Clinton Announces More Affordable Student Loans

Aug. 10, 2000 -- President Clinton offered a simple message today: It pays to pay those student loans on time.

At a round-table discussion at DePaul University, Clintonannounced a plan to give lower interest rates to college studentswho make their first 12 loan payments promptly, a move that wouldsave them and their parents roughly $600 million over the next fiveyears.

Clinton was making the changes through an order to the EducationDepartment. He does not need approval from Congress.

“I think helping people go to college is number one,” Clintonsaid. “If I didn’t have a chance to go, I wouldn’t be heretoday.”

Deepening the Commitment“These new steps reflect the president’s long-standingcommitment to making college more affordable for both studentsand parents, and to ensuring that college debt is not a barrierto community service,” White House spokesman Elliot Diringersaid.

In the Clinton administration’s first budget, in 1993,student loan fees were reduced to 4 percent from a maximum of 8percent. Student loan interest rates were reduced in 1993 and1998.

Last year, the administration reduced direct loan fees to 3percent.

Lower Fees and RatesUnder the new plan, students and parents borrowing directstudent loans will receive an immediate interest rebate equalto 1.5 percent of the loan. More than 1.7 million students ayear will receive the rebate when they borrow, beginning in the2000-2001 academic year.

Students and parents must make their first 12 payments ontime to keep the benefit. With the rebate, the averageundergraduate could save $150 on $10,000 in loans — theaverage loan amount held by undergraduates.

“You don’t have to be a math teacher to know that’s pretty goodarithmetic,” Clinton said.

Lending a Hand to TeachersHe also announced a loan forgiveness effort for college studentswho decide to teach at schools in needy urban or rural areas. Thenew rule would forgive up to $5,000 in loans to borrowers afterthey have taught for five consecutive years.“They will be paying it back by teaching our kids. This is anassignment we cannot afford to fail,” Clinton said. “I think itis a tiny investment for the rest of us as a nation to make.”

The new benefit, which will take effect six months after Clintonleaves office next year, will only apply to new teachers. Thosewith loans taken out before Oct. 1, 1998 are not eligible.Studies indicate that good payment habits in the first year helpkeep students on pace to repay their loans on time. Students whomake their first 12 payments on time are three times more likely topay the entire loan back than other borrowers.

A government report last fall found defaults on federal loans tostudents were their lowest in more than a decade of tracking: 8.8percent in fiscal 1997, down from 9.6 percent the year before. Theloans go to students at more than 7,000 vocational schools, collegeand universities.

The most recent data available show federal student loans in1999 totaled $42.9 billion.

Students often take out a combination of federal and privateloans to get through college and advanced schooling.

Four years after receiving their college diplomas, only 16percent of student borrowers were debt-free, a new federal study of1993 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.