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

FOR RELEASE
August 10, 2000

Contact:
Jane Glickman
(202) 401-1307

Contact:
Stephanie Babyak
(202) 401-2311

Education Secretary Riley Announces Lower Interest Rates
on Direct Student Loans & Consolidations
Some teachers in needy areas may also have loans forgiven

Millions of student borrowers who repay their loans on time or consolidate them into the direct loan program can expect lower interest rates beginning this year, U.S. Secretary of Education Richard W. Riley announced today.

These new incentives, combined with earlier Administration improvements in lending programs, now enable students to save more than $1,300 over the life of $10,000 in loans. The incentives announced today will save students and their parents $600 million over the next five years.

While at DePaul University in Chicago today, President Clinton spoke about the importance of providing all Americans access to college, "When we open the doors of college, we open the doors of opportunity, we give the people the chance to live out their own dreams. And in the process, we strengthen our nation and our ability to contribute to the progress of the entire world."

Beginning with the 2000-2001 academic year, students will be eligible for a rebate worth 1.5 percent of loans made through the William D. Ford Federal Direct Student Loan Program. More than 1.7 million students annually will receive the rebate when they borrow, saving a borrower $150 for every $10,000 in loans. Borrowers must make their first 12 loan payments on time to keep the benefit.

"We have worked hard to make college more affordable and accessible for students and their families during the past eight years," Riley said. "These new measures add to that effort, all of which now make college more accessible than ever before to students in every part of the country."

Students who consolidate their loans with the federal direct student loan program will also see their interest rates cut with a new, low interest rate that is 0.80 percent lower than what

they?re currently paying, saving students with $10,000 in loans more than $500 each. More than 400,000 students are expected to take advantage of this opportunity. This lower rate applies to loans consolidated between Oct. 1, 2000 and Sept. 30, 2001. As with the interest rebate, students must make their first 12 payments on time to keep this benefit.

Among the Administration?s most successful efforts in making college education more affordable is the creation of the federal direct student loan program, which offers student loans directly from the federal government while saving taxpayers money. The measures announced today add to the current discount offered by the Education Department that gives a 0.25 percent interest rate reduction to direct loan borrowers who repay their loans through electronic debit accounts (EDA). The EDA discount has proven effective in limiting delinquency and promoting consistent and timely repayments.

Riley reaffirmed that the Department of Education is committed to decreasing the student loan default rate, which at 8.8 percent is a record low. This year the department will make more than $15 billion in direct loans and direct loan consolidations available to more than two million students and parents. Federal subsidy payments to banks and other third-party lenders are eliminated when guaranteed loans are consolidated into direct loans. Additional information is available by calling 1-800-4FED-AID (1-800-433-3242) or at www.ed.gov/directloan.

Riley today also announced a new provision for loan forgiveness for teachers in high-need areas. The provision would forgive up to $5,000 in loans after five consecutive years of teaching at needy schools, at least one of which must have been 1998-99 or later. Through 2003, more than 25,000 teachers are expected to receive $122 million in loan forgiveness. Riley said the policy would help today?s students afford college, become teachers in needy areas, and stay for at least five years.