THE CLINTON-GORE ADMINISTRATION:
MAKING COLLEGE MORE AFFORDABLE AND ACCESSIBLE FOR AMERICA'S
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
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
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 today's 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)
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. 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 today's 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.
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 AMERICA'S 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
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 President's 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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