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May 04, 1979 - Image 8

Resource type:
Michigan Daily, 1979-05-04

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Page 8 Friday, May4, 1979-The Michigan Daily
State budget safe from loan defaults

(Continued from Page 1)
applicable only to the new Direct
Student Loan program, which is just a
part of the entire Guaranteed Student
Loan program.
The state of Michigan has always
been reimbursed for 100 per cent of the
defaulted guaranteed loans because the
state default rate for the entire Guaran-
teed Student Loan program has never
exceeded five per cent, according to
Patrick Cummings, director of Loans in
the Michigan Education Assistance
Authority.-This state agency protects
creditors who make loans to students.
The Direct Student Loan program is
"like a bank within the guaranteed
student loan program," said Tryon.
Through this program, the state can
loan directly to the student, similar to a
bank or credit union.
TRYON ATTRIBUTED the high rate
of delinquency to the fact that the direct
loan plan is so new. "You expect a high
delinquency rate (with a new
program)," he said.
The state is reimbursed by the
federal government if the total default
rate is five per cent or less, according to
a sliding scale that has been in effect
since 1976, said Cummings. The state
would receive only 90 per cent of the
default total if the rate were between
fivand nine per cent.
Since the guaranteed student loan
program began in 1962, a gross total of
$13.5 million of loans has been defaulted
by delinquency. Not included is default
because of death, illness, or bankrup-
tcy, according to Cummings.
THE DELINQUENCY rate is about
8.1 per cent of the total amount guaran-
teed by the state, as of April 13, 1979.
This figure has "remained relatively
constant between eight and nine per
cent for the past several years," said
About $1.4 million of the gross total
has been collected from delinquent
borrowers, he added.
The Univesity has been the source of
guaranteed loans for 1,635 students sin-
ce 1976. As of June 30, 1978, $6.9 million
of the loans were still outstanding, ac-
cording to Rob Barbrett, supervisor in
the University accounting department.
However, this total includes loans made

a.......~ v v !

to students still enrolled in the Univer-
A TOTAL OF 44 University students
have defaulted on loans and their ac-
counts were turned over to the state for
further collection efforts, said Bar-
"On guaranteed loans we have rather
energetic follow-ups on all borrowers."
The accounts are turned over to the
state only after the University has tried
to collect.
Cummings detailed the steps taken
by the state .to collect on delinquent
payments. He called the first step "pre-
claims work." The state arranges a

meeting between the borrower and the
lender to arrange payment.
IF THE FINANCER cannot collect
payment, the state "buys" the loan and
"normal collection practices" are
followed, said Cummings. The
delinquent borrowers are sent letters
and called.
Because of these efforts, "About one
half of the borrowers get into
repayment programs," estimated
Borrowers are traced through in-
come tax files and Secretary of State
drives license records.
When these efforts do not produce

payment, the delinquent account is
transferred to the state Department of
Treasury, which has the power to sub-
poena. "Any money coming from the
state (such as income tax refunds)
... is pulled and applied to student loan
accounts," explained Cummings.
A bonded collection agency, hired by
the state, tried to trace and collect from
the defaulters who move out of the state
without repaying loans.
Despite the program of default,
Cummings viewed the program
positively. He noted that "79.9 per cent
of those who have received guaranteed
student loans have paid or are in the
process of paying back."

Daily Photo by LISA UDELSON
Reflections of State Street in the windows of Jason's caught the eye of this passerby Wednesday afternoon.

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