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FOR RELEASE
October 2, 2000
Contact:
Stephanie Babyak
(202) 401-1307
Jane Glickman
(202) 401-2311
NATIONAL STUDENT LOAN DEFAULT RATE LOWEST EVER
The national student loan default rate is at its lowest point ever - 6.9 percent for FY 1998 - and two-thirds less than it was at its 22.4 percent peak eight years ago, President Clinton announced today.
"The decline in defaults, increased collections, and savings from the direct student loan program have saved U.S. taxpayers $18 billion," said U.S. Secretary of Education Richard W. Riley who joined the President for today's announcement.
The secretary credited a robust economy, strong department management, tougher enforcement tools authorized by Congress, and stepped up efforts by colleges, lenders, guaranty agencies and other participants in the federal loan programs.
The default rate has declined every year since 1992, and this year marks the third consecutive year that it's remained below 10 percent. Last year's (FY1997) rate was 8.8 percent.
"These low default rates are especially noteworthy," Riley said, "given that loan volume has tripled and the number of loans doubled during the same period that the rate declined by more than two-thirds." In FY 1998, students took out 8.6 million loans worth $35.7 billion, up from 4.1 million loans worth $11.7 billion in FY 1990.
Riley noted that the administration's goal to make college education more affordable has included a number of incentives to lower the cost of student loans and help students prevent default. Since 1993, the administration has secured reductions in the fees and interest rates for all student loan borrowers. In addition, the direct student loan program provides an additional reduction in student loan fees, an interest rate rebate worth 1.5 percent of the loan to direct loan borrowers who make their first 12 loan payments on time; a 0.25 percent interest rate reduction to direct loan borrowers who repay their loans through electronic debit accounts; and a discounted interest rate to students who consolidate their loans with the federal direct student loan program and make their first 12 payments on time. Many lenders in the Family Federal Education Loan program also offer incentives for on-time payments.
Riley noted, too, that the Hope and Lifetime Learning tax credits initiated by the Clinton Administration, as well as significant increases in Pell Grants and Federal Work-Study funds, have helped to make college more affordable and limit the amount of debt students have after they graduate.
Schools with excessive default rates may be dropped from one or more federal student aid programs. Schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility to participate in the loan and Pell Grant programs. Schools have appeal rights and can remain in the programs while an appeal is pending.
Some 850 schools have lost student loan program eligibility since 1993, with the release of the FY 1991 cohort default rates. This year, 11 schools are faced with initial or extended loss of loan eligibility under this provision and three of these schools may also lose Pell grant eligibility.
Borrowers who default on federal student loans face serious repercussions, such as the withholding of federal income tax refunds and other federal payments, wage garnishment, adverse credit bureau reports, denial of further student aid, and prosecution.
To avoid these sanctions, defaulters have the option to consolidate their loans and establish an income-based repayment plan that matches their ability to pay.
Borrowers who believe they may be in default on a federal student loan should contact the holder of the loan for more information about available repayment options. For accounts currently being handled by the department or to locate a past due account, borrowers may call the department's Debt Collections Service Center at 1-800-621-3115.
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NOTE TO EDITORS: Individual school default rates are posted on the department's web site at: http://www.ed.gov/offices/OSFAP/defaultmanagement/cdr.html. Click here for state-by-state rates and here for a graph showing the national student loan default rate, 1987-1998.
STUDENT LOAN DEFAULT FACT SHEET
Cohort default rate is defined by statute as the percentage of borrowers who enter repayment in a certain year and default before the end of the next year. The new national default rate is for FY 1998 -- the most current data available -- and represents the cohort of borrowers whose first loan repayments came due on or after October 1, 1997, the beginning of FY 1998, and who defaulted before September 30, 1999, the end of the second fiscal year. The secretary noted that a part of the reduction in the rate from last year was due to a change made to the law in 1998 that changed the definition of default from 180 days without a payment to 270 days.
The national rate reflects loans made to borrowers who attended some 6,900 individual schools that participated in the Family Federal Education Loan Program (FFEL) and the William D. Ford Federal Direct Loan Program during this period. {NOTE: About 600 schools that no longer participate in the federal loan programs are not included in individual school default rates issued today}.
Default Sanctions
Schools with excessive default rates may be dropped from one or more federal student aid programs. Schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility to participate in the loan and Federal Pell Grant programs.
Some 850 schools have lost student loan program eligibility since 1993, with the release of the FY 1991 cohort default rates. This year, 11 schools are faced with initial or extended loss of loan eligibility under this provision and three of these schools may also lose Pell grant eligibility. The other seven schools either withdrew or were removed from the loan programs prior to the 1998 law taking effect and, thus, remain eligible to award Pell Grants to their neediest students.
In addition, under department regulations, schools with a one-year default rate over 40 percent may have their eligibility for all federal student aid programs restricted or terminated. Based on the FY 1998 rates, two schools fall in this category. The total number of schools subject to one or both sanctions for FY 1998 is 11.
The 1998 Higher Education Amendments created various exemptions from the default sanctions for schools with low borrowers and low loan volume resulting in a lower number of schools facing sanctions than in previous years.
Loan Collections
In FY 2000, over $4 billion has been recovered on defaulted loans through vigorous collection efforts by the department and guaranty agencies, including:
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