President Clinton offered a simple message today: It pays to pay those student loans on time.
At a round-table discussion at DePaul University, Clinton announced a plan to give lower interest rates to college students who make their first 12 loan payments promptly, a move that would save them and their parents roughly $600 million over the next five years.
Clinton was making the changes through an order to the Education Department. He does not need approval from Congress.
“I think helping people go to college is number one,” Clinton said. “If I didn’t have a chance to go, I wouldn’t be here today.”
Deepening the Commitment “These new steps reflect the president’s long-standing commitment to making college more affordable for both students and parents, and to ensuring that college debt is not a barrier to community service,” White House spokesman Elliot Diringer said.
In the Clinton administration’s first budget, in 1993, student loan fees were reduced to 4 percent from a maximum of 8 percent. Student loan interest rates were reduced in 1993 and 1998.
Last year, the administration reduced direct loan fees to 3 percent.
Lower Fees and Rates Under the new plan, students and parents borrowing direct student loans will receive an immediate interest rebate equal to 1.5 percent of the loan. More than 1.7 million students a year will receive the rebate when they borrow, beginning in the 2000-2001 academic year.
Students and parents must make their first 12 payments on time to keep the benefit. With the rebate, the average undergraduate could save $150 on $10,000 in loans — the average loan amount held by undergraduates.
“You don’t have to be a math teacher to know that’s pretty good arithmetic,” Clinton said.
Lending a Hand to Teachers He also announced a loan forgiveness effort for college students who decide to teach at schools in needy urban or rural areas. The new rule would forgive up to $5,000 in loans to borrowers after they have taught for five consecutive years. “They will be paying it back by teaching our kids. This is an assignment we cannot afford to fail,” Clinton said. “I think it is a tiny investment for the rest of us as a nation to make.”
The new benefit, which will take effect six months after Clinton leaves office next year, will only apply to new teachers. Those with loans taken out before Oct. 1, 1998 are not eligible. Studies indicate that good payment habits in the first year help keep students on pace to repay their loans on time. Students who make their first 12 payments on time are three times more likely to pay the entire loan back than other borrowers.
A government report last fall found defaults on federal loans to students were their lowest in more than a decade of tracking: 8.8 percent in fiscal 1997, down from 9.6 percent the year before. The loans go to students at more than 7,000 vocational schools, college and universities.
The most recent data available show federal student loans in 1999 totaled $42.9 billion.
Students often take out a combination of federal and private loans to get through college and advanced schooling.
Four years after receiving their college diplomas, only 16 percent of student borrowers were debt-free, a new federal study of 1993 graduates has found. About half of those surveyed — 51 percent — incurred debt averaging $10,000 each. The debt averaged $66,200
The Associated Press and Reuters contributed to this report.