  "high" and "low" (see app.  III).  Our analysis
showed that low-default-rate HBCUs had a higher Carnegie
classification than high-default-rate HBCUs. 

HBCUs that have high Carnegie classifications confer more doctoral,
master's, or liberal arts degrees or are more restrictive (requiring
higher high school grades or college admission test scores) in
student admission criteria.  There appears to be a strong link
between an HBCU with a high Carnegie classification and low student
loan default rates.  Schools with high Carnegie classifications made
up 71 percent of low-default-rate HBCUs compared with only 12 percent
of HBCUs with high student loan default rates (see fig.  10). 

   Figure 10:  The Rate of High
   and Low Carnegie School
   Classifications at HBCUs With
   Low, Medium, and High Default
   Rates, Fiscal Years 1993-95

   (See figure in printed
   edition.)


   DEPARTMENT MEASURES TO REDUCE
   DEFAULTS ARE AIMED AT ALL
   SCHOOLS
------------------------------------------------------------ Letter :5

According to Department officials, default reduction measures apply
to all schools participating in federal student loan programs and are
not specifically aimed at lowering high default rates at HBCUs. 
These measures were part of the default reduction initiative that the
Department introduced in June 1989 in response to the rising default
rates in federal student loan programs at that time.  These measures,
found in statutes, regulations, and guidance, required schools to
provide students with loan counseling, take steps to promote
repayment among delinquent borrowers, and, for schools whose default
rate exceeded certain thresholds, implement a default management
plan. 


      LOAN COUNSELING
---------------------------------------------------------- Letter :5.1

Under default-reduction regulations and agency guidance, all schools
must perform entrance counseling before releasing loan proceeds to a
borrower and exit counseling shortly before a borrower ceases at
least half-time study.  Entrance counseling is to include exploring
all sources of aid, stressing constraints on aid, reviewing
requirements for satisfactory academic progress, reminding students
to keep lenders informed, reviewing available repayment options, and
reviewing the consequences of delinquency and default.  Many of the
points stressed in entrance counseling are to be reiterated during
exit counseling in addition to obtaining such data as the student's
expected permanent address, employer's name and address, and the
address of next of kin. 

The Department has no prescribed format for financial aid counseling
other than its requirement that a person knowledgeable about
financial aid programs be available for answering borrowers'
questions after the counseling sessions.  Schools are encouraged to
use such aids as charts, handouts, videotape, and computer-assisted
technology to increase the effectiveness of their counseling
sessions.  These materials, as well as training for financial aid
administrators, are generally available from the Department and some
guaranty agencies, lenders, and other postsecondary education
organizations.\11


--------------------
\11 Guaranty agencies are nonprofit or state agencies that help
administer FFELP. 


      ATTENTION TO DELINQUENT
      BORROWERS
---------------------------------------------------------- Letter :5.2

Another default-reduction measure requires guaranty agencies to
notify, upon request and within 30 days, a FFELP borrower's school
after the borrower has missed a loan payment due date (the loan has
gone into delinquency).\12 This provision for alerting a school of a
student's loan delinquency is intended to give the school an
expeditious opportunity to work with the borrower to avert a default. 
In FDLP, the Department similarly notifies schools of delinquent
borrowers.  Schools are encouraged to urge borrowers to resume
payments to cure the delinquency or provide advice on applying for a
deferment or forbearance.\13

To assist schools in tracking their student loan borrowers, the
Department developed a software product, the Institutional Default
Prevention System, in 1990.  Three HBCUs were among the schools that
tested the software before its formal release to general users.  In
using this system, schools can better maintain information about
borrowers who have left the school and can print loan reminder
letters to send to them.  The Department has provided copies of this
software to schools participating in both the FFELP and FDLP,
including nearly all HBCUs. 


--------------------
\12 Before October 1992, lenders rather than guaranty agencies were
required to notify schools of borrowers' delinquencies as they
occurred. 

\13 Deferment permits a borrower to postpone the payment of
principal.  Forbearance permits the temporary cessation of payments
(although interest accrues), allowing an extension of time for making
payments or temporarily accepting smaller payments than were
previously scheduled. 


      DEFAULT MANAGEMENT PLANS
---------------------------------------------------------- Letter :5.3

For many years, if a school's default rate exceeded 20 percent, the
Department required it to implement a default management plan
designed to reduce its default rate.  The plan typically identified
the measures the school was taking, such as revising its admissions
policy to enroll more-qualified students, expanding job placement
efforts, and conducting additional loan counseling activities.  At
various times from 1990 through the first half of 1996, the
Department required 92 HBCUs to implement a default management plan. 

Effective July 1996, the Department no longer required
high-default-rate schools to submit or implement default management
plans because it lacked resources to effectively oversee schools'
adherence to the requirement.  However, the Department encourages
schools to continue to implement default management plans to help
prevent students from defaulting on their student loans. 


   FEWER HBCUS ARE AT RISK OF
   LOSING STUDENT LOAN PROGRAM
   ELIGIBILITY
------------------------------------------------------------ Letter :6

In August 1993, we reported that 33 HBCUs had 1988-90 cohort default
rates equal to or greater than the 25-percent statutory threshold.\14
The schools could have become ineligible for continued participation
in student loan programs if their default rates had persisted at the
rates reported, and the Congress did not extend the HBCUs' exemption
from the statutory threshold. 

Based on 1993-95 cohort default rates, 8 of the 33 HBCUs still have
default rates over the threshold (see table 3) and remain in the
program because of the exemption.  Nineteen of the 33 HBCUs have
subsequently lowered their default rates and no longer exceed the
threshold.  Six of the 33 HBCUs no longer participate in federal
student loan programs.  Of these six HBCUs, two merged with other
schools, one was annexed by another HBCU, and three lost
accreditation and therefore were no longer eligible to participate in
federal student loan programs. 



                                Table 3
                
                Status of 33 HBCUs Previously Identified
                as Potentially at Risk of Losing Student
                 Loan Program Eligibility, Fiscal Year
                            1993-95 Cohorts

                                                                Number
                                                                    of
Status                                                           HBCUs
--------------------------------------------------------------  ------
Default rates no longer exceed the 3-year, 25-percent               19
 threshold
Default rates still exceed the 3-year, 25-percent threshold          8
No longer participating in student loan programs                     6
======================================================================
Total                                                               33
----------------------------------------------------------------------
Of the 19 HBCUs with lower default rates, 9 had rates that were lower
than the 25-percent threshold in all three fiscal years, 1993-95. 
Five HBCUs had rates that were below the threshold for 2 years, and
another five had rates below the threshold in 1 year.  All 19 HBCUs
had lower 3-year default rate averages for fiscal years 1993-95 than
for 1988-90.  Appendix IV shows the default rate history for these 19
HBCUs. 

Compared with 33 HBCUs that exceeded the 25-percent threshold for the
1988-90 cohorts, only 14 HBCUs exceeded the threshold for the 1993-95
cohorts.  Of these 14 HBCUs, 8 were schools that were included in the
1988-90 cohorts that still remain at risk and 6 had not been at risk
in the 1988-90 cohorts. 


--------------------
\14 GAO/HRD-93-117FS, Aug.  19, 1993. 


   HIGH- AND LOW-DEFAULT HBCUS
   REPORT TAKING SIMILAR ACTIONS
   TO REDUCE DEFAULT RATES
------------------------------------------------------------ Letter :7

To determine what default reduction measures HBCUs had taken that
might have contributed to the decline in the number of HBCUs
exceeding the statutory threshold since our 1993 report, we conducted
a telephone survey of selected HBCU financial aid administrators. 
Our survey sample included 17 HBCUs that exceeded the threshold in
1988-90 but were below the threshold in 1993-95 and, for comparison,
the 9 HBCUs that had the lowest average 1993-95 default rates.\15
This sample allowed us to obtain the perspectives of administrators
at HBCUs that had formerly had high default rates and those that
consistently had low default rates.  We asked them what measures
their schools had taken to reduce or minimize their student loan
default rates. 

Twenty-two administrators responded to our survey, 14 at HBCUs that
formerly had high default rates and 8 at HBCUs that consistently had
low default rates.  They most often cited loan counseling or early
intervention with delinquent borrowers as the measures they had taken
to address defaults.  In meeting the counseling requirement, the
administrators described various practices that, in their opinion,
made counseling more effective.  These included

  -- requiring all incoming students, not just borrowers, to attend
     loan counseling sessions;

  -- emphasizing personal finance and debt management; and

  -- bringing in outside credible experts, such as a lender or
     guaranty agency representative, to give presentations to
     students during counseling sessions. 

In addition, the policy at several of these HBCUs was to direct
students, at the time of their enrollment, to other financial aid
resources such as grants, scholarships, and work-study programs, so
that students could minimize or avoid indebtedness. 

While these administrators said that they contacted delinquent
borrowers as part of their default prevention effort, a minor
difference emerged in how they implemented this measure.  About half
the administrators at HBCUs that previously had high default rates
said that their schools had created a default rate manager position
or retained a consultant to track and contact delinquent borrowers. 
But only one of the administrators at an HBCU that consistently had
low default rates reported taking similar action. 


--------------------
\15 Although 19 of the 33 HBCUs were below the threshold in 1993-95,
we did not include 2 schools in our survey because they had little or
no participation in the student loan programs.  For this period, the
Department reported one school as having no borrowers in repayment or
default and the other as having only three borrowers in repayment and
none in default. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

The Department of Education reviewed a draft of this report and had
no formal comments, although it provided several technical
suggestions that we incorporated as appropriate. 


---------------------------------------------------------- Letter :8.1

Copies of this report will be provided to appropriate congressional
committees, the Secretary of Education, and others who are
interested.  If you have any questions or wish to discuss this
material further, please call me or Joseph J.  Eglin, Jr., Assistant
Director, at (202) 512-7014.  Major contributors include Deborah L. 
Edwards, Daniel C.  Jacobsen, Robert B.  Miller, Charles M.  Novak,
Meeta Sharma, and Edward H.  Tuchman. 

Carlotta C.  Joyner
Director, Education and
 Employment Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

Over the past decade, a growing body of research has established that
certain measures of students' academic preparation and socioeconomic
status are predictors of how likely students are to default on
student loans.  In general, research has shown that default rates
tend to be higher among students who are not as well prepared
academically as others and whose families are not as well off
economically.  We were asked to address several issues regarding
default rates at Historically Black Colleges and Universities (HBCU),
including an analysis of these kinds of links. 


   RESEARCH ON STUDENT
   CHARACTERISTICS
--------------------------------------------------------- Appendix I:1

To identify student characteristics that have been shown to predict
student loan defaults, we searched for available literature.  We
selected studies that were published within the past 10 years and
that used multivariate analysis to show a link between student
characteristics and default rates.  Although we did not find many
relevant studies that met these criteria, we identified the following
four key studies and relied on them: 

  -- Wellford W.  Wilms, Richard W.  Moore, and Roger E.  Bolus,
     "Whose Fault Is Default?  A Study of the Impact of Student
     Characteristics and Institutional Practices on Guaranteed
     Student Loan Default Rates in California," Educational
     Evaluation and Policy Analysis, Vol.  9, No.  1 (spring 1987),
     pp.  41-54. 

  -- Mark Dynarski, Analysis of Factors Related to Default
     (Princeton, N.J.:  Mathematica Policy Research, Inc., April
     1991). 

  -- Laura Green Knapp and Terry G.  Seaks, "An Analysis of the
     Probability of Default on Federally Guaranteed Student Loans,"
     The Review of Economics and Statistics, August 1992. 

  -- J.  Fredericks Volkwein and Bruce P.  Szeiest, "Individual and
     Campus Characteristics Associated with Student Loan Default,"
     Research in Higher Education, Vol.  36, No.  1 (1995). 

These empirical research studies have collectively analyzed student
borrowers from proprietary schools as well as from public and private
2-year and 4-year colleges and universities.  These studies showed
that default behavior was linked more closely to the characteristics
of students rather than schools.  We used these and other related
studies to identify academic preparation (graduation rates, high
school grades, and freshman retention and acceptance rates) and
socioeconomic (parental income, level of education, and marital
status) characteristics of students that are associated with student
loan defaults.  Other studies we used include

  -- Alexander W.  Astin, Lisa Tsui, and Juan Avalos, Degree
     Attainment Rates at American Colleges and Universities:  Effects
     of Race, Gender and Institutional Type, Higher Education
     Research Institute, University of California, Los Angeles,
     September 1996. 

  -- Alexander W.  Astin, The Black Undergraduate:  Current Status
     and Trends in the Characteristics of Freshmen, Higher Education
     Research Institute, University of California, Los Angeles, July
     1990. 

  -- Shirley L.  Mow and Michael T.  Nettles, "Minority Student
     Access to, and Persistence and Performance in, College:  A
     Review of the Trends and Research Literature," Higher Education: 
     Handbook of Theory and Research, Vol.  6 (New York:  Agathon
     Press, 1990). 


   COMPARING STUDENTS AT HBCUS
   WITH THOSE OF ALL COLLEGES AND
   UNIVERSITIES
--------------------------------------------------------- Appendix I:2

To determine how these academic preparation and socioeconomic
characteristics of students enrolled at HBCUs compared with those of
students at all colleges and universities, we reviewed the literature
and identified one research study that reported academic and
socioeconomic information by type of school.  This information
(except graduation rates) came from The American Freshman:  National
Norms for Fall 1996, a longitudinal study consisting of an annual
survey published by the Higher Education Research Institute,
University of California, Los Angeles.  Statistics on remedial work
were obtained from the prior year's survey, which was the most recent
data available at the time we performed our analysis. 

The fall 1996 freshman survey was based on a sample of 251,232
first-time, full-time students at 494 colleges and universities.  The
respondents were students enrolled full-time who either graduated
from high school in the same year as entering college or had no
previous college experience.  These students were enrolled in the
following 494 public and private colleges and universities: 

  -- 14 4-year HBCUs,

  -- 50 2-year colleges that offered associate's degrees or were
     known as "terminal vocational" colleges,

  -- 363 4-year colleges that offered postbaccalaureate programs but
     did not award a sufficient number of earned doctoral degrees to
     be classified as universities, and

  -- 67 universities that granted a certain minimal number of earned
     doctoral degrees. 

Information on 6-year graduation rates, defined as the percentage of
first-time, full-time degree-seeking freshmen who enrolled in fall
1989 and completed their bachelor's degree by fall 1995 at the same
school, primarily came from U.S.  News and World Report's 1996
America's Best Colleges survey.  The 1996 survey was based on the
completion of an extensive questionnaire by more than 1,400
accredited 4-year colleges and universities and represented the tenth
edition of America's Best Colleges.  For the 83 4-year HBCUs
examined, we obtained graduation rates for 82 HBCUs, 77 from U.S. 
News and 5 from the HBCUs directly (1 HBCU did not provide its
graduation rate).\16 Also, for 1,050 4-year non-HBCUs, we obtained
U.S.  News graduation rates in a computerized summary from the
Postsecondary Education Opportunity newsletter.\17 For comparison
purposes, we calculated two average graduation rates, one for HBCUs
and one for non-HBCUs. 


--------------------
\16 Eighty-three HBCUs were included in our analyses.  They were
included in the Department's most current (1993-95 cohorts) Default
Management Division report and had issued or conferred bachelor's
degrees in 1993-94.  Four HBCUs were excluded because they did not
confer bachelor's degrees in 1993-94.  Three were postgraduate
schools with no undergraduate students.  The other had just become an
undergraduate, 4-year school in December 1994. 

\17 Thomas Mortenson, "Actual versus Predicted Institutional
Graduation Rates for 1100 Colleges and Universities," Postsecondary
Education Opportunity, Apr.  1997. 


   COMPARING STUDENTS AMONG LOW-,
   MEDIUM-, AND HIGH-DEFAULT-RATE
   HBCUS
--------------------------------------------------------- Appendix I:3

To determine the extent to which HBCU undergraduate student
characteristics associated with loan defaults differed, we classified
4-year HBCUs as those with low, medium, and high default rates.  To
define these groupings for the 83 HBCUs, we developed a two-part
analysis:  we (1) calculated a 3-year average default rate for each
institution using its 1993-95 cohort rate and (2) used the 3-year
average rate to classify HBCUs as low-default if rates were less than
15 percent, medium-default if rates ranged from equal to or greater
than 15 percent to less than 25 percent, and high-default if equal to
or greater than 25 percent. 

We obtained student characteristics data from (1) Department of
Education records and reports, such as the National Student Loan Data
System, the Free Application for Federal Student Aid database for
academic year 1995-96, and the Integrated Postsecondary Education
Data System surveys on 1995 fall enrollments and on school year
1995-96 institutional characteristics; (2) HBCUs that we contacted,
as needed, to obtain student academic preparation characteristics
missing from other data sources; and (3) U.S.  News & World Report's
1996 America's Best Colleges survey. 


   DEPARTMENT AND HBCU MEASURES TO
   REDUCE STUDENT LOAN DEFAULT
   RATES
--------------------------------------------------------- Appendix I:4

We obtained information on measures the Department of Education has
taken or planned to help HBCUs lower their default rates from federal
regulations, Department publications, and interviews with Department
officials.  We reviewed the Department's Default Management Report
for 1993-95 cohorts to determine the current status of the 33 HBCUs
identified in our earlier report as having the potential to lose
their eligibility to participate in title IV loan programs because of
high default rates. 

To determine the measures HBCUs were taking to reduce their default
rates, we conducted a telephone survey of financial aid
administrators at 26 HBCUs.  Seventeen of these had been among the 33
HBCUs identified in our earlier report as being at risk of losing
their eligibility but had subsequently lowered their default rates
below the statutory level for at least 1 of the 3 1993-95 cohort
years.  Two of these HBCUs did not respond to repeated requests for
an interview.  The financial aid director at another school was on
extended leave and the acting director was reluctant to comment since
he had been on campus only a few weeks.  We also surveyed
administrators at nine HBCUs that had the lowest 3-year average
default rates among HBCUs for the 1993-95 cohorts.  One of these
schools did not respond to repeated requests for an interview. 


   DATA RELIABILITY AND AUDIT
   STANDARDS
--------------------------------------------------------- Appendix I:5

Although we did not validate the reliability of the data derived from
the sources indicated, these data are readily available and the
education community relies on them.  We conducted our review between
June 1997 and January 1998 in accordance with generally accepted
government auditing standards. 


SELECTED ACADEMIC PREPARATION AND
SOCIOECONOMIC BACKGROUND STUDENT
CHARACTERISTICS LINKED TO STUDENT
LOAN DEFAULT
========================================================== Appendix II

From our review of research, we identified and selected academic
preparation and socioeconomic student characteristics that have been
shown to affect student loan default rates and for which data were
available.  In cases in which characteristics data were unavailable,
we judgmentally selected a related characteristic for which data were
readily available as a substitute for the characteristic identified
in the research.  Thus, depending on data availability, the
characteristics used to compare HBCUs and all colleges and
universities differed from those used to compare high- and
low-default-rate HBCUs (see table II.1). 



                                        Table II.1
                         
                         Availability of Data on Characteristics
                           That Research Has Shown to Be Useful
                            Indicators of Student Loan Default

                                                                  Comparison between
                                                             ----------------------------
Student             Characteristic description and relation  HBCUs and     High-and low-
characteristic      to default rates                         all schools   default HBCUs
------------------  ---------------------------------------  ------------  --------------
Academic preparation
-----------------------------------------------------------------------------------------
Average high        Average grade earned in high school: A,  Available\a   Not available
school grade        B, or C. High grade linked to lower
                    default rate.

Remedial education  A noncredit or reduced credit course in  Available\a   Not available
                    higher education designed to increase
                    the student's ability to pursue a
                    course of study leading to a
                    certificate or degree. Little to no
                    remedial education linked to lower
                    default rate.

4-year freshman     Over 4 years (beginning with fall        Not needed    Available\c
retention rate\b    1991), the average percentage of first-
                    time, full-time degree-seeking students
                    that reenrolled in the fall of their
                    sophomore year. A measure of the
                    student's ability to stay in college.
                    High retention rate linked to lower
                    default rate.

1995 freshman       The percentage of first-time, first-     Not needed    Available\c
acceptance rate\b   year applicants who were accepted for
                    admission in fall 1995. An indicator of
                    a school's selectiveness in admitting
                    academically qualified applicants. Low
                    acceptance rate linked to lower default
                    rate.

6-year graduation   The percentage of first-time, degree-    Available\c   Available\c
rate\b              seeking (freshmen) students who
                    completed a bachelor's degree from the
                    same school within 6 years of fall 1989
                    initial enrollment. Shown to be a
                    culmination of good academic
                    preparation. High graduation rate
                    linked to lower default rate.


Socioeconomic background
-----------------------------------------------------------------------------------------
Parents' marital    Married (living together) or not         Available\a   Available\d
status              married (single, divorced, separated,
                    or one or both deceased). Married
                    status linked to lower default rate.

Parents' education  Highest level of education completed by  Available\a   Available\d
                    either parent. Higher level of
                    education linked to lower default rate.

Parents' income     For comparing HBCUs to non-HBCUs,        Available\a   Available\d
                    parents' income is the student's
                    estimate of parents' 1995 total income,
                    before taxes. For comparing high-to
                    low-default HBCUs, parents' income is
                    their adjusted gross income as reported
                    on the 1995-96 school year Free
                    Application for Federal Student Aid.
                    Higher income linked to lower default
                    rate.
-----------------------------------------------------------------------------------------
\a Source:  University of California, Los Angeles, surveys of fall
1995 and 1996 freshmen. 

\b This substitute was used since neither high school grade nor
admissions test score data were available to compare high- and
low-default-rate HBCUs. 

\c Source:  U.S.  News and World Report's 1996 America's Best
Colleges survey. 

\d Source:  Free Application for Federal Student Aid database, school
year 1995-96. 


CARNEGIE SCHOOL CLASSIFICATIONS
========================================================= Appendix III

The Carnegie Foundation for the Advancement of Teaching has developed
a system for classifying, largely based on academic mission, about
3,600 colleges and universities in the United States that are
degree-granting institutions and accredited by an agency recognized
by the Department of Education.  Schools are classified according to
their highest level of offering, the number of degrees conferred by
discipline, and the amount of federal support for research received
by the school, and some categories also rely on the selectivity of
the school's admissions.  Since the classifications reflect levels
and numbers of degrees conferred as well as admissions restrictions,
we consider these classifications to be a substitute for student
academic preparation.  To facilitate making comparisons among the
4-year HBCUs included in our review, we consolidated the various
Carnegie classifications for each HBCU into the following two
categories: 

1.  High Carnegie School Classification.  Schools we describe as
having higher degree levels or being more admissions restrictive and
that had one of the following Carnegie classifications: 

  -- Research Universities I:  giving high priority to research,
     awarding 50 or more doctoral degrees each year, and receiving
     annually $40 million or more in federal support. 

  -- Doctoral Universities I:  awarding at least 40 doctoral degrees
     annually in five or more disciplines. 

  -- Doctoral Universities II:  awarding annually at least 10
     doctoral degrees in three or more disciplines or 20 or more
     doctoral degrees in one or more disciplines. 

  -- Master's (Comprehensive) Universities and Colleges I:  awarding
     40 or more master's degrees annually in three or more
     disciplines. 

  -- Master's (Comprehensive) Universities and Colleges II:  awarding
     20 or more master's degrees annually in one or more disciplines. 

  -- Baccalaureate (Liberal Arts) Colleges I:  awarding 40 percent or
     more of their baccalaureate degrees in liberal arts fields and
     being restrictive in admissions. 

2.  Low Carnegie School Classification.  Schools we describe as
having fewer liberal arts degrees, being less admissions restrictive,
or being specialized and that had one of the following Carnegie
classifications: 

  -- Baccalaureate Colleges II:  awarding less than 40 percent of
     their baccalaureate degrees in liberal arts fields or being less
     restrictive in admissions. 

  -- Theological seminaries, Bible colleges, and other institutions
     offering degrees in religion. 

  -- Teachers colleges. 


DEFAULT RATE HISTORY FOR SELECTED
HBCUS
========================================================== Appendix IV

The following table lists the default rate history for 19 HBCUs whose
1988-90 rates exceeded the statutory threshold of 25 percent and
whose rates had fallen below the threshold for the most current
(1993-95) cohort years. 

          Default rate              Default rate
        ----------------          ----------------
                          Averag                    Averag
                          e rate                    e rate
                           1988-                     1993-
HBCU    1988  1989  1990      90  1993  1994  1995      95
------  ----  ----  ----  ------  ----  ----  ----  ------
1       25.3  31.0  30.5   28.93  23.9  21.9  17.0   20.93
2       27.4  30.3  33.1   30.27  21.3  25.0  26.1   24.13
3       33.6  36.1  34.6   34.77  19.6  21.5  20.0   20.37
4       30.4  33.8  30.9   31.70  22.7  17.5  16.8   19.00
5       31.4  34.0  33.1   32.83  23.1  17.8  16.0   18.97
6       33.3  28.0  28.4   29.90  17.1  16.5  17.2   16.93
7       33.1  34.5  37.3   34.97  17.9  29.9  31.9   26.57
8       26.8  32.4  31.1   30.10  21.8  19.0  23.9   21.57
9       31.2  33.0  28.4   30.87  18.7  17.5  27.4   21.20
10      32.3  39.3  33.6   35.07  19.9  17.9  14.0   17.27
11      31.7  39.2  36.9   35.93  23.6  22.8  25.3   23.90
12      35.5  31.7  32.3   33.17  24.8  29.4  28.2   27.47
13      38.3  45.7  40.1   41.37  27.8  15.0  16.4   19.73
14      25.2  31.2  33.9   30.10  25.5  23.8  24.1   24.47
15      33.1  29.0  28.9   30.33  25.7  12.2  19.3   19.07
16      45.7  48.8  53.3   49.27  38.1  39.4   7.7   28.40
17      29.8  29.0  37.7   32.17  30.9  26.7  17.6   25.07
18\a    30.3  27.8  31.6   29.90   0.0   0.0   0.0    0.00
19\b    49.1  48.1  48.9   48.70  23.5  14.3   0.0   12.60
----------------------------------------------------------
\a The 1988-90 default rates for this HBCU are based on average rate
calculations required for schools that have fewer than 30 borrowers
entering repayment in a cohort year.  The Department reported default
rates of zero for the 1993-95 cohorts. 

\b The 1990 and 1993-95 default rates for this HBCU were also based
on average rate calculations. 


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