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| THE CLINTON-GORE ADMINISTRATION: CUTTING STUDENT LOAN DEFAULTS AND |
| OPENING THE DOORS OF COLLEGE FOR ALL AMERICANS |
| October 2, 2000 |
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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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