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

The national loan default rate was 6.9 percent for fiscal year 1998, down from 8.8 percent in the previous fiscal year. This new default rate represents the most current data available. It represents the cohort of borrowers whose first loan repayments came due on or after October 1, 1997, and who defaulted before October 1, 1999.

Eight years ago, the default rate hit a peak of 22.4 percent. Every year this administration has held office, the default rate has declined and in this final year of our tenure, the default rate has hit an all-time low. That means that over these eight years, we cut the default rate by more than two-thirds, and that's really something to celebrate.

And that's not all. American taxpayers have saved $7 billion as a result of the decline in the default rate, another $7 billion as a result of our default collection efforts, and an additional $4 billion from reductions in interest rates and fees on direct loans. That adds up to $18 billion in savings for taxpayers.

I want to point out that amendments to the Higher Education Act of 1998 changed the way we determine when a borrower is in default. Previously, a borrower who went more than 180 days without a payment was in default. Now, a borrower who goes more than 270 days without a payment is in default. This accounts for about half of the reduction in the default rate. But even if we used the old definition, the default rate would still be at its lowest point ever.

The record low default rate means that the overwhelming majority of students are meeting their responsibilities to repay their loans. And the U. S. Department of Education is meeting its responsibility to be vigilant in our stewardship of the taxpayers' money. We are serious about helping Americans go to college, and we are serious about protecting every precious taxpayer dollar.

A number of factors account for the decline in the default rate:

• The U. S. Department of Education has helped borrowers to devise workable plans so that they can make their payments and avoid default.
• The economy is healthy and the unemployment rate is at a 30-year low. That means more people are working and able to pay back their loans.
• We have not been shy about using the powerful tools authorized by Congress to collect on defaults and remove schools from the program that are not willing to fulfill their responsibilities. In fiscal year 1998, we recovered $4 billion on defaulted loans, compared with only $1 billion in fiscal year 1992. And during the Clinton-Gore administration, we have removed over 1,300 schools from the loan programs--850 because of high default rates and 500 due to loss of accreditation or other violations. In fiscal year 1998, only 11 schools were subject to sanctions as a result of high default rates. I guess some folks have gotten our message about being serious.
• Our partners in the student loan programs--colleges, trade schools, lenders, and guarantors--have also been vigilant in their collections and outreach efforts to ensure that borrowers understand and meet their obligation.
• The Clinton-Gore administration's initiatives to make college more affordable have helped to limit the amount of debt that students have after they graduate and have helped families pay for college. These initiatives include Hope and Lifetime Learning tax credits, more work-study slots, and, if our budget request is met or exceeded by Congress, more than a 50 percent increase in Pell Grants, bringing them to a record high level. Together, these initiatives have helped to lower the default rate while increasing educational opportunities.
• Since 1993, we have cut student loan origination fees in half and reduced the interest rates on all student loans. And for students in the direct loan program, we have cut origination fees further. The administration has launched a number of other incentives to lower the cost of borrowing and help students prevent default. These include lower interest rates for direct loan borrowers who repay through electronic debit accounts; rebates for direct loan borrowers who make their loan payments on time; and a discounted interest rate to students who consolidate their loans with the direct lending program and repay on time. Many lenders in the Family Federal Education Loan Program also offer incentives for on-time payments.
• Finally, we have given borrowers more repayment options, such as the income-contingent repayment plan, which makes it easier for borrowers to meet their responsibilities.

These are all important improvements, and they are part of the real progress that we are seeing in American education.

SAT math scores have hit a 30-year high. More Americans are going to college than ever before. The highest percentage ever of low-income high school graduates are going to college. There is a surge in college-going among African-Americans, and more than one-fourth of all students in higher education represent racial and ethnic minorities.

In addition, in 1999 we had the highest percentage of 25-29 year-olds with at least some college, the highest percentage of citizens having completed a bachelor's degree or higher, and the highest percentage of students enrolling in college directly after high school.

The American people have made education their number one priority. Now it is Congress's turn. I call upon the Congress to pass a budget that will fully fund the president's request for GEAR UP to ensure that more young people plan for college, that will reduce class size, hire new teachers, relieve overcrowding in our schools, expand after-school opportunities, and help working families pay for college.

This is an historic moment. We must not lose it.