Clinton Answers Critics, Defends Administration : Government: He says direction of the country is changing after 12 years of GOP neglect. He spells out details of his national service program.

NEW ORLEANS —  President Clinton, after a week of critical assessments of his 100-day record, mounted an energetic defense of his young Administration on Friday, arguing that it had begun to change the direction of the country after 12 years of neglect under Republican rule.

Clinton answered his critics at the outset of a speech designed to spell out the details of his national service program and to announce an overhaul of the nation’s student loan program. He responded directly to the charge that he has lost focus and tried to do too much too fast.

“In the last 99 days, we have worked relentlessly to address the pressing and long-ignored needs of the American people and to bring to the government something it has not seen in a long time: an acknowledgment that bold action is needed and needed now to secure and enlarge America’s future,” Clinton told an enthusiastic, largely student crowd in a gymnasium at the University of New Orleans.

He said that his Administration has begun to establish a “new covenant” with the American people by beginning the renewal of the nation’s economic base, taking on the issue of health care, announcing a policy to convert defense industries to civilian purposes and adopting a more aggressive pro-environment policy.

On health care, the President said that the question no longer is whether but when the costly and burdensome system will be reformed.

“I hope the answer is soon,” Clinton said. “And not too soon is soon enough for me.”

The main point of Friday’s address, however, was Clinton’s national service program, one of the central tenets of his presidential campaign last year.

“National service will mark the start of a new era for America in which every citizen, every one of you, can become an agent of change, armed with the knowledge and experience that a college education brings,” Clinton told the students. “And ready to transform the world in which we live, city by city, community by community, block by block. I say to you, we need you.”

As time has passed and fiscal realities intruded, though, the scope of Clinton’s concept of universal service has receded. Far from offering a chance to every college and high school student who wants to do community work in exchange for help with their college or trade school tuition, the program will begin this summer with a pilot project for only about 1,000 volunteers.

Eli Segal, the White House coordinator of national service, said that, if the plan succeeds, by the end of 1997 it will offer 150,000 jobs a year at an annual cost of $3 billion.

The reimbursement for the jobs--in housing projects, hospitals, schools, environmental restoration projects and other socially useful programs--has also shrunk. In a draft circulated in the Administration as late as Thursday, officials proposed that the jobs award $13,000 for college expenses in return for two years of public service.

But Republicans in Congress objected, saying that the stipends would be too generous, given the government’s overall budget problems. Military officials also warned that the relatively high pay would attract young people who might otherwise choose to serve in the armed services.

Accordingly, Segal said Friday, the maximum stipend now will be $5,000 a year and a maximum of $10,000 for two years--less than half the typical cost of four years of tuition at a public university. In addition, recipients would receive at least minimum-wage stipends, along with health care and child care assistance if needed.

Clinton also proposed a radical restructuring of the country’s college loan program, which has helped put millions of American youth from all economic brackets through college over the last 30 years.

“We’ll make it easier to borrow money and much easier to pay it off,” Clinton said, “but this time you’ll have to pay it off.”

The President will send legislation to Congress next week to place the program directly in government hands, taking it away from the private financial institutions that now make and collect the loans.

Clinton said the shift will save $4.3 billion between now and the end of 1998. He also said that putting the loans in federal hands will reduce costs to students by allowing them to borrow money at lower rates than from private companies.

Administration officials said that the savings would reduce the interest rate on the average student loan by one-half percentage point.

The new student loan plan also will allow students to choose among several repayment plans, including conventional fixed-rate, fixed-term loans and a new option that would peg payments to a fixed percentage of the recipient’s annual income. The share of income devoted to loan repayment would range between 5% and 10%, officials said.

Under that option, known as EXCEL, the Internal Revenue Service would monitor the borrower’s income and collect the payment, either through payroll deduction or as part of the student’s annual tax bill.

Officials said that the EXCEL plan and IRS enforcement will help reduce the estimated $2.5 billion in student loans now in default.

They also said that it would allow more graduating students to take lower-paying but more socially helpful jobs because they would not be burdened by high fixed payments on their debt.

The plan is expected to meet stiff opposition from banks and other lending agencies that administer and profit under the current system. The American Bankers Assn. criticized the plan as combining the “efficiency of the Post Office with all the charm of the IRS.”

Another group, the Coalition for Student Loan Reform, criticized the President’s plan even before he presented it publicly. The group, representing numerous state lending authorities and private banks, questioned whether the Clinton plan actually would save money and said that it would require a massive addition to federal indebtedness.

“We agree with the President and members of Congress that the current federal student loan program is in need of reform,” said Daniel S. Cheever, chairman of the group. But, he added, parts of the current system work well and should not be discarded.

“Before proceeding rapidly with an untested direct lending plan, we should retain what works and improve what doesn’t,” Cheever said.

But Education Secretary Richard W. Riley said in an interview that, since the federal government already guarantees student loans, it might as well issue them and employ the apparatus of the IRS to help collect them.

“We already have this huge exposure so we ought to be the responsible party,” Riley said. “We should cut out the middleman.”

New Approach to Paying for College

Main features of the plan President Clinton proposed on Friday to overhaul the nation’s student loan program:

Direct loans--Loans for higher education would be made directly by the government instead of by financial institutions. The Administration estimates that it could provide the loans at about half a percentage point below rates offered by most banks.

One-stop borrowing--Colleges could act as on-campus agents for the government to make the loans available to students. This will enable students to get a variety of financial aid in “one stop.”

Two ways to repay loans--Students would have two ways of repaying the loans: up to two years of community service or regular payments based on a percentage of income; or a combination of both.

“National Service”--Up to $10,000 of a student loan could be repaid with community service jobs, with $5,000 for each of two years. Students could do the work either before college, during college or after college. The money would be paid directly by the government to the school. Workers would also get a stipend for their work roughly equal to the minimum wage. The federal government would pick up 85% of the cost of the stipend; local government would pick up the remaining 15%.

How much and how many--With an opening budget of $394 million, the national service program initially would put 25,000 young people to work in 1994, rising to a $3-billion annual budget by 1997 involving 150,000 students.

Who can participate--Anyone 17 years of age or older.

What happens to current grants--The overhaul would basically preserve the current array of loans and grants, including subsidized ones based on need. However, anyone could get some type of student loan regardless of family income.

Source: Times wire reports