THE SECRETARY OF EDUCATION WASHINGTON, D.C. 20202

January 27, 2000

Honorable William H. Gray, III
President and Chief Executive Officer
The College Fund
8260 Willow Oaks Corporate Drive
P.O. Box 10444
Fairfax, Virginia 22031-4511

Dear Bill:

Thank you for your letter regarding the implications for Historically Black Colleges and Universities (HBCUs) of certain changes to the cohort default rate provisions in the Higher Education Act. As you point out, before the Higher Education Amendments of 1998, HBCUs were exempt from the consequences of excessive cohort default rates. The amendments remove the exemption entirely beginning on July 1, 2002. Between July 1, 1999, and July 1, 2002, schools remain eligible despite high cohort default rates if they (1) submit an acceptable cohort default rate plan to the Department; (2) engage an independent third party to provide technical assistance; and (3) provide evidence of improvement and successful implementation of the plan. I understand that these changes may affect several members of your organization because of cohort default rates that are at or above the 25% threshold.

The members of your organization play a vital role in higher education in this country. Access to education is a cornerstone of the mission of the Department of Education, and I recognize the important role that your members play in providing access for students who might not otherwise enroll in higher education. Like you, we hope that no HBCUs will lose eligibility to participate in the student financial assistance programs because of excessive cohort default rates.

Nonetheless, we know that defaults can be devastating for students. Defaults leave a blemish on the borrower's credit history that is often difficult, if not impossible, to overcome. The Department is committed to protecting students from defaults and the negative consequences that can result.

The Department, like your organization, supports the requirement that HBCUs adhere to cohort default rate standards and the effort to bring default rates at all HBCUs down to a reasonable level. I am pleased that members of your organization and other HBCUs have been working closely with the Department to develop plans that will result in fewer

Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.

Honorable William H. Gray, III -- Page 2

defaults at these institutions. I believe that together we can help many students by reducing cohort default rates.

While I support the requirement that HBCUs come into full compliance with the cohort default rate standards, I recognize that it may be difficult for HBCUs to reach full compliance by July 1, 2002, the time frame established by the Higher Education Amendments of 1998.

As you know, on July 1, 2002, eligibility determinations will be based upon the fiscal year (FY) 97, 98, and 99 cohort default rates. HBCUs will have only a very limited opportunity to reduce these rates.

• The FY 97 cohort default rate is based upon students who entered repayment on or before September 30, 1997, and defaulted on or before September 30, 1998. All events that formed the basis of the FY 97 cohort default rate had already been completed before the passage of the Higher Education Amendments of 1998 on October 7, 1998.
• The FY 98 cohort default rate is based upon students who entered repayment on or before September 30, 1998, and defaulted on or before September 30, 1999. Since the default reduction plans required by the 1998 amendments were not due until July 1, 1999, HBCUs had only three months to reduce their FY 98 cohort default rate based upon the plans required by the amendments.
• Finally, many of the core default prevention measures developed by the Department and the higher education community through negotiated rulemaking require activity prior to the borrower's entering repayment. Borrowers included in the FY 99 cohort default rate entered repayment between October 1, 1998, and September 30, 1999. Again, HBCUs had only three months to work with even a handful of these students before they entered repayment.

In view of these facts, the Department is prepared to work with you and Congress to arrive at a mutually agreeable proposal that would provide an appropriate extension of the effective date for full implementation of the cohort default rate standards for HBCUs. This would provide HBCUs a reasonable opportunity to lower their cohort default rates before they face a loss of eligibility. I have asked Deputy Assistant Secretary Maureen McLaughlin to contact you to discuss this issue in more detail and hope that your conversations will result in a positive approach that addresses our shared goals of preventing defaults and protecting educational opportunities for students. The training and teamwork that have already begun among the Department, the HBCUs, and several of our financial partners are good first steps. For example, four conferences have been held for the HBCU community in the past year to assist the schools in developing and implementing successful default reduction plans. In addition, the Department will be conducting technical assistance visits to schools that have submitted plans to make sure that the schools are successfully implementing the plans.

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I look forward to our continued collaborative effort as we work toward successful reduction of cohort default rates.

Yours sincerely,

Richard W. Riley