A r c h i v e d  I n f o r m a t i o n

     FOR RELEASE             Contact:  Stephanie Babyak (202) 401-2311      June 5, 1995                         Jane Glickman (202) 401-1307

Student Loan Collections Break Record

Annual collections on loans held by the department more than tripled from Fiscal Year (FY) 1992 to FY 1994, from $144 million to $506 million, and collections for the first seven and a half months of the current fiscal year already are up to $560 million. That rate is expected to remain constant for the rest of the year, making it likely that defaulted loan collections will exceed $800 million by October 1, 1995.

"The extraordinary results can be attributed to management and operational techniques initiated by the Clinton administration to help defaulted borrowers repay their debts," Riley said.

Deputy Education Secretary Madeleine Kunin, who oversees the department's new management initiatives, said some of the department's critics have questioned the department's ability to manage student aid programs. "These numbers show conclusively that the department can protect the taxpayers' investment -- and even exceed our own goals on student loan collections," she said.

Instead of facing the sanctions that accompany a defaulted loan, borrowers now have the option to consolidate their loans and establish a repayment plan that fits their financial situation. The department has directed its collection agencies to focus on these flexible repayment plans -- including one based on income -- when working with borrowers to clear up defaulted loans.

Another department initiative allows borrowers to check their balances and determine the status of their accounts or learn about repayment options through a computerized telephone system, by calling the Debt Collection Customer Service at 1-800- 621-3115.

In addition to increased collections on defaulted loans, the department has collected more than $9 million in interest on unsubsidized direct loans since the program began last July. With an unsubsidized loan, the borrower is liable interest from the time the loan is disbursed until it is paid in full. Under the old guaranteed student loan program, the lenders asks borrowers at the time of application if they wish to have interest capitalized to postpone payment until they've left school.

Under direct lending -- whereby loans are made by the department through schools rather than through private lenders -- borrowers are billed for interest quarterly and are permitted to pay the interest whenever they can to in order to avoid larger payments later.

ED's strengthened oversight and tougher sanctions against high-default schools helped reduce the national default rate from 22.4 percent in FY 1990 to 15 percent in fiscal year 1992. Riley added that the department's comprehensive default management strategy that combines these efforts with flexible repayment options, a computerized borrower information system, and a broad range of enforcement tools against defaulters -- including federal income tax refund offsets and wage garnishment -- should decrease the default rate further.

President Clinton's new direct student loan program -- which will make it easier for borrowers to meet their payments through its range of repayment plans -- may help reduce loan defaults significantly.

"The simpler program structure and broad availability of income-contingent repayment under direct lending should substantially reduce the number of borrowers who go into default," Kunin said. "And the fact that the department holds all loans will allow us to quickly contact borrowers who default and offer them repayment options."