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

   FOR RELEASE             Contact:  Jane Glickman (202) 401-1307    November 30, 1994              Stephanie Babyak (202) 401-2311

DIRECT LENDING MEETS GOAL

Student borrowing under the William D. Ford Federal Direct Loan Program will reach the congressionally mandated ceiling of 40 percent of new loan volume for the 1995-96 school year, the U.S. Education Department announced today.

"Positive reports from first-year schools have generated such enthusiasm that we could have reached 50 percent," said U.S. Secretary of Education Richard W. Riley. "It's a real success story."

"President Clinton is committed to ensuring access to higher education," Riley said. "Direct lending accomplishes this by transforming an expensive, confusing system into one that is simple and easy for students and schools -- and saves taxpayers money."

In making the announcement, the department released the names of 346 additional direct loan schools, bringing the total number of schools participating next year to 1,495. More than 2 million students will participate. The law limits direct loans to 40 percent of total loan volume ($8 billion) in the 1995-96 academic year.

The announcement at American University followed a demonstration of the program's computer software, which enables students to apply for and receive direct loans more easily.

"The solid response from schools is a clear vote of confidence in the department's ability to manage, as well as a vote of confidence in the program," said Leo Kornfeld, senior advisor to the Secretary for direct lending.

Direct lending -- where the federal government issues loans directly to students through schools -- offers students "one-stop shopping," bypassing the maze of private lenders and other middlemen. Taxpayers will save an estimated $4.3 billion through the elimination of reinsurance fees and other costs that the federal government now pays private lenders.

Repayment is easier, too. Borrowers will receive one monthly statement and make one payment to one loan servicer.

In addition, the Ford Direct Loan Program offers a range of flexible repayment options -- called Individual Education Accounts. Designed to meet individual financial circumstances, this approach will allow borrowers more flexibility and control over career choices. For example, the income-contingent or "pay- as-you-can" plan allows borrowers to repay student debts as a percentage of their incomes for the life of the loan. This option will provide lower monthly payments for graduates who may want to start a business, perform community service, or pursue public service-oriented work or careers with lower salaries.

Early next year, the department will announce a phase-in plan to allow borrowers to consolidate existing loans into direct loans, enabling them to benefit from the program's repayment options.

The direct loan program was established under the Student Loan Reform Act (P.L. 103-66), enacted in August 1993.