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

   FOR IMMEDIATE RELEASE  Contact:  Stephanie Babyak  (202) 401-2311    July 1, 1994                        Jane Glickman  (202) 401-1307

FIRST DIRECT LOANS ISSUED UNDER CLINTON PLAN

President Clinton's innovative new higher education financing program kicks off as the first direct loans are issued on July 1 to college students for the 1994-95 academic year.

"Direct lending is user-friendly; the program makes borrowing simpler and more affordable," said Richard W. Riley, U.S. secretary of education. "Clearly, today marks a major milestone in reforming financial aid programs for students."

Approximately $1 billion in direct loans, or five percent of total student loan volume, will be made at 104 schools during the program's first year, 1994-95. By academic year 1998-99, direct loans will comprise at least 60 percent of total volume.

In addition, students with other types of federal student loans may consolidate the loans and take advantage of a range of repayment options, including a plan tailored to borrowers' income.

"The direct loan program was put in place in 11 short months," Riley said. "We proved we were up to the task, and our staff deserves credit for their hard work. We will continue to monitor the program carefully and deal with any difficulties that may surface."

Enacted in August 1993, the Student Loan Reform Act (P.L. 103-66) required that the direct loan program be developed and operating by July 1, 1994. Under the program, students receive loans through their schools, bypassing private lenders. As a result of these and other changes, taxpayers will be saved an estimated $4.3 billion over five years.

Significant improvements in the student loan process have been made in order to implement the direct loan program, including:

state-of-the-art electronic communication and processing;
a $91.7 million service contract awarded to Computer Data System, Inc., Rockville, Md., to manage the borrower database, handle billings and collections, and provide loan origination services for schools that will not be originating loans;
training, specially developed software and technical assistance for schools;
enhanced customer service to ensure that students' and schools' needs are met and problems resolved. For example, a Direct Loan Bulletin Board is now on the Internet system to respond to questions as well as to communicate important activities;
enhanced financial counseling for students, with new video and print information provided to schools;
regulations for the program's first year and negotiated rulemaking underway for subsequent years;
strong, fiscally responsible gatekeeping measures that offer tighter controls over federal funds.

"With direct lending, students, parents, schools and taxpayers all benefit," Riley said. "More fine-tuning will need to be done to improve the program, but certainly the goal of a better student financial aid system is achievable."

NOTES TO EDITOR:

President Clinton is expected to discuss the direct lending program in remarks to the Presidential Scholars today at 3 p.m. on the White House South Lawn.
An event highlighting the new direct lending program will be scheduled later this month.