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Mr. Chairman and Members of the Committee:
I am pleased to appear before you to discuss the Administration's postsecondary education strategy, and the reauthorization of the Higher Education Act of 1965 (HEA) in particular. Our dialogue about Federal education policy comes at a time when, more than ever before in our history, education is the fault line between those who will prosper in the new economy and those who will be left behind. We know that most of today's good jobs require more skills and training than a high school diploma affords. Effective and accessible postsecondary education is critically important both for individuals and for the strength of America's economy and democracy. That is why President Clinton made excellence in education our national mission in his State of the Union address, and why he has issued a bold "Call to Action for American Education in the 21st Century." I have with me copies of this education action agenda to share with you.
Our Nation faces great challenges when we strive to ensure access to effective education. In the next decade, demand for postsecondary education will expand significantly, due to increasing numbers of high school graduates and to increasing desire and need for life-long education and re-training opportunities. A growing population of disadvantaged students will need financial and other forms of support. These demographic changes will occur against the backdrop of two other major challenges: maintaining a strong commitment to education in the face of limited state resources and balancing the Federal government's budget.
The HEA has worked well for more than thirty years and has firmly established the Federal commitment to ensuring access to effective postsecondary education -- but we have an unfinished agenda. We must now look at ways to improve and add flexibility to our education programs so that they can meet the challenges of the future. It is in this context that we have begun examining the current programs and developing proposals to make them even stronger.
We believe that we can best address our commitment to higher education and the challenges we face with a comprehensive, three-pronged agenda. Our tax initiatives and our fiscal year 1998 budget proposals will complement our proposals to reauthorize the HEA, which we hope to share with you this spring. The tax and budget proposals, designed to increase access to education while improving the student loan system, have been described in our budget documents, and our proposed bill language will be provided shortly. These proposals are integral to our coordinated higher education strategy for the twenty-first century.
Our HOPE Scholarship proposal, modeled after a successful program in Georgia, would provide students who are enrolled at least half-time and have no prior drug-related felony convictions with a maximum $1,500 tax credit for tuition and required fees for their first year of postsecondary education, and another $1,500 for the second year if they stay drug-free and earn at least a B minus average. This credit would put $18.6 billion in the hands of students and their parents over the next five years. It would help 4.2 million students in 1998 alone, allowing them to pay the full cost of tuition at a typical community college and encouraging them to work hard and achieve excellence. In 1998, 8.1 million other students would have available to them a $5,000 tax deduction for higher education expenses. The deduction would increase to $10,000 beginning in 1999. Families would save $17.6 billion over the next five years with this deduction. Eligibility for both of these tax proposals, because they are designed to help middle-income families pay for college, would be phased out for families with incomes between $80,000 and $100,000, and for individuals with incomes between $50,000 and $70,000.
We must also do more to encourage families to save for their children's education. That is why we have proposed greater flexibility in using Individual Retirement Accounts so that funds saved in these accounts can be used for postsecondary education expenses, free from early withdrawal tax penalties. In addition, we have proposed an expansion in eligibility for tax-deductible IRA contributions with phase-outs for high-income ranges similar to those used for the HOPE Scholarship tax credit and the deduction. This expansion would double the previous eligible income levels. Families who save through an expanded IRA, and then use the savings for higher education, could deduct up to $10,000 of their withdrawals a year, making savings for college virtually tax free. I am aware that there are similar proposals in the Senate, so I look forward to working with you on this idea.
In addition, we suggest several smaller but important tax incentives. Like many of you in the Senate, we propose extending the tax exclusion for employer-provided education assistance of up to $5,250 for both undergraduate and graduate students. For 1998-2000, small businesses would be given an additional, new incentive to provide educational assistance to their employees through a ten-percent tax credit. The President's budget also provides tax relief for loan forgiveness so that students whose loans are forgiven by charitable or educational institutions in return for a community or public service commitment, and borrowers whose Direct Loans are forgiven after 25 years in the Income Contingent Repayment plan, are not taxed on the forgiven loan amount.
Our tax initiatives are designed to benefit working families who are struggling to pay for college. Between 1979 and 1993, the bottom three quintiles (fully sixty percent) of our citizens lost ground economically. Over that same period, college costs increased by 165 percent. It is no wonder that so many middle-income families are worried about their financial circumstances and wondering how they are going to pay for college.
Moreover, evidence tells us that we need to improve access to college for both low- and middle-income students, who have much lower rates of participation in postsecondary education than higher-income students. In 1994, only 45 percent of high school graduates from low-income families and 58 percent from middle-income families went directly to college, compared to 77 percent of students from high-income families.
We also believe that our tax initiatives will improve college completion rates, as grants do. Ensuring initial access to postsecondary education is not enough. We want students to complete their education. Our data show that low- and middle-income students are less likely than higher-income students to earn bachelor's degrees within five years, and one of the main reasons that students drop out of college is lack of money. By putting more resources in the hands of students and families, we can help to increase degree attainment. In addition, many adult workers could be expected to return to school on a part-time basis in order to improve their job skills and credentials.
One often overlooked benefit of using tax incentives to provide educational assistance is their predictability. Students are more likely to pursue and complete postsecondary education when they are aware early in their schooling of predictable and consistent financial aid. Taxpayers who see a specific line item reference to the HOPE tax credit and the deduction on their tax forms year after year will be well aware of these sources of college financing. As a result, we expect to see increases in the participation and completion rates of low- and middle-income families.
Thus, the tax proposals will help working families who are struggling to pay for college. They will improve both access and college completion among middle-income students. They will reward savings and help reduce the need to borrow. And they will encourage adult workers to pursue re-training and life-long learning. We know, however, that the tax code may not be the best vehicle for helping the neediest students, who often do not have significant tax liabilities. That is why we have dedicated ourselves to doing all we can to increase the availability of need-based grants, as well.
The Pell Grant program is one of our highest priorities, and our proposal would provide nearly $7.8 billion in Pell Grants to four million needy students in fiscal year 1998 -- and at least $40 billion over the next five years. We would increase the maximum award to $3,000 in fiscal year 1998 and expand the eligibility of independent students. This kind of federal commitment to need-based grants is critical to our goal of enhancing access, for grant support remains the most effective way to ensure access and to encourage graduation among financially disadvantaged students.
Our budget will also make a number of changes in the Federal Family Education Loan (FFEL) and Direct Loan programs that will help the increasing numbers of students who borrow to finance their education. Our proposal would cut fees from four to two percent for need-based loans, and to three percent for other loans -- thus saving four million low- and middle- income students $2.6 billion over five years. These fee reductions will put more money in the hands of students when they are paying tuition and other college costs. In addition, because lender costs during the in-school, grace, and deferment periods are very low, our budget would reduce the interest rate during those periods by one percentage point, thereby reducing both Federal costs and borrower costs on unsubsidized loans. We would provide these benefits to students while saving taxpayers $3.5 billion over five years by streamlining the guaranty agency system to make it more efficient and cost-effective and by eliminating excess lender profits.
We will also continue our commitment to expand the Federal Work-Study program, for which the Congress offered such strong support last year. Our expansion, which would bring us closer to our goal of providing Work-Study opportunities to one million students by the year 2000, would help students finance their education and gain valuable work skills. In addition, the President has challenged the higher education community to use one-half of the Work-Study increase for community service. As part of the "America Reads" Challenge, I waived the institutional matching requirement for those schools that use Work-Study funds to tutor young children in reading. Over 70 institutions have already accepted the President's challenge. We cannot miss this opportunity to give financially needy college students the valuable experience of mentoring and tutoring children, while ensuring that no child gets left behind, unable to read, at the start of his or her schooling.
We propose several smaller budget items that are important to us because of the high achievement and effective learning that they encourage and reward. The Presidential Honors Scholarships program would award one-year, $1,000 scholarships to the top five percent of graduating students in every high school in the nation. For the first time, we are requesting funding for the Advanced Placement Fee program, which adds to our effort to raise academic expectations by partnering with the States to help low-income students pay for Advanced Placement tests. In addition, in order to take advantage of our programs, students often need non-financial forms of support. That is why we continue our strong commitment to the TRIO programs. Everything we know about ensuring access to postsecondary education tells us that we must reach children early so that they regard education after high school as a possibility for them.
An important step in developing our reauthorization proposal is to consult the people most affected by our programs. In December, we held a series of public meetings in six cities across the country so that we could listen to and learn from all parts of the higher education community -- students, parents, financial aid administrators, college presidents, business officers, officials of associations, and other representatives from a variety of postsecondary institutions. We are producing a summary of these meetings and will share it with you shortly. We also published a notice in the Federal Register requesting comments and suggestions. We have been very encouraged by the high level of interest in our endeavor, by the near universal support we have heard for the programs of the HEA, and by the community's focus on students, particularly on needy students.
While we are in the process of developing our ideas and do not have complete proposals yet, we do know that whatever decisions we make will be designed to benefit students. We also know that our overall proposal will be aggressive, but realistic. We will identify priorities and suggest targeted program reforms rather than a "wish list" of new programs that we cannot fund in the context of a balanced budget.
I am aware that your committee, too, is conducting meetings with the higher education community. It is my impression that our themes for reauthorization are similar to yours. I am encouraged that we seem to be moving in the same direction and look forward to working with you as we continue this important endeavor. Let me share with you now the four principles that guide the development of our reauthorization proposal, as well as the directions in which we are headed in some specific areas.
The first principle is access -- opportunity with responsibility. We must continue our efforts to ensure that all students, including disabled and economically disadvantaged students, have access to higher education. At the same time, we must help families and students take responsibility for their own education. Postsecondary institutions, too, have the responsibility to protect the value of their students' access by providing high-quality programs, supporting students, restraining tuition increases, and being fiscally responsible in their management of federal funds. And States must take responsibility for investing in the education of their students in spite of tight state budgets and limited resources. We are considering several changes to the HEA that will enhance access.
Of course, Pell Grants are critical to ensuring access, and we will do our best to guarantee that the HEA provides a strong Pell Grant program for years to come. We will complement our increased funding for the program this year by authorizing future maximum awards that are ambitious but also paid for within our balanced budget proposal. In addition, however, we believe that students and families should be encouraged to take responsibility for their educational opportunities. We are concerned that there is a perception that students and families are penalized for saving for their future postsecondary education expenses under the current need analysis system. We believe that the Federal government should do all that it can to encourage savings, and we will include a proposal that reflects this belief.
Likewise, strong student loan programs are necessary to ensure access. Our proposal will continue our commitment to both the FFEL and Direct Loan programs. The 1993 student loan reforms have made loans for students and their families more affordable, and through the Income Contingent Repayment plan, Direct Lending has made debt more manageable. Direct Loans provide borrowers and participating schools with a simple, more automated and accountable system, while saving taxpayers billions of dollars. We can best serve students by maintaining a healthy and fair competition between the two programs while promoting efficiencies in the guaranty agency and lender systems.
The Campus-Based student aid programs, made up of the Supplemental Educational Opportunity Grant, Perkins Loan, and Federal Work-Study programs, are also essential to our goal of ensuring access. The higher education community has expressed great support for these programs, which provide additional financial resources to needy students while leveraging institutional funds and providing for greater institutional flexibility. Our proposal will retain the three existing programs and make modest changes that will improve and simplify their administration.
Access to graduate education is important as well. As we examine the graduate programs, we are considering the consolidation of Title IX's Javits, Harris, and Graduate Assistance in Areas of National Need programs into one flexible, comprehensive fellowship program focused on national need. We are working on a proposal that would provide flexibility by allowing us, in consultation with the higher education community, to define national need in terms of both discipline and population representation. Thus, the new program would retain the important elements of the three programs that it would consolidate.
Our second reauthorization principle is the support of effective education, high standards, and high achievement. Federal programs should continue to promote and enhance outstanding educational opportunities and encourage students to take advantage of those opportunities to the best of their abilities. We should also encourage the effective use of new technologies to meet the changing needs of students by providing access to high quality postsecondary education.
As the President emphasized in his "Call to Action," the professional development of teachers is of critical importance. Teaching is a key variable in students' learning; without effective teaching, the highest standards in the world will not ensure that our children are well educated. We must give teachers the education and support that they need to teach to higher standards. We face major challenges in this undertaking, given that over the next decade, we will need an additional two million teachers to keep up with student population growth and the increasing diversity of our nation's students.
It is with these challenges in mind that we approach the reauthorization of Title V. Whereas Title V currently authorizes a myriad of disconnected programs, we plan to propose targeted programs that can make a difference in a few priority areas. I am planning to hold a national forum in mid-April to discuss our nation's best ideas for a strong Title V. The forum will convene some of our nation's best teachers, public education leaders, and members of the higher education community to explore ways to strengthen all phases of professional development, with a particular focus on recruiting the next generation of teachers, preparing them well, and supporting them in their first few critical years. As a nation we simply are not doing enough in these three areas. We cannot afford to wait another moment to go to work to ensure that we have a talented and dedicated teacher in every classroom in the nation.
The Fund for the Improvement of Postsecondary Education program (FIPSE) is very successful in supporting the most effective and innovative projects in higher education. For example, FIPSE supports the efforts of PACT-USA, an intergenerational literacy program, to develop a teacher training program that helps future teachers learn how to help low-literacy parents gain literacy skills so that they can perform their role as their children's first teachers.
The program raises both parents' and children's reading levels, and successfully integrates the parents into the school lives of their children and the school community. In our proposal to reauthorize FIPSE, we hope to enhance the dissemination of information about exciting projects such as this one, so that good ideas can be replicated.
The Title III programs also play an important role in the Federal effort to ensure effective education by supporting improvements in academic quality, institutional management, and endowments at institutions serving disadvantaged and minority students. We seek to ensure that the Title III programs respond effectively to areas of future growth in higher education and that they encourage capacity-building for and effective use of technology. It is also important that Title III funds continue to add value to institutions and that they do not simply replace other funding.
The reauthorized HEA should simplify program delivery and improve management, and that is our third guiding principle for reauthorization. Students and postsecondary institutions should continue to receive outstanding customer service in a predictable and seamless way so that they are assured of aid and can plan ahead. Federal programs should be simplified and burden reduced as much as possible.
We have already begun efforts to simplify program delivery through initiatives such as Easy Access for Students and Institutions (EASI), but we are exploring whether changes in the statute are necessary to complete this project successfully. Students deserve a friendly system of acquiring information about, applying for, and receiving financial aid. Lack of sufficient information and difficulty in applying can be significant barriers to access to postsecondary education. Schools, in turn, would have more resources to spend on education if the administrative burdens of the delivery system were reduced through simplification and greater use of technology. In cooperation with postsecondary education institutions, we are examining ways that the HEA could encourage a streamlined delivery system for student financial aid.
We also can improve management of the Title IV programs and reduce burden by continuing to improve the Department's system of oversight of institutions that participate in these programs. We will continue to strive toward a proper balance between reducing burdens on schools and protecting students and Federal funds. To strike this balance, we expect to propose a performance-based, tailored approach to statute and regulation instead of the current "one size fits all" approach. In recognizing the diversity of American institutions of higher education, a gatekeeping and oversight system based on institutions' track records will reduce burden where appropriate, provide incentives for institutions to be fiscally and administratively responsible, and target Federal oversight resources on high-risk institutions.
And our fourth principle is that we must improve outreach to potential students and ensure strong links among elementary and secondary education, postsecondary education, and employment. As the President emphasized in his "Call to Action," this principle is key to our goal of making college more accessible and more affordable for Americans. Too many young people lose their way between high school and the world of work. We must reach out to potential students as part of our effort to change the way that young people and their families participate in postsecondary education -- so that everyone places a high priority on continuing their education.
We will strengthen the TRIO programs with this principle in mind. We are exploring ways to add flexibility to these programs so that they can respond quickly to students' changing needs. Strong TRIO programs are essential to enhancing access to effective postsecondary education, for they provide students with needed support and encouragement so that they will be ready to go to college. These programs also provide students with information early in their schooling about the opportunities available to them and complement our efforts to design, through efforts such as Project EASI, a friendly system for students to learn about and apply for financial aid. The TRIO programs, integral to our overall higher education strategy, should reward the high performance of schools and provide essential support and information to disadvantaged students.
This is our general approach to the reauthorization process. We hope to share with you a complete proposal by the end of the spring that will reflect our best ideas for strengthening the Federal commitment to postsecondary education. We look forward to working with you to craft a strong Higher Education Act whose programs will allow us to meet the challenges of the next century.
It has been my pleasure to share with you our higher education strategy. In proposing tax incentives to help families pay for college, major increases in funding for important postsecondary education programs, and a Higher Education Act that is even stronger than it is today, this Administration is calling for a significant increase in our national commitment to postsecondary education. I hope you will give strong consideration to our proposals, and I am now happy to respond to any questions you may have.
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