FY 1998 Budget Summary

I. SUMMARY OF THE 1998 BUDGET

The 1998 budget for the Department of Education reflects President Clinton’s determination to continue making the investments needed to improve our schools based on standards of excellence, to help States and school districts cope with the highest elementary and secondary enrollments in history, to modernize our schools for the 21st century, and to make a college education more affordable for all students. These investments include increased funds for discretionary education programs, major new reading and school construction initiatives, and a package of legislative and tax changes that will dramatically increase aid to help pay college costs.

The President is requesting $29.1 billion in discretionary funds for the Department of Education, an increase of $2.9 billion or 11 percent over the 1997 level.

Key priorities within this discretionary request include the following:

• $620 million for Goals 2000, up $129 million or 26 percent, to expand support for State and local efforts in all 50 States to set and implement standards of excellence and reform teaching and learning in order to reach the National Education Goals.
• $500 million for Educational Technology, up $243 million, to help schools integrate technology into the curriculum so that all students can become technologically literate, and to improve the quality of instruction in the core subjects.
• Doubling funding for Charter Schools to $100 million to expand public school choice for parents by supporting the creation of publicly accountable schools which are exempted from many education rules and regulations and thus permit the use of more flexible and innovative methods of achieving educational excellence.
• $7.6 billion for Pell Grants, up $1.7 billion or 29 percent, to fund an increase in the Pell maximum award, from $2,700 to $3,000, and to expand eligibility for independent students.

In addition to the discretionary budget, President Clinton is proposing a significant investment of new mandatory program funding in two key areas. The first is the America Reads Challenge, which would enlist and train one million tutors in a Reading Corps to helpchildren learn to read well and independently by the end of the third grade. The Reading Corps would work with teachers, families, and community organizations by providing reading assistance after school, on weekends, and during the summer. The target is to

have many more children, not just the current 60 percent, read at least at the "Basic Level" by the time they reach the 4th grade, as determined by the National Assessment of Educational Progress. The Department of Education budget includes $200 million—the first installment of a planned $1.4 billion over the next five years—to pay reading specialists to supervise and train the Reading Corps and to provide the materials tutors will need to be successful.

The second mandatory initiative is School Construction, which would use a one-time appropriation of $5 billion to stimulate State and local efforts to upgrade and modernize school facilities, particularly in urban areas, which often have the greatest need for renovation and construction of school buildings. The program would pay for up to half the interest on school construction bonds or similar financing mechanisms, with a target of stimulating at least $20 billion in new construction or renovation projects. Eligible projects would include emergency repairs to correct health and safety problems, making schools more energy efficient, modernizing educational facilities to support new technologies, ensuring access for disabled individuals, and building the additional schools that communities will need in order to serve the growing enrollments predicted for the next decade.

Two other significant new initiatives, while not part of the Department’s budget, are the America’s Hope Scholarship tax credit and the Middle Class Bill of Rights tax deduction. America’s Hope Scholarships would provide a $1,500 tax credit for up to two years of postsecondary education, and the tax deduction would permit up to a $5,000 deduction ($10,000 in 1999 and later years) from income for payment of postsecondary tuition and fees. The deduction would be available even to taxpayers who do not itemize deductions. Together these proposals would save eligible students and their families more than $4 billion in college costs in 1998.

Also on the mandatory side, the Department is proposing changes to improve both the effectiveness and efficiency of the student loan programs. Loan origination fees for needy students would be cut in half from 4 percent to 2 percent, the costs of subsidizing lenders and guaranty agencies would be reduced, and administrative funds for Direct Loans would be scaled back. These proposals would save student borrowers more than $2 billion over the next five years, while taxpayers would save about $3.5 billion over the same period thanks to a restructuring of the guaranty agency system that would make agencies more accountable to the public by linking agency fees to their performance in collecting on defaulted loans.

Factors affecting the cost of student loans include interest rates, default rates, and collections on defaults. For fiscal year 1994, the most recent year for which data are available, the statutory rate for students defaulting in their first 2 years of repayment was 10.7 percent, down from a high of 22.4 percent in fiscal year 1990.

In addition, the Department is continuing its long-term efforts to streamline its operations by proposing the elimination of 10 programs—totaling more than $400 million—that have achieved their purpose, duplicate other programs, or are better supported from State, local, or private sources. Department staff also would continue to decline, in fulfillment of the President’s commitment to reduce the Federal workforce. Department staffing in 1998 willbe at least 6 percent below the 1992 level, and 40 percent below the level when the Department was created in 1980.

Totals in the Budget

The President's budget for the Department of Education provides a total of $29.1 billion in discretionary budget authority, an increase of $2.9 billion, or 11 percent, over the 1997 level of $26.2 billion. Funding for mandatory programs would increase substantially from an estimated $3.2 billion in 1997 to an estimated $10.4 billion in 1998. Most of this increase, however, reflects the proposed one-time expenditure of $5.0 billion for the School Construction program. Changes in mandatory costs also reflect a technical re-estimate of costs associated with existing loans, as required by the Credit Reform Act of 1990. Based on a recent study by independent auditors, this re-estimate for 1997 reflects a reduction of roughly $2 billion in lifetime default costs for the Federal Family Education Loan program. Total Department budget authority would rise from $29.4 billion in 1997 to $39.5 billion in 1998. In addition, the President’s two tax initiatives—America’s Hope Scholarships and the Middle Class Bill of Rights tax deduction—would save students and families $4.0 billion in postsecondary education expenses in 1998.

Totals for the Department are:

Within these totals, the budget puts significant new resources in 4 key areas: educational improvement based on standards of excellence, improving reading for all Americans, providing extra help for students most in need and meeting the challenge of higher enrollments, and making college more affordable.

BETTER EDUCATION FOR ALL STUDENTS
BASED ON STANDARDS OF EXCELLENCE

During President Clinton’s first term in office, he succeeded in building bipartisan support for effective assistance to State and local education improvement efforts focused on standards of excellence for teaching and learning, getting useful technology into the classroom, upgrading the skills of teachers, connecting high schools to the workplace and college, and giving parents greater choice in public education through the creation of publicly accountable charter schools. As States and communities develop and begin to implement their own reform plans, they look to Goals 2000 for flexible support of reforms based on high academic standards, to School-to-Work Opportunities for venture capital to establish systems easing the transition of high school students from school to work and higher education, to the Technology Literacy Challenge Fund for help in integrating technology into the curriculum, to Charter Schools for start-up funds needed to create innovative schools that respond to local needs and expand public school choice, and to the Eisenhower Professional Development programs to strengthen teaching skills.

The Department’s 1998 budget would help States and communities stay on course in their efforts to educate children to higher standards and would stimulate additional schools to undertake comprehensive and effective reform. Highlights of the request include:

• $605 million for Goals 2000 State Grants, an increase of $129 million, to help States and schools develop and implement challenging academic standards and reform teaching and learning in order to reach the National Education Goals. An additional $15 million would support 42 parental assistance and information centers.
• $400 million for School-to-Work Opportunities—$200 million each from the Departments of Education and Labor—to permit all 50 States to fully implement school-to-work strategies as an integral part of their educational systems.
• $500 million for Educational Technology, up $243 million, to help schools integrate technology into the curriculum so that all students can become technologically literate, and to improve the quality of instruction in core subjects.
• $100 million for Charter Schools, a $49 million increase, to support planning and start-up costs for between 900 and 1,100 new or redesigned public schools that offer enhanced public school choice. These State- or locally authorized schools are created by teachers, parents, and other members of the community and, in exchange for greater accountability for student achievement, are exempted from many local, State, and Federal education regulations. The Administration’s goal is to stimulate the creation of 3,000 charter schools by 2002.
• $360 million for Eisenhower Professional Development State Grants, up $50 million, to support sustained, intensive training to upgrade the skills of teachers and principals to better deliver instruction in the core academic subjects, especially in mathematics and science.
• $21 million, up $16 million, to fast-forward efforts by the National Board for Professional Teaching Standards to develop standards and assessments and implement certification programs in more than 30 teaching fields. Funds also would enable more teachers to undergo the assessment process—an important step in identifying and rewarding master teachers. The goal would be to certify 105,000 master teachers by the year 2006.

The Department also is seeking $167 million for Research, Statistics, and Assessment, an increase of $30 million or 22 percent over the 1997 level for these programs. These funds support education reform by investigating what works in teaching and learning, gathering data on the effects of reform and the return on investments in education, monitoring progress toward the National Education Goals, and assessing the progress of American students in achieving mastery over challenging subject matter.

IMPROVING READING FOR ALL AMERICANS

The America Reads Challenge highlights reading as the most basic and essential academic skill—the cornerstone of educational achievement and accomplishment. The Department’s budget includes mandatory funds for two components of this initiative: America’s Reading Corps and Parents as First Teachers.

The request provides $200 million in mandatory funding for America's Reading Corps, which would enlist and train one million tutors who will provide individualized and small group assistance after school, on weekends, and during the summer for K-4 students who are behind in reading. The Department plans to contribute $1.4 billion for the Reading Corps over the next five years; most of these funds would pay for reading specialists (who would train or supervise the tutors) and materials. In addition, the Corporation for National and Community Service would contribute $1 billion ($200 million in 1998), primarily for tutor recruitment.

The Department would use an additional $60 million in mandatory funds in 1998 for the Parents as First Teachers program. This program would support effective, proven efforts to assist parents in helping their children become successful readers.

Success in reaching the goal of the America Reads Challenge—ensuring that all children read well and independently by the end of the third grade—will require much more than after-school tutoring. That’s one reason why, for example, the 1998 request includes significant increases to strengthen in-school reading instruction through programs like Title I Grants to Local Educational Agencies and Special Education Grants to States. Both programs provide substantial resources to States and schools that are used to improve basic skills like reading.

Parental involvement in reading to children is also a key to reaching the America Reads Challenge. And students who speak a language other than English need extra help learning to read English. The budget includes increases for the following programs that provide assistance in these areas:

• $108 million for Even Start, a $6 million increase to permit expansion of local programs that help young children develop the skills required for success in elementary school while enabling their parents to gain the basic literacy skills needed to reinforce their children’s education.
• $199 million for Bilingual Education, an increase of $42.3 million or 27 percent, to help local school districts build their capacity to operate high-quality instructional programs for limited English proficient (LEP) students.
• $382 million for Adult Education State Grants, up $41.7 million or 12 percent, to help adult Americans improve their literacy skills so they can succeed in their roles as workers, citizens, and parents.

PROVIDING EXTRA HELP FOR STUDENTS MOST IN NEED
AND MEETING THE CHALLENGE OF HIGHER ENROLLMENTS

Elementary and secondary school enrollment reached a new high of nearly 52 million last fall, and 3 million more students will be added to the rolls over the next 10 years. To help States and school districts keep up with growing enrollments while continuing to provide extra help for the students who need it, the Department is requesting increased funding in critical areas of Federal education support. Highlights include the following:

• $7.5 billion for the Title I Grants to Local Educational Agencies program, an increase of $347 million, to help low-achieving students—particularly those in high-poverty schools—meet the same challenging academic content and performance standards expected of all children. The request also would target a larger share of Title I resources on communities and schools with the highest concentrations of children from low-income families.
• $620 million for Safe and Drug-Free Schools programs, an increase of $64 million, to help States and school districts address the pervasive problems of student drug and alcohol use and school violence.
• $3.2 billion for Special Education Grants to States, an increase of $141 million, to help States cover increases in costs attributable to serving additional children, while maintaining the overall Federal share of the excess costs of serving children with disabilities at 8 percent.
• $150 million for Immigrant Education, up $50 million, in recognition of the additional costs faced by school districts that serve large numbers of recently arrived immigrant students. The request would help pay the costs of educating some 875,000 recent immigrant students.
• The School Construction initiative, which would use a one-time $5 billion mandatory appropriation to pay for up to half the interest on school construction bonds or similar assistance. This program is designed in part to help States and communities address the facilities needs created by growing enrollments.

In addition, the Department is proposing a new program of After-School Learning Centers to help rural and inner-city public schools stay open after school hours and serve as safe, neighborhood learning centers where students can do their homework and obtain tutoring and mentoring services. The 1998 request includes $50 million to support the development of hundreds of new after-school programs focusing on activities designed to improve student achievement and prevent juvenile violence and substance abuse.

MAKING COLLEGE MORE AFFORDABLE FOR ALL STUDENTS

Since 1993, President Clinton has worked hard to strengthen Federal programs that help students and families pay the costs of postsecondary education. His first successful education reform proposal created the Direct Student Loan program, which eased loan repayment burdens through income-contingent repayment, greatly streamlined and simplified loan delivery for students and schools, saved taxpayers billions of dollars, and spurred changes that have saved students and parents billions of dollars in reduced loan fees and interest payments.

The President also helped raise the maximum Pell Grant award by $400 or 17 percent—from $2,300 in 1993 to $2,700 in 1997—while total Federal student financial aid available has grown more than 70 percent—from $25 billion in 1993 to $43 billion in 1997—and the number of students receiving Federal student aid climbed 1.3 million or 20 percent.

For 1998, the President is proposing a combination of budget and tax initiatives that would significantly expand access to postsecondary education for lower-income students while providing new assistance to middle-class families struggling to pay for college. The request would raise the total aid available for postsecondary education and training from $42.8 billion in 1997 to $47.2 billion in 1998, an increase of $4.4 billion or 10 percent (not including the tax initiatives). The number of students receiving assistance would rise to 8.1 million, an increase of almost 450,000 students. The 1998 budget also would promote hard work in high school and college by rewarding high achievement. Highlights of the request include the following:

• $7.6 billion for Pell Grants, up $1.7 billion or 29 percent, to raise the maximum award to $3,000 and provide grants to an additional 348,000 students, in part through a proposed change to need analysis rules. The $300 increase in the Pell maximum award—the largest increase in two decades—would improve access to postsecondary education for students from low-income families, and studies show that grant aid increases college completion rates for such students.
• Need analysis for independent students without dependents would be changed so that more of these students would be eligible for student aid. The proposed expansion of the asset protection allowance for independent students—who are generally defined as at least 24 years old, married, or military veterans—would treat these students similarly to all other students, correcting an inequity created by the Higher Education Amendments of 1992.
• $857 million for Work Study, an increase of $27 million, would add 28,000 new recipients as part of the President’s commitment to increase the number of recipients to one million by the year 2000. The President also is encouraging schools to use Work-Study funds for students to serve as tutors in the America Reads Challenge, in part through a waiver of the institutional matching requirement.
• The request would save student borrowers more than $2 billion over the next five years by cutting loan fees in the Direct Loan and Federal Family Education Loan programs.
• An additional $3.5 billion in taxpayer savings over five years would be achieved through a restructuring and streamlining of the guaranty agency system.
• $525 million for the TRIO programs, up $25 million, would provide important outreach and support services to an additional 36,662 students.
• $132 million for Presidential Honors Scholarships would reward the academic excellence of the top 5 percent of graduating students in every high school in the Nation by providing a one-year, $1,000 scholarship to help cover college costs.
• $39.3 million for Byrd Honors Scholarships, up $10.2 million to provide four cohorts of recipients with the full $1,500 scholarship authorized by law.
• $6 million for the Advanced Placement Fee program would for the first time supplement State efforts to subsidize and, in some cases, pay the full cost of advanced placement tests for low-income students, who may not be able to afford the test fee. This program would help raise academic expectations by encouraging low-income students to take such tests for college credit, while also stimulating more high schools to offer advanced placement courses.

Tax Proposals:

• The America’s Hope Scholarship proposal would help make two years of postsecondary education universally available to all Americans by providing a tax credit of up to $1,500 to first-year postsecondary students and to second-year students who earn at least a B average.
• A proposed Middle Class Bill of Rights tax deduction would allow up to a $5,000 deduction ($10,000 in 1999 and later years) from income for payment of postsecondary tuition and fees. The deduction would be available even to taxpayers who do not itemize deductions.
• The proposed expanded use of Individual Retirement Accounts would provide a strong incentive to individuals and families to save for college by allowing penalty-free withdrawals after 5 years if used to pay postsecondary education expenses.
• The proposed extension of the exclusion for employer-provided educational assistance, currently scheduled to expire in mid-1997, through December 31, 2000. The Section 127 provision allows taxpayers to deduct up to $5,250 in employer-provided postsecondary tuition expenses from their incomes each year. The proposal would also reinstate and extend through December 31, 2000 the expired exclusion for employer-provided graduate education.

Direct any questions to Martha Jacobs, Budget Service