Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, July 2, 1994 TAG: 9407040115
SECTION: NATIONAL/INTERNATIONAL PAGE: A4 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The options should make it easier for graduates who don't make high salaries to repay their loans, officials say. That should lower the default rate, saving the government money.
The changes are part of a program proposed by President Clinton and passed into law last year. It calls for the federal government to finance student loans directly instead of through banks and other private lenders that add their own fees to the loans.
The direct-loan program is expected to save the government $4.3 billion in five years, Education Secretary Richard Riley said.
``The program makes borrowing simpler and more affordable,'' Riley said in a statement. ``Clearly, today marks a major milestone in reforming financial aid programs for students.''
The government is phasing in the direct-loan program, beginning at 104 colleges in the 1994-95 school year. Students at those schools can apply for the direct loans right away through their schools.
But all students with federal loans will benefit, because students at any college can transfer their existing loans into the new program, said Bill Galston, Clinton's deputy assistant for domestic policy.
Borrowers with low incomes can choose a 25-year payback plan with monthly payments of between 4 percent and 15 percent of their salaries. After 25 years of repayment, any remaining debt would be forgiven.
Others could choose a 30-year payback plan, or the traditional 10-year loan.
Some critics worry that students who opt for the long-term repayment schedule won't understand what they are getting into. Former students who choose the 30-year plan could end up paying back loans into their 40s and 50s, allowing interest to double or triple their debt, the United Student Association says.
``Most students at 17 or 18 years old don't have the information to understand what they are talking about paying over a lifetime,'' said association staff member Deepak Pateriya.
But, Galston points out, graduates could switch payment plans later if they choose. And the program includes counseling to help students choose the right loan.
by CNB