Private school battles government over loans

Rachael Levy

Monday, Oct. 7, 1996 | 11:59 a.m.

The Las Vegas vocational school Education Dynamics Institute is teaching one-third of its students for free as it fights to regain its federal student loans, its owner said.

The Department of Education stopped the flow of cash in mid-September when it ruled that too many of the school's students failed to pay off their federal loans.

Federal officials said Education Dynamics Institute's default rate was about 30 percent for school years 1991 to 1993. Several years ago, Congress ordered the Education Department to cut off student loans to schools whose default rate was more than 25 percent.

The private school's owner, Michael Dawson, sued the Education Department last week. He contends the government wrongly calculated the figures and the correct default rate is around 22 percent.

Dawson asked U.S. District Judge Philip Pro to temporarily force federal officials to continue to pay the loans while the case is reviewed. Pro is expected to rule on the issue early this week.

Meanwhile, the 120 students who attend Education Dynamics Institute with the help of federal loans and grants are continuing to go to class. The school, with a population of 375 students, trains Las Vegans in the areas of electricity, business, drafting, air conditioning and medicine.

"We believe so confidently in the success (of the lawsuit) that we are teaching them without payment," Dawson said. "We are right. The government is wrong."

Dawson is facing a similar problem at his San Diego school, Edutek, where 90 of its students receive federal aid. The lawsuit was filed by the parent companies of Edutek and Education Dynamic Institute -- ABC Career Training Inc. and Career Training of Nevada Inc. respectively.

Government officials stand by their calculation, which has been reviewed through the Education Department's internal appeal process. Education Department attorney James Gette maintains that Congress has exempted federal courts from intervening on the default loan issue.

Unpaid student loans became a controversial issue in the 1980s and early '90s, when Congress learned that the abuse forced taxpayers to pay for "billions of dollars of losses in defaulted loans," Gette wrote in court papers.

Gette said that from 1983 to 1989 loan defaults increased by 338 percent, four times greater than the increase in loan volume.

Congress concluded that the schools were partially responsible for the high default rates. It passed a law prohibiting schools with large numbers of unpaid loans from participating in the Federal Family Education Loan Programs.

Education Dynamics Institute was aware that it was skirting dangerously close to the 25 percent default mark and in 1993 hired a person to work solely with students and their loan problems, Dawson said.

When a student would become delinquent, the school's default loan manager would remind him of the past-due payment, Dawson said. And when an extension was needed, the loan manager would assist the student in receiving one, he said.

Dawson's attorney, Peter Leyton, said the blame should not be squarely on the school's shoulders, but should be shared with lenders for failing to properly collect the loans.

Leyton said if the school does not get the influx of student loans -- which make up a large portion of its budget -- it may be forced to close after Oct. 15.

"The owner of these institutions has no intention of asking his employees to work without pay after that date," Leyton told the judge.

An estimated 88 percent of Education Dynamics Institute graduates obtain jobs in the fields they are trained in, school officials said. The graduation rate is 74 percent. The school is at 701 N. Rancho Drive.