THE CLINTON-GORE ADMINISTRATION: MAKING COLLEGE MORE AFFORDABLE AND ACCESSIBLE FOR AMERICAS FAMILIES
August 10, 2000
Today, President Clinton will announce new steps to make college more affordable for students and parents, and to allow graduates to choose rewarding careers. First, he will announce two new steps by the U.S. Department of Education to lower interest rates on direct student loans for students who meet their responsibilities by repaying their loans on time. These changes will save students and parents $600 million, and save federal taxpayers $5 million, over the next five years. Second, he will announce that the Clinton-Gore Administration is proposing a new rule to ease college debt for teachers in lower-income communities. Finally, he will call on Congress to enact his proposals to strengthen education and make college more affordable, including the College Opportunity Tax Cut, which will especially help middle-class families.
PRESIDENT CLINTON WILL ANNOUNCE TWO STEPS TO LOWER INTEREST RATES ON DIRECT STUDENT LOANS. New incentives will reward students who repay their loans on time. Together with other interest rate and fee reductions since the start of the Clinton-Gore Administration, these incentives will save students as much as $1,300 on $10,000 in loans.
NEW INTEREST REBATE. First, students and parents borrowing direct student loans will receive an immediate interest rebate equal to 1.5 percent of the loan. Over 1.7 million students a year will receive the rebate when they borrow, beginning this academic year (2000-01). Students and parents must make their first 12 payments on time to keep this benefit. The average undergraduate could save $150 on $10,000 in loans. Over a standard ten-year loan, this rebate amounts to an interest rate reduction of 0.24 percentage points per year.
NEW REFINANCING OPPORTUNITY. Second, 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. Over 400,000 students are expected to take advantage of this opportunity. This lower rate will apply to loans consolidated during fiscal year 2001 (October 1, 2000 through September 30, 2001). Students may consolidate a single loan or multiple loans. As with the interest rebate, students must make their first 12 payments on time to keep this benefit.
These new repayment incentives will:
Encourage On-Time Loan Payments. These repayment incentives are designed to encourage students to meet their responsibilities during their first year of repayment. Data show that the first year is critical to a lifetime of good habits: students who make their first 12 payments are only one-fourth as likely to default. At the urging of Rep. Clay and Sen. Harkin, Congress authorized the Direct Student Loan program to offer repayment incentives in 1998.
Save Students Hundreds Of Dollars. By making the first 12 payments on time, the average undergraduate borrower could receive a $150 interest rebate on new loans and save $500 through lower interest on a consolidation loan. The average graduate borrower has $25,000 in loans and could save $375 and $1,250, respectively.
Save Taxpayers Money. The initiative is expected to save the U.S. government $5 million over five years because: 1) more students will repay their loans on time, and; 2) more students will choose to convert their guaranteed loans into direct loans, eliminating federal subsidies for lenders. A similar lower interest rate on consolidation loans in 1998 saved the government over $200 million, even while it saved 340,000 students over $30 million. (Guaranteed student loans are made by private lenders in return for federal subsidies and guarantees against default; direct loans are made by the U.S. Department of Education.)
THE PRESIDENT ALSO WILL PROPOSE A STEP TO EASE COLLEGE DEBT FOR TEACHERS IN HIGH-NEED COMMUNITIES. Today, the U.S. Department of Education will propose a new rule providing loan forgiveness for teachers in lower-income areas that have trouble retaining teachers. The new rule which implements a provision of the Higher Education Amendments of 1998 would forgive up to $5,000 in loans after five consecutive years of teaching in needy schools, at least one of which must have been 1998-99 or later. Through 2003, over 25,000 teachers will receive $122 million in loan forgiveness. Teachers must not have had either: 1) outstanding student loans on October 1, 1998, or 2) outstanding loans when they obtained new loans after October 1, 1998. This policy will help todays students afford college, become teachers in needy areas, and stay for at least five years. The final rule is expected to take effect on July 1, 2001.
Over the next decade, U.S. schools must hire 2 million teachers to accommodate increasing enrollments and the retirement of many veteran teachers. (U.S. Department of Education, Prospectus: The Educational Excellence for All Children Act, 1999)
More than one-fifth of all new teachers leave the profession within their first three years. (Ibid.)
EIGHT YEARS OF STUDENT LOAN REFORM. Todays announcement builds on eight years of effort to reform the student loan program and create more opportunities for college. 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. Last year, the Administration reduced direct loan fees to 3 percent and todays announcement adds an interest rebate equal to 1.5 percent. In addition, the Direct Loan program offers discounts for students who consolidate before entering repayment and who repay electronically. 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 $10,000 in loans, 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 costly bank subsidies.
Over 1,200 schools have chosen to join Direct Lending. It makes about one-third of federal student loans.
A sliding scale allows graduates to adjust their monthly repayments depending on their income, so they can undertake public service careers without fear of being unable to repay their loans.
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 10 million American families $7.3 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, the Clinton-Gore Administration expanded our investment in TRIO programs by two-thirds and created the new GEAR UP initiative.
HALF AS MANY DEFAULTS. Seven years ago, more than 22 percent of borrowers defaulted within two years of entering repayment; that rate has fallen for seven straight years and is now a record-low 8.8 percent. At the same time, collections on defaulted loans have tripled from $1 billion to $3 billion under this Administration.
CALLING ON CONGRESS TO INVEST IN AMERICAS EDUCATION PRIORITIES. In February, the Clinton-Gore Administration sent Congress a balanced and responsible budget that made investments in key education initiatives to expand college opportunity, raise standards, and invest in what works. However, the Republican budget:
Excludes the $36 billion College Opportunity Tax Cut to make college more affordable and accessible. The College Opportunity Tax Cut would allow families to deduct up to $10,000 in tuition from their taxable income, saving them up to $2,800, when it is fully phased-in in 2003.
Denies 600,000 disadvantaged students mentoring, academic support, and preparation for college through GEAR UP.
Ignores the Presidents plan to improve teacher quality through $1 billion for standards-based professional development, teacher recruitment, teacher peer review programs, teacher quality awards, and professional development for early childhood educators. Research shows that teacher quality is a key indicator of student performance.
Fails to strengthen accountability and turn around failing schools, reduce class size, build and modernize 6,000 schools and make emergency repairs to another 25,000, provide after-school learning opportunities to over 1 million children, and help bridge the digital divide.
Meanwhile, the tax cuts passed by the Congress this year would drain more than $900 billion of the surplus. Together with the substantial tax cuts supported by the Congressional Majority, this would return America to deficits and leave no money for key priorities. At the same time, the Congressional budget would cut domestic priorities $28 billion below the President's level, an average cut of 9 percent.
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