THE WHITE HOUSE

Office of the Press Secretary

                    THE CLINTON-GORE ADMINISTRATION: 
                   CUTTING STUDENT LOAN DEFAULTS AND
             OPENING THE DOORS OF COLLEGE FOR ALL AMERICANS

                             October 2, 2000

Today, President Clinton will announce that the national student loan default rate is 6.9 percent -- the lowest rate ever and one-third the 22.4 percent rate when he took office. Lower default rates and better loan collections have saved taxpayers more than $14 billion since the start of this Administration. In addition, other student loan reforms have saved taxpayers $4 billion and students $9 billion, for a total of $27 billion in savings since 1993. President Clinton will call on Congress to expand access to college by enacting his proposals to create the College Opportunity Tax Cut and to expand the GEAR UP program for at-risk youth. Finally, he will insist on investing in the rest of America's education priorities to improve our schools and prepare more children for college: modernized schools, smaller class sizes, a qualified teacher in every classroom, more after-school learning opportunities, and accountability for fixing failing schools.

THE LOWEST STUDENT LOAN DEFAULT RATE EVER. President Clinton inherited the highest student loan default rate ever, 22.4 percent. Under this Administration the rate has declined for eight straight years to 8.8 percent last year and 6.9 percent this year. (About one-half of this year?s 1.9 percentage-point decrease is due to implementation of a 1998 law that changed the definition of a default from 180 days without a payment to 270 days without a payment.) Even as the default rate decreased, collections on defaulted loans have tripled under this Administration, from $1 billion in 1993 to $4 billion last year.

• The student loan cohort default rate is the percent of borrowers who default within their first two years of repayment. For instance the rate announced today is the percent of borrowers who began repaying their loans during fiscal year 1998 and defaulted before the end of fiscal year 1999.
• The decreases in student loan defaults over the past eight years are due to the strong economy; more scholarship aid and tax credits for college; more affordable student loans and flexible repayment plans; efforts by the U.S. Department of Education, lenders, and schools efforts to better educate borrowers about their responsibilities; and the Department's removal of unscrupulous schools from the program under new authority from Congress.
• The default rate is 6.6 percent for direct loan borrowers and 6.7 percent for guaranteed loan borrowers. (These figures are lower than the overall rate because students who borrowed from both programs are less likely to default.)
• The default rate includes the nearly 7,000 schools in the direct and guaranteed student loan programs. For the third year in a row, the default rates have declined for every type of institution: public and private, both four-year and two-year institutions, and for-profit schools with programs of all durations.

EIGHT YEARS OF STUDENT LOAN REFORM. Today's announcement builds on eight years of effort to reform the student loan program and create more opportunities for college. Students have saved $9 billion: $5 billion through lower interest rates and $4 billion through lower fees. Taxpayers have saved $18 billion: $7 billion by preventing defaults, $7 billion by better collecting on loans that do default, and $4 billion by making loans through the cheaper Direct Student Loan program. The Clinton-Gore record includes:

• MORE AFFORDABLE LOANS. In its first budget in 1993, the Clinton-Gore Administration reduced student loan fees from a maximum of 8 percent to 4 percent. Student loan interest rates were reduced in 1993 and again in 1998. The Direct Student Loan program charges a 3 percent fee and offers an interest rebate equal to 1.5 percent of the loan principal. Many guaranteed lenders also offer student discounts. All told, students today can save up to $1,300 in interest and fees over the life of a $10,000 loan, compared to the cost of that loan in 1992.
• THE DIRECT STUDENT LOAN REVOLUTION. The Direct Student Loan program has helped more than 5 million students pay for college since it was founded in 1994. It gives students and schools an alternative to traditional guaranteed student loans, injecting healthy competition into the marketplace.
  • Direct student loans help students quickly, simply, and cheaply. The program applies free-market principles by raising capital efficiently through U.S. bond sales and making loans through competitively awarded, performance-based contracts with private firms. It has saved taxpayers over $4 billion by eliminating complex and costly subsidies to banks and state guaranty agencies.
  • Over 1,200 schools have chosen to join Direct Lending. It makes about one-third of new federal student loans.
  • A sliding scale that allows graduates to adjust their monthly repayments depending on their income, as well as other flexible repayment options, allow them to undertake public service careers without fear of being unable to repay their loans.
• AFFORDABLE LOAN REFINANCING. Direct Consolidation Loans allow students to combine and refinance their student loans. By consolidating their loans, borrowers can make only one payment each month, reduce the size of their monthly payments, and extend the amount of time they have to repay the loan, making their debt more manageable. On August 10, 2000, President Clinton announced that students who consolidate their loans with the Direct Student Loan program will receive a new interest rate that is 0.8 percentage points lower than what they currently pay, saving a student with $10,000 in loans over $500. The lower rate was implemented yesterday (October 1) and will apply to loans consolidated before September 30, 2001. Students must make their first 12 payments on time to keep this benefit.
• DOUBLING STUDENT AID. Students will receive nearly $60 billion in federal grants, loans, and tax credits this year, up from $25 billion in 1993. The new Hope Scholarship tax credit provides up to $1,500 in tax relief for the first two years of college and the Lifetime Learning credit provides up to $1,000 for juniors and seniors, graduate students, and adults seeking job training. Together, they will save up to 10 million American families up to $7 billion this year. Over 3.8 million needy students receive a Pell Grant scholarship of up to $3,300, a $1,000 larger maximum grant than in 1993. To help disadvantaged youth prepare for and succeed in college, over the past eight years the TRIO programs have grown by two-thirds and the new GEAR UP initiative has been established.

CALLING ON CONGRESS TO INVEST IN AMERICA'S EDUCATION PRIORITIES. In February, the Clinton-Gore Administration sent Congress a balanced and fiscally responsible budget that makes investments in key education initiatives. As of today, the Republican Congress has completed only two of 13 spending bills and is now neglecting America's priorities and loading spending bills with election-year, earmarked projects for special interests. The Republican budget provides:

• $0 guaranteed for urgent school repairs, $1.3 billion below the President's budget. The Republican plan could deny much-needed renovations to up to 5,000 schools;
• $0 in new School Modernization Bonds, while the President's budget would pay for $25 billion in bonds. The Republican plan would prevent the modernization and construction of 6,000 schools;
• $0 guaranteed for class-size reduction, $1.75 billion below the President's budget. The Republican plan fails to ensure that school districts can hire 20,000 new teachers and support the 29,000 teachers already hired under the Class Size Reduction initiative, potentially denying smaller classes to 2.9 million children;
• $600 million for after-school programs, $400 million below the President's budget. The Republican plan would deny safe extended learning environments to 1.6 million children by supporting 3,100 fewer centers in 900 fewer communities than the President's budget would;
• $437 million for the President's plan to improve teacher quality, $527 million below the President's budget. The Republican plan would fail to fully fund support for teacher professional development, recruitment, and rewards, and would not help ensure a qualified teacher in every classroom;
• $0 for the Accountability Fund, $250 million below the President's budget. The Republican plan would deny resources to states and school districts to help turn around low-performing schools;
• $0 for the College Opportunity Tax Cut, $36 billion over ten years below the President's budget. The College Opportunity Tax Cut would make college more affordable by allowing families to claim either a tax deduction or 28-percent tax credit on up to $10,000 in tuition, saving each family up to $2,800 (when fully phased-in in 2003). The tax cut could be claimed on tuition for college, graduate school, or job-related training; and
• $200 million for GEAR UP, a freeze at this year's level and $125 million below the President's budget. The Republican plan would not only stop the Department from establishing 147 new GEAR UP programs next year, but would also require existing programs to scrap plans to help 250,000 more 6th- and 7th-graders next year.

Today, the President will again urge Congress to fully enact his education budget proposals by investing more in our schools and demanding more from them to ensure our children receive the high-quality education they deserve.

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