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Office of the Press Secretary

For Immediate Release January 9, 1997
                             PRESS BRIEFING
                            The Briefing Room

10:54 A.M. EST

MS. GLYNN: Secretary of Education Riley is here to answer your questions on the student loan default rate. We are also bringing in the six students who were in the Oval Office so that you can ask them questions afterwards; they're going to be right along here.

Secretary Riley?

SECRETARY RILEY: Thank you. Since I arrived at the Department of Education, it was clear to me that the nation's student loan default problem was very serious, and it was one of my priorities. I'm so pleased to have David Longanecker, who is my Assistant Secretary for Higher Education; Betsy Hicks, who heads up student financial aid. You all want to come around in case they've got technical questions so you can be available?

But I'll say this, that we have used every tool that's been made available to us to slash default rate, save taxpayers hundreds of millions of dollars working on the collection side. The combination of those two things is very interesting. Slashing the default rates has a clear impact, and then increasing collections --it's a double impact which makes quite a difference.

Today's announcement shows it's paying off. The Fiscal Year '94 default rate was 10.7 percent, that's the most recent number, compared, then, to the all-time high of 22.4 percent -- 22.4 percent, down to 10.7 percent. These numbers offer a great example of this administration's commitment, I think, to reinventing government to show that it's not just talk, but it really is an effort to make things work better. You heard the details in the Oval Office; the debt collections is part of it that I think is another feature that was not much said about, but David and Betsy can elaborate on any of those specifics.

The numbers themselves of the various schools on defaults, we have -- do you all have those -- Rick Miller has those. So any questions we would be happy to respond to, and I'm so proud of these students as examples of what really is great about this country's future, as the President has said.

Now, any questions? Yes.

Q Hi. I have a question. In the list of institutions that could lose their eligibility for grant and loan programs from the Fiscal '94 numbers, there are many that repeated from the Fiscal '93 numbers; I was just going through the lists -- especially in the college area, not so much looking at the trade schools. Why is that? I mean, why, if they could have been eliminated last year, is there -- why are some of the same schools coming up again?

SECRETARY RILEY: You know, it's a three-year situation. You have to be -- default rates in excess of 25 percent for three straight years. That's the congressional formula, as you know. And so, if it hadn't been three years, and of course, they wouldn't -- you're saying some that have been three years, and --

Q Already as of last year could have lost their eligibility because of the three years and they are on the list again.

ASSISTANT SECRETARY LONGANECKER: If I might address that. Of the 329 that are affected by the three years over 25 -- about 221 of those, in fact, are repeats from the past. And 108 are new -- essentially institutions that are, for the first time, facing the probability of losing eligibility to be in the Student Loan Programs.

The reason for that is, we continue to follow and track schools, and that extends the period of time that they can be out of the FFEL program. Keep in mind, the three years only excludes them from the student loan programs, not from all student financial assistance programs, so we continue to track the progress of those institutions, and that simply extends the amount of time that they have to be out.

A few of those also have pending appeals, and so they are still remaining eligible until those are done, although we have, for all practical purposes, completed all of the appeals that had been pending before us. There are a few that -- a very small number that are still outstanding.

Now, these institutions all will have the opportunity again to appeal their rate, so it's not -- after the appeal, it's true that most institutions do not prevail, but at least they have due process rights.

Q Mr. Secretary, when you say this is the lowest point in program history, what are you dating it from? When did the program start?

ASSISTANT SECRETARY LONGANECKER: The program began in 1965. This is the lowest in history since we have been recording a cohort default rate, which was a function of the law that began, I believe, in 1986.

Q And is there a total figure of money that's been defaulted on that you can report, that still has yet to be paid back?

SECRETARY RILEY: Total outstanding in default?

ASSISTANT SECRETARY LONGANECKER: There is -- I don't know that number. I'm sorry, but I -- but we can provide that to you.

Q Is there a percentage that you expect never to get back --

ASSISTANT SECRETARY LONGANECKER: Certainly -- some students default for a variety of reasons, and there is both death and disability in default; we don't expect to retrieve the death and disability pieces, obviously. Any loan program will have some loans that you don't collect on. We do the best we can to make sure that we collect every dollar that can be collected. We pursue defaulted loans with a vengeance, and so we work pretty hard to make sure that students who haven't repaid their loans, do. We use collection agencies. We use offset of federal tax returns. We garnishee the wages. We use a variety of different techniques. So we're doing everything we can to make sure that students repay the loans on which they default.

SECRETARY RILEY: And I think that's an important part, is the tools that are available -- the refunds which are due people under IRS is a tool. The garnishing of wages in some states; the guarantee agencies also are working in the same regard. So we're all working for collections. So just because you have a default out there, that's a very serious indication of a lot of things, but we do go after that and it's not over as far as we're concerned. And that's what this increased collections number, why it's so important.

Q Mr. Secretary, when the Higher Education Act is reauthorized, are you going to be looking for more of these tools to help increase your powers?

SECRETARY RILEY: Well, as you know, we are -- that's going to be a lengthy process. We've already had hearings, six regional hearings where we have invited people connected with higher education in every regard and the general public to come in and talk to us about those issues dealing with the reauthorization of higher education. That's a very important measure to be considered. It will be probably '98 before it's completed. And I don't think we're in a position to say exactly what we're going to recommend at this time, but we are inviting all kind of input from the schools, from students, from everyone so that we can be prepared -- issues like that when we do get into it.

We'll be sending probably our proposal over in -- what -- April, something -- probably around April, so it's really a little early for us to say. But it will be an issue, certainly, we'll be looking at.

Q On the proposed $1,500 education tax credit and as that might relate to IRS enforceability of it -- there is some concern that, given the B average involved and Pell Grant offsets, that it might be difficult for the IRS to enforce such a measure. And also, the timing of such a credit, if those that are most in need are in a financial position to take a credit might not be able to wait until April for a refund. So how would that be addressed?

SECRETARY RILEY: I think -- and you bring out some points I think all of us ought to be interested in, and that is we're looking at doing things differently. The old idea of passing a program in terms of education and then funding it really is not available if we are serious about deficit reduction. So we really don't have those options.

And I think the President's idea then to use the tax code and the middle-income tax cuts and tax relief and targeting it for education through the HOPE Scholarship, the $10,000 tax deduction, it's a new way of doing things. And it brings in points then just like those you mentioned. It involves the Department of Education and the Department of Treasury. So we do have to work with them to try to make those things work out.

Now, the B average, I think, makes real good sense. It's a wonderful principle to say that every child in this country that finishes high school is going to get a shot at college. You've got a $1,500 tax credit to go to your community college, which will cover it, and live at home, and you can have that option. That's a great mind set for young people. Everybody has a shot at college.

Then, if you have that shot, you've got to work hard and make a B average. Then you have the question of a B average here as opposed to a B average there, and how that's going to be supervised. It's our understanding, talking with the people in Georgia, that that has not caused grade inflation. It has served a very useful purpose of incentives for young people to work hard and strive to make a B average.

But again, all of those issues -- that's part of the President's proposal, but we are now working through the details of how to make all of that fit. And there is going to be some things that we will have to work out.

Q What about timing? Is there any way of doing like an advance credit like you do with advanced -- the Earned Income Tax Credit.

SECRETARY RILEY: That, I guess, would have to be considered on a university basis as far as -- and that's a very good point, that the money would not be available at the beginning of the year. There are some good parts of that, though. One of the good parts is, by the time January and February comes around you know that this is a serious student and not just someone who is applying just because it's available. But one of the complications will be, is the student who has no funds and it's a tuition time at a community college, and this money won't be available until February or January -- what do you do about that? I presume that would be kind of something that the various schools would work out, David.

ASSISTANT SECRETARY LONGANECKER: And I think it's important to keep in mind the HOPE scholarship is part of an overall financial aid scheme of ours -- overall plan of which Pell Grants are an extremely important part. Pell Grants are the best way to help the most needy students, and we've had a very aggressive position with respect to that, and we will continue to. And if we're lucky, that may even get more aggressive.

But the tax credits are an extremely effective mechanism for the middle class, and the Pell Grants are an extremely effective mechanism for the most needy students. And the combination of those is really what we think comes together as a really solid, integrated package.

SECRETARY RILEY: But I do think you're going to see some innovative things come in. I think you'll see some community colleges that would say, here's a student that qualifies for this tax credit, and work out some arrangement with them to hold off payment. But that generally would probably be between the school and the student.

Q How has the total number of students participating in the programs changed over the last four years? And do you have any numbers on what proportion of total tuition assistance is federal, that is, whether these students are becoming more or less dependent on the federal assistance?

SECRETARY RILEY: Well, the general number that I use on what part of overall assistance comes from the federal government is around 75 percent, and that is a very significant part of that issue. Now, the other number, the total number -- did you have a --

ASSISTANT SECRETARY LONGANECKER: Total dollars today that we're providing is somewhat over $30 billion, closer to $40 billion in loans, grants, work study at the federal level.

Actually, you have to look within those packages, though, to get the full story. We are a larger share of the total dollars today, but we're a smaller share of the grant dollars. And the federal government hasn't really kept pace in grant assistance, which has forced many institutions to divert a share of their resources to grants for the most needy students.

We've had very substantial growth in our loan programs in recent years. We currently, this coming year, will provide about $30 billion in student loan funds, and that's --

Q Is it serving more students or fewer students?

ASSISTANT SECRETARY LONGANECKER: Oh, far more students, far more. The 1992 amendments to the Higher Education Act expanded eligibility for student loans substantially, and so we have both students on average borrowing more and more students borrowing as a result of that.

MS. GLYNN: Let's make this the last question.

Q You've been very forthright in saying that the tax credit, the HOPE Scholarship, is really a program for the middle class and Pell Grants for the neediest. But I think a lot of higher ed people have sort of been frustrated, because it seems that the President is still selling the tax credit as an access program. Today, he said the fact is, there are some people who want to go to college who can't do this, and we believe that the HOPE Scholarship tax credit can help them. Where's the -- there seems to be a bit of a discrepancy.

SECRETARY RILEY: I think that's an interesting question because some people are asking that question -- you know, how many more students is this going to mean go to college. You do have Pell Grants for the very poor, and you have other programs. And, of course, you've got work study for all of these students available and other things -- the TRIO programs and things that really make quite a difference. A great portion of American students wouldn't get the chance to go to college if it wasn't for these programs.

Now, when you take the HOPE Scholarship, which picks up after Pell and in the middle income range, you say, well, how many more of those students are going? Some. You know, I'm not saying that it is an enormous amount, but I will say this, that hundreds of thousands of those students that are now struggling to go to school that are borrowing money that they can't hardly afford to pay back, their families are struggling and straining, they're in this anxious class, this middle income group that, in terms of college education is like being poor.

So I think the whole dynamics have changed. This middle income group, while they might scrape and twist and turn and be working jobs all night long and trying to go to school, this is going to be an enormous help to them, and it'll increase the numbers having access, certainly, but a great part of it, as I see it, in addition to that, is that a great number of students who are going and can hardly make it, and it's going to really make their college experience a lot more meaningful.

Why don't we take one more, and then you have a question, I know.

Q Mr. Secretary, broadly speaking, the President has said, or indicated strongly, that education will be perhaps the top legislative priority this year. Do you see education as a top priority for the Republican Majority in Congress. What's your outlook for actually getting some of these new initiatives through the Republican Congress?

SECRETARY RILEY: Well, I think a lot of those issues were debated in a general way during the campaign. And I think the campaign clearly, to me, said that the American people put education as a top priority.

So I think, while the President made it a top priority in the campaign, I think the American people are saying the same thing. They don't want money wasted. They don't want money thrown at anything. They want it carefully thought out, just like this program we're talking about today is something the American people would like -- picking up money by careful control and management.

But I do think it is very clearly the priority of the American people and I think that will be reflected in the Congress at the end of the session, as the President pointed out a minute ago. The response was very positive. And so coming out of the session it was very positive. We hope that same feeling of positive support for education will be there when we go back in, and I have every reason to hope that it will.

I've met with the Democratic and Republican leadership in the House, in education, and talked about the future and hopefully that we could all work closely together and I'll meet with the Senators very soon.

Thank you very much.

END 11:15 A.M. EST