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Pagclofl
THE (vIC1E
HOl:S~
Office of the ?ress
For
l~~ediate
Release
sec~e~ary
November 30. 1994
s'rr,TEt';E.NT BY TilE PRESI:::r.N7 ON DIRECT COLLEGE LOANS
Todny the Department of Education announcec that: its new direct
lending program has reached the congressionally mandated benchmark of 40
percent in n(l'W loan volume for 'Che next a::ademic year, A total of l, 495
schools " i l l particl.pntc in this new program. ':'he 9rogra:7! will provide
$B bLlicn in leans to two million students i:< t:r.c next sc:'ool yea:c
7he Amer!.can people want a federal government that works bet:::e,::,
costs less, <'lOd expands opportunities for all Americans. The ne....' direct
lending prog):am is an important example of reinventing governmel1t; to
bet ter meet t:he people's needs.
It will l'>!1duce complaxity and costs for millions of student
hnd the option to repay ~OEL'lS as a PG:'centage of income over
tice w.tli reduc:e burdens on young families 8::ld ::nake it easier for young
people to Serve their cornmunlties and their cOLlntry.
borrowers.
The new direct lending program is 900d news for taxpayers as well.
Financ:'al nr::,lysts in a recent Morgan Stanley newsletter have already
described :.:r.is r:ew program as a "budgetary winner" that wiJ;. "lcwe~
govern".enl: fJpcndin";j 110ld roduCe the deficit." Over the long terr.:, we
expect c;o save taxpayers $,4.3 billion cnce this progTl1m ,is ful.LY t:p and
running.
Direct ler.ding represen::;s the most innovative student
fin"mci<ll a.L<! program since the creation of the Pell Grant program in
1973, mo,.."e than 20 years ago,
Gov~:rf)me!\t
can work bet.:;ter, cost less, a:ld c:irect lending proves
it.
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--
T RAN S MITT A;.:..::L:..-_ _ _ _ _ _ _ _ _ _ _ __
to:
fax #:
re:
dat e:
DISTRIBUTION
AS lNDlCATED
DIRECT STUDENT LOANS &: IRS
December 2, 1994
pages:
page(l I )to:al, including this cover sheet
The attacl!.ed draft reflect< dedslOIlS taken at our meetiIIg on December 1. 1994.
md Is {o........ded ror your
IUId comment. Please confirm lUdpt by Noon,
December 5, 1994.
"'".W
Please return your cooiments to me by NOON, TtJESDAY. December 6. 1994.
We hope to retom a 'dearBl:lOe drafi' to you on December 7. 1994. midmorniDg.
Thank you.
•
DISTlUBUTION LIST WITH FAX NUlI.mERS. Deeember 1,1994:
Gene Sperling
Wllliam Cialston
(202)456-2878
(202)456-2878
Scott Gould
Robert Carver
HandCany
Heather Maloy
Ed Emblom
carolyn Tavenner
BmyWhite
Lowell D..orin
TheoLub:i<e
Pat Smith
Ed Verburg
MiUBIoom
Alan Cohen
(202)622·5046
(202)622-5067
(202)874-0634
(202)622-6536
(202)395-4875
(202)622-0236
(202)456-1605
(202)3954875
Hand Cany
Hand Cany
HandCany
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DRAFT 1212/94
MEMORANDUM FOil. TIlE PRESIDBNT
FllOM:
[10 be dderminedl
SUII.JECT:
EDUCATION STlJOENT LOAN PlitOGIlAM" WITHHOLDING AND
DEFAULT RI!llUCTION: OPTIONS FOilIMPLEMENTATlON
This lIleIIIOraIiIIiom ~ fOlll' ""'Y' 10 realJu: Ille ~·s vision to use wage
withholding '"~ tqlIIy loaRs and to
defaults under !he Studatt Loan Rd'onn Atlof
1993 (Ille Act).
""'ute
Before p,ming !he Aol. Coogresa deleted an AdminIIlll2liaa JlI'OPDIIOl that would have enabled
IRS 10 panicipale in lGall collection if the SecreIarieI of EdIICaWln and Treasury believed
such 10 be feaaiWe. Congress sub6tituUld a ""Iuiremoeat that Ille two J:lqlartrnents SIUIIy and
repon on !he feaaibilily of IRS panicipalion. Tbetefore.!he responses to thi. meltlOr.llldum
will also be .!Ied to !hape !he l1OipOOIII to Congres•.
•
Thi. lIIOlllimlndum provides background on the new direct loan program and IRS issues,
disc\1S$oCl each of the four options. and sets forth the ~s of each of the
princip3Js, based on their analysis of the complex tnIdeoffs posed by each option.
LVIsioD.
[Thea's poin1s IO/Iii,.,. They ore lliustrative tmIy . . ..
n.e Admill.isJrlllioo envisiDIU a progl'lJ11l thai:
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MoMs It .,..ju 10' iumJ>W)ridng AlMricQIIS to _lid college by making bo17Owing
simpler and "'pgymenI less restrictive-so thai "nobody wiU be abk ttJ say they can't qfford 0
colkge IOQII",'
•
~ """ loan t.pgy~nt opIion on income (ab/lily lO'pgy), enables bonvwers
jreedfJm. to ch(){)SJ! rhe type of empl.oymmt tkslrod with the eos. offlexible rep<lY71lVll oplio",:
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G/..u borrowers the flulblUl)J 10 choose a rtp<lY71lVll pImt tIIi/I
_IS their c..,.,.1tt
nuds and allows borrowers 10 switch among repgy_ plJms Ihrouglwul the repayment
period as their needs change.
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ProvUJes borrowers with a convellieltt repgyment process, giving them lhe choict to
have thel, Wan repaymeltts-porticularly inco~ contlng.1lI r~nJs--tJJ/UJ11tIJlIcolly
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IkducItd J- Wir WQ.ga throoigh wage wldtlwltJing.
RsIJ.Ices borrowe, tI.t/uWis. •.• EN!. ofTha/'s poinJ•• j
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A ream ftom Tn:a.sury, E4uca1ion (BD), OMB, and the While House set out 10 determine
how this vi$ioo could be !IlI!UIe<I.
n.
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Batkpm'Pd
Di..a l.oA Prug,flHI. The Act Cl1OlIA:':d a Fedend Direct Sbident Lean program 10 be pbucd
in over five years, with IDIaI dilect loan volume Ning ftom S pen:ent in the fint Y"'" 10 at
kuI (,0 pen>:Ill in the fifth year, or nearly $18 billion doIIarJ. The new proeram will
improve 1_ acceas and borrow... service, simplify adminill!lllion, xed""", ddaullS, and
improve coI1ClClions. It will ;I"" save the taxpayers money by eliminating middlemen and
subsidies that do nol benefit studenlS.
The program offers I>orrowcr$ sevenU .repayment))lin.: W:ome CO.tItingent ("pay-as-you
can"), gIlIdUilled, extended, and sIaIldard-flXlld. Borrowen get maximum flexibility 10
switch plan. IIAd obIain cIefermeIIIs and fOIbe.aranl:es. They are also offered sever.al
repayment metbo<Is, sucb .. coupon boob, cbcc:ks, and bani< debits (wbidl are similar 10
wage wl~). In a4diUlln, a voiunt.llry emPloyer Wii:" witilllolding provam is being
developed. Althoo;!h still in the early stages, stedent fecdbaclc and sdlool participation rates
indicau: that the loan program is an enormous s=ss•
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At a recenl round of national forum., studenl feedbaclr was clearly enthu&iastic,
especially with regard (Q the flexible repayment ))lin•. This was pointedly expressed
at the Prc&idential roundtable at the Univer.sity of Michigan.
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Cumnuy, 104 schools are participating (represe.nting the loan volume permitted by
statute); approximately 2,300 schools appli<d 10 participalc in the second yeat, but
ED bas sele<:ted the l,sao needed 10 IlUlIlt the _Ie'S goal of 40 percent of the 100.0
.volume. Others must wait for the next round beginning in July 1996. School
paniclpallon is volunt.llry. ED cannot require schools 10 panicipate. ScbooIs
panic!paIe because the program is more respon.sive to studenlli, less burdensome 10
administer, and permits quielr.cr rcccipI of funds.
Under the old prognun 85 % of bonowers repay on schedule; in general this will not change
under directlen4ing. However. deliaults should be redU«:d through the. use of wage
withholding a.nd the ru:w inoome-<X>lltingent "pay-a.s-yOll-Qll" plan, wbicb at kuI 18 perecDt
of borrowers are expecl<d to select. Paymenu contingent on the ability to pay will reduce
the Ii1cllhood of non-payment and m.:..:..e eollections aver time. Some of those who cannot
pay will be able to remain in good standing (albeit accruing inu:rest).
ED is operating all aspects of loan origination, disbursement, and =unting through the use
of _ = S , replacing the less efficient bank and stalC ageney decentralized strueture of
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w.lldiilg.
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and IepayetS
Jicclillae oooltlli:lOts provide JIlOIlIhIy I.1'1IclciIIg and bilq of borrowers
.u-t lending can be managed mon: effectively. I'n:quent conw:t u esseruial
to maximi>e service and mlnimi>e defaults.
.
Default coIJection rnethoQ. liIaI: have proved 10 be panicularly successful WIder !he
guazanteed loan program will be reIalned. Thil; includes tile IllOSI. effective method, an
ED/IRS Tax 11eiwId Offset JIIO&IaRl S!a:IIed in 1986, whleh bas incn:ased collections by 43
percent and lias ~ (Wer $.600 million in ;nnual revenues. AlIIO, an IRS OOOIpWer
maldlin& program bas helped lID loeaIc dobtorlI and as a mu1t two improved overall
coUectiOllJ by S to 10 percent. Finally, ED i. implementing new adrninisttative will"
garnishment iWthority 10 increase coUections.
IllS bsuu. IRS panicipation in loan servicing two been viewed Iiom "",era! penpectives.
The IRS is in. tile ~ of modenIizin& its 1960'. tax system and reinventing tax
adminisuadon. Impr<lv1ng tile voi...w:y compliance nIC to 90" is a major IRS goal.
Voluntary compliance. tax refund frau4, and the IRS's effom to deal with tllese problems
will continue to receive inten'" Congressional review. Additionally, Co<tgresaionaJ has eut
the Administration budget requeatS for the rnodeml%atioo program.
•
In addition to resource eoruiderntions, the IRS eoru:enuatel its collection in higher dollar
value """"" !hall does ED (whicl! deals witll an average defaulted wdent loan debt of
$2,800). The IRS does nOI, ca.nnot witllin ils current 'ystl:m, and will not under tax sy5llm1
modernization, mainlain !llQI1lhly a<:COunl data on taxpayer status. Validation of taxes paid
and owed, reflecting reconciliation of employer reported data and individual tax returns, does
not occur until some six month. a&r the close of the tax year. Nevenheless, as diseussed
below, we have identified seven! approaches that will involve the IRS in varying dcgr_.
Ill. OpliOlls
We considered four option. for servk:ing and collecting ditect loans: (\) IRS esIabIishing •
special sWdent loon operation; (2) IRS using the current tax system for loans repoid through
wage withholding only (ED doing all other functions); (3) ED running it! current ope.ratioIl
with incentives 10 business to maximize the availability of "'age withboldi.ng; and (4) lID
running the operntion wilh a mandarory requirement on finns with ten or more employees to
offer withholding. Each option addresses two key eomporu:nts of tile President'. vision:
wage withholding and default teduction. Below i. a description of how each option wOllld be
implemented.
Option 1. IRS Stwderu Loan Spt.t:U;d Optl'<llilms (FedR.ral FrE or Contracton)
Once legi,latioo or other legal authority is oblained. Oplion 1 permits !itS involvement in all
aspects of student loan coUections. This option, which eouId be implemented in phase"
provides all boffo"'",", the full nnge of service from billing througb collection .
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�DEC-02-1994
•
15'26
ED would origi"ale the loans. IRS would ..m.:o lIIId collect all repaymenu liu:uu&h a lean
. collection IY_ lIqIIiI'iole &om die 1axlyllem. Thia would offer bomIuIen maximum
fIcxlbillty in IennS of repaylDCftt pIa.n. and mcthodJ, inclucling wa,ge wilhholcllng,
In Phase I, ED', direct lean contract would be transtemid to die IllS for program
admlnislralkrn.· Unw I.'baie H, the IRS either would ereaz.e a new .yllem separate &om die
tax aystem or _tin"" ID contract SIIldent loan program admiIl.isttation. In adIIitino, Phase H
would noqum. all employers ID withhold lIIId report SlUdent lean payments to !he IllS scparlI.I<:
from tax wi~. Employer withholding of studem lean payments wouid be traekod on
a real-time bub and requm. fi=!uent reporting ID both IRS lIIId borroWCII 10 ensure a high
level of employer compiian<e. In addition, assuming pwpcr lqiolio.tive &Ulhority, IRS could
bol_ coIl<ctiDAs tl!rough the use of tax clara that It oIhcIwise mainlains,
Customer Seryj&&, In Phase I, compaIable 10 that ewrentIy being provi<lfld by ED; in Phase
n, borrowers would have the option of wage withholding willi the same a=ss 10 Infonnalion
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andilexiblllty to swiech plans as otho:r 'bcrnowers.
.
Pglj!!caI!:gnsidernrloDI, Positive: For those who believe IRS involvement will enhance
conectino efforts. Negative: tax writing commilu:es especially m.a.y resist IRS involvement.
Employers will resist an additional government ~ reprdlO$S of !he cost. Student
aSilociation. have lobbied against IllS participation, doubtinJ IRS efficiency and CIISII)mCf
service. Financial institutions offering lIu:amnteed student loans may use IllS participation ..
.: w:tie to cIi~e school participation in direct lencllng.
Default Ba", aM CoII",tjonl Impact. Some anticipale that having borrowers deal with !he
IRS may enhanee the motivation 10 repay. However, IRS ~ willi other oon-tax
issues, such as tax refund offset programs, indicata that tax compliance declines when the
IRS attemplS to collect non-IU. debts from ra:xpayers.
Bud.et Cg=ueQru, Soc Tab. IRS would need continuing additional rcsoun:eo 10 that its
primary, 1aSk·-the collection of _would nOl suifer. The estimal<d cost to ms is 5600
million for Fiscal Year 1999, basm on !he use of approxima1ely 6,800 F1'Es 10 coI1<C1 4.3
million leans in repayment and approxirnafl:ly one million defaulted leans, If ms
administered ED's contract, as in PIwie I, the estimated annual cost i. $lI5!l million, !he
same as ED', el<p'ded cost. ED estimates that its cosu would be reduced by S7SO million.
Costs may be covered within ED', baseline funding for loan administration.
Burden ILl Busirn:.>~. Soc Tab. The estimated annnal coli i. $1.7 billion opread over _
million employers, assuming 30 pen:ent of all borrowers eJect wage withholcllng and there
are 20 mUlion bon'owers,
Option 2. Split Servicing: IRS Uses 1M Ta;r Syswn for Wage Withholding
Legislation for this option would provide for IRS involvement in student loan coUectino for a
population that can most bcnelit from using wage withholcllng: borrowers who earn
wages would be able to repay student loans through the tax structure, wilh whieb they are
familiar, Employers would not ru:a:l1D hlep any scpamte ac.counting reoo<ds, or provide any
loan informatkKt to eit.bef IRS or tht borrowers.
1l1.rgoted
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Under OpliDn 2, IllS would collect Joana whenever bonowm elect 10 repay thn:lu&h
emptoyer . . . wi!/>lloldinj:. ED -.ld continue In c.oIkct wider all adler repayment
methodo, ~ I!lICk ""'-" fiNacially IUIIIble to maloo paymeBta, aIliCl would pcrfcnn
wvicin& 1'IibcIiaIIs for ill repayen (pJ:ovidine loan _ t daIa IIOId c:cwIMd!",. p«JCeIIIng
defcnncnts and fOfbeatanees. and approving switches l>etweion repayment plans and
methods).
•
Bom:>wen cl>ooGing Option 2 wage withholding would have to tile a tax: l'CIIIm to report the
loan repayments as a tax. Upon filing, insuflleient or de1I.nqUCllt tax: payments would be,
JOlely an IllS tax responsibility.
•
CU!IO!ru;r Se!y4;e. This option -.!d provide . . . withhold;", for borrower, who are
employed and· ha~e sufficient I&U$ withheld liom their saIaIy to saIisfy their total laX
lial>ility, indllding the loan repayment. Botr"w"... who were \Itlemployed, self-employed rtf
do not elect wage withholding could not participa'" and would receive no bt.nefit from this
program. IIom>wers who elected w;tI1hokllilg would nOI be, able to monitor or evalWile. on
an ongoing buis, the effect of loan payments on principal and interest. This would limit
their ability teo ch.ange repayment plans, but they would have a COIIVenieat repayment process.
EieGling borrower.' tax relums would be, more comptical/ld and borrowers would be, subject
to ful1 IllS toIleetion procedures if they underestimal/ld either their loan or tax liabililia.
Political ConsjdwtjooS, Po6itive: For those who believe IllS involvement will enhance
""u..:tiOll efforu. No additional burden on employ,,",. Ne&ative: the same as 0pIWn. 1. In
addition, the taX-wriu", commilUX:$ may ()IlpOSe the conversion of defaulted IlUlk:nt loans
into lax liabilities, wruch would increase ru accounts reccivablea. They may also fear the
impact on laX compliance.
Default Ball; IJ\d CoUoctiOllI. For those cIocting wilhhokllilg. the possibility of student loan
defaults u currently defined is eliminated. However. these hom:>wen mi&ht OW" additional
taxes.
dollar delinquencies, which are now co~ by ED, would not be, collected
because they would fall below th. I1lS delinquency threshold.
Bud~~1 Con&Qpcnrn. See Tab. The W would need additional xesources. Using the taX
system would n:quire approlcimalely 4.500 oddilional FTES at a cost to the IRS in FY 99 of
5370 million. ED estimates its costs would be reduced by $500 million based on the
assumptiOIl tha1 most borrowers lilo:ely ta default would elect ru withhohling. AI in Option
1, c.oru could be met by a t:ra.nsfer of funds already identified in the ED mandatary loan
administration fund.
Burden to BulinesseS, See Tab. This option pwei no odditiOllal burden to employe....
r-
,
DprimI 3. EJ.) carries "'" all kl<In fonctio,.. and pnwiiJu i_lllives to business l() III4%imiu
avail4bllily of wage wililJwfdJng. IRS .nhtmcu tkbt coll«tion capability.
. This OptiOll buikls on the current direct loan program. It would provide all OOtrowers the
full "",ge of service from billing through colioction, including complell; t1cxibility in
ch-mg and cbangIog repayment plans and meIhods. ED would retain respoolibility for all
aspe<:tlI of .tuW:.t loan collection and s.crvicing. using its cutrent SySUlm regardless of how
•
s
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Under Ihc auIhority prOYidod by Ihc Omnibus k:oncjliation Act of 1993, IRS will be
providing ED wiIh aoIjlill<d gt'Of6 income and filinc _
Infomllllioon about bomIoIIIers who
chooae ~tio&eIIt repaymom.t. ED would seek additionalqislation so that IRS could
>bare additiooal taX return infonnaliM on inOOlllC-<:OntingCllt and defaulting borrowers to
enhance collections.
As part of Oplfm>. 3, ED would IaunclJ • public information campaign encouraging employ"",
to provide volUlllary ~ witAhoiding as an inexpenAive. employee benefit, similar to Ihc
savings bood prog.ram or bank debit option (wblch would not and if join cban&e). L1I.rgc
employers «('.O\/eting 80 per"""! of all employee$) would be lilrzIy to p:anicipaIe be"""'" of
existing awomala:! payn>ll capabili!lcs. ED would provide softwale and t=hnical support to
employ.... who reque>lad SOICh .ali ........
C"''''mer Service. W"lle withholding would be an available option to 80 pen:ent of Ihe
borrowers wbo might want it. Wage withholders would gain tile same =ss to information
and flexibility to swilCh plan. as all OIlIer borrowers.
Political Considerations. Positive: ..."., as Oplltm 2. Ne&alive: some borrowers would be
denied the wilhllolding option, because.their employers don't participate or not employed in
wage withholding jobs.
Default !j!IG and collectiODS ill!jjilCl. Some anticipate that wage withholding may reduee Ihe
•
default tale..
iIlId~ C<l!!SeQllOIl""s. Approximately Ihe same as projt<:ted coot of current ED ' y - ($li.SO
million in FY 99). IlI.IdgCl neutral, tho&e costs are USlI/IlIilII in current baaeiine CSlimaleS.
BurdI!!! to Business. See Tab. BaJ;ed on Ihe assumplion that twenty million borrowers arc in
repayment, with 30 percent electing to repay Ihrough voluntary employer withholding. Ihe
estimated annual cost is SO.S billion.
Option 4. ED Carries 0u1 all Fu1Ictions with MandDlory PtmicipmlO11 jor Firms with Ten or
Mort Emp/JJyees.
This option closely parall.eIi Option j. The differenc.e is thal wage withholding would be
. available to """,Iy everyone who is employed as • wage earner. Legislation would requite
businesses employing 10 or !nO'" employees to partic:ipale.
Employer reporting to ED would remain the same under a mandatory 5Y_ as under a
voluntary system. assuming ~ to full com~ with !he i<lw. &epom of IlOIK'Ompli.w:e
would subject employers to 1001C comp1ianee reporting and compliance review •.
Customer ser'd&l;. Positive: As in Phue II or Option 1. wage withholding would be an
available option foc neatly all employed borrower., an.increase of about S percent over
OpriDn 3. Wage withholders would gain !he same a=as to information an4 flexibility to
switch pw.. as all other bon<>w...... Negative: as in Optl<m 1, employers would incur the
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casu of l1li ~ ",a",\ale.
pPWisaJ SlJI,idmDQJlS. Nany empktyers would ~ an UIlfunded federal mandate.
Payroll asoocialiMs tepo<t widapn:ad ditaaIi.Cw:IiM witb Ille increased n\llllber of
lIovunm.e1lt mawh .."j Will' WiIhhaIdinp aDd the 'compIu:ity involved, Congress i. Ill<d.y 10
....ust CMCIi", qialaOOn IiIat i•. - addi'liooal bllrdens Oft bouineu.
lJtfault tate _ mJletjjoos immet The impact is the same u ~ 0pli01Is ] and J.
Bydgll! !l!lDsequenAAS. Approximatdy the same as projected C05I of cumnt ED
($850
million). Budget impa<:t 00 ED is ~ to entail only a niinimal inc.reasc, asaumi", clo...
ro full employer comp!ianc:e, Employer n~ is expected to be modest.
Bl!I!lcn to bu~ Asauming ckKe 10 full complian<:e, burden i. ~ to be the same as
under 0pliDn 1. TIle estimated aIlmw C05I is $1.1 billion.
'y_
Below we asses. the costs aDd be.nelits of each option hued on the following crit.eria:
customer SI!%V~, political considerations, default rate and collections impaJ:t. budget
consequences and hurden to businesSes.
•
CusIomcr Service
Ex<:ept for PIwe. I of Option 1 and Option 2, all option. provide comparable
borrower .service•
•
Opaon 2 Il'1ides off reduced borrower set\'iI:e (no real time access 10 data)
against the reduced cos! to employers becallse of use of Ille regular tax sy_.
TIle use of Ille to:x system may be ~ by some borrowers who would
otherwise elect wa&e wilhholding as a negative customer servU::e factor.
SimilArly, Option 1 may be viewed negatively, even Ihougb in lhat option loan
debt i. not tlIX debt.
.
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Foeu, group< indli::ate borrowe,. are coru:emed about priVlll:Y, eopocialIy
regarding wage withholding.
Political ConsWeI"ation.
Sludell! associations have expresoed oppo.titiol! to any involvement by Ille IRS,
... in Options 1 and 2. Those iISiOCiations and the opponents of direct l.endJng,
!he banks and se<ondary markets, could play on Mudent fean to pressure
schools to stay out of direct lending.
•
All options require legislation in varying dog...,. &Ild wilh different potentia.l
reactions. TIle employer mandale of OptIons 1 and 1/ would lil<IIly arouse !he
greatost opposition. All options call for Ille ability of IRS 10 releue or use
information on individuals now not made available outside the laX sYIllem;
7
�DEC-02-1994
19'28
"
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priv~y
and disclosun: conc:ems may be raised•
Alty ~is!arion pulling gn:ali:r coolrol over the proenm into Treasury (i.e.,
()pI;iM 1 and 2) will be tai_ by the c4.-ion cornm.unily and prohably the
House &l<1CII.Iion IiId Ur.bor aDd Se/IaI.e Labor "'ld Human lksources
cornmluees, even UAder possible ....... canfigumlionJ in the 104111 Congress.
0pIi0n.s 1 and 2 coIlhl be mwed by IIIose eonr.emcd about the quality of tax
a.!mini_tioo as detrimontal Ii> IllS' ability 11:) c.azry out its primary mission.
•
Default Rate and Collection>
Some believe that IllS administmtion of SlU4ent loan collections in ~ 1
and 2 ffilI.y ~ loan defaullS. On the other hand, IRS (unlike ED) does DOt
f",-us it. limited resouroes on <OIlecting smal1 debt and voluntary complia_
with the taX laws wili decline. Under Oprlon 2, where loan debt bec:ome.s tax
deb(, it is lI/JI lilzIy sud! debts wili be collected. TIll! &reat majority of
defaulters do Il<1t have the money to repay, which leaves IRS no better than
ED as a debt eoIIector.
With the additional inoome and employment infonnation, propoied WIder
Oplioru J and 4, ED woukl be able Ii> improve default conections•
•
•
Under OpdQIIS 1 and 2, IllS requires continued new Iiuldlng. 'Iboae resources
C<lUld be taIo:n from tile existing ED estimaleS in tile mandatory ba1IeIine for
loan administration.
under
If
Oprlon 1 IllS eslablisbea • separaIl> unit with 6,800 Fedelal FTE,
those FTE are above CIIl'tent estimaIeS and would have Ii> come out of some
other agency', allocation Ii> remain within the SlalUli>ry government-wide P1'E
reduction ruIeo. If Option 1 is done by contrnctor, the FTE reqt.lirements arc
already in ED's ceiling. Option 2's FTEs would require ceiling adjustments,
redw::ing other "Ilene;"'" allotments by 4,SOO.
Opru>n 3 is ED's current sY'"""', and requires no new funding or FTE.
Option 4 could requite S5OO,OOO to pay for tile employer incentives and 20
additional FT&.
•
Burden to Businesses
Regardle$S of the relatively .mall burden imposed under Oplions 1 and 4, tile
bouin... community wili argue that it i. an unfunded mandate and wili object.
•
8
�. '
•
WhilI! 0pli0II 2 is INIIldaImy all bU5lner.w because it in""",.. the laX 1}'IIem,
no additional bulden would be imposod,
III ()pOOII 3, tIIae is DO mandaII:d employer burdell, The perception changes
from a govemtDl!Dt IllIIIdak! to an inexpensive benefit.
v~
v....
sF dctiaa
IRS SlIiIknl Loan. SpecI4I Ope.rotions (FedeNi FIE or Controcwn)
Split ~rvicIIIg: IRS Use. tN. Cilmnl Tar SyJ:ltm for W"8' wuitholding
ED Wit1t lnantives to BluiIltSS to MtJ.Xim./zt! Availabilily of w..gt
WitMolJiJlg
_ _OpriDTt 4.
ED Ciurlu 0111 ..a Flmctlons Wit1t MtlIIIkiMry P4nicipGIloII for Finns
with Ttl> or More Employ....
•
•
9
�•
SURVnary'Or student
In Progra·~·,ptlons
I"W UUH.tU tlIlPUUlUD
a-a
• ;
and COS1&
111 mIlIlUW'
~
~
Servtce Enlity
~
w
Options and Costs
Internal Revenue Service
Special Operation
Using
Usll'll a
Federal FTEs
Contractor
EstImated Program Costs (FY99)
- IRS
- ED
- Total Cost
Budget Consequences
.- .. - - ...
- ED
I - Net Incremental Cost
I - IRS
Burden to Businesses
..
$60Cl' ($750
($150
$\,700
Using the Current Voluntary
Withholding
Tax System
$750
$100 .
$850
$600
$100
$700
".
$151}
$400
$400
$000
..
~
"
~
~
$400- ._-
($750
$0
$\,700
.
NOles
1 All IRS and ED cost ""mllle. are (0.- FY99.
2 aUlden Eotinlll..
m the c:ost to buol........ wIlo"!he _
loan _ _
reaches
its .Iz.od capacily 0120 mmlon borrowers In mpaymenl, tt 10 lS8umed thol under 8 mandlll"'Y
witNloldlng ",ogr.... e mUlion borrowers wooId elec:l to repav throUgh payroll withholding. Under
lhevolUlltaoy wflhholdlng progmm. 4.5 mllll<n bom>wers would eIecI \0 ,_lhrougli
employer wltlhllding.
3 C_I_the coot Glrolec11ng .ho mdstlng inventory 01 defaulted 0 1 _ Ioano!rom FFELP.
''I''....
Department 01 Education
($450
($50
NA
Mandatory
Withholding
on
$0
$0.
$500
;
$0
$850
$850
$0
$850
$850
-"
m
'"
...
.
.
.$0 I-
$0
$0
.
$\,\00
~
~
m
"
,
~
~
~
~
�FEll 07 '95
eS'ZZl'M OFFICE OF SECRETARY
l:':IT£O STATtS DEP.-\Rnl£:-IT OF E:OlC.-\TJO:-l
ofntt or tHe '5£CU!;\AY
FAX TRANSMITTAL
ORG~'1ZAnos:;
______ _________________________________
~
PHO~~~~~ffiER:;
FAX~~FA:;
________________________________________
______________________
~
________________
FROM:___.___~~~~\~<~~~I~le~~~~~_'______________________
PHONE~~~ER:
•
FAX~~~ER:;
~SAGE:;
________________
____________
~~~l~~,$~~2-
~~
__
~
________
~
_______
___________________
__________________________________________
CONDDElt"llAIJTY Nong;
THIS TllANSMlSSION III tNTEl'o'DliD FOil AND usnuCTED TO THE ~~\1ED
ADDRESSEE ONLY. rr MAY CONTAIN CONFlD£NTlAL AND/OR PIIlVlLEGED
~1lMA·noN. IF YOU IlECElVE 1lDS TRANSMISSION IN ERROR. 'fOt! ARE
NOlll'lED THAT YOU ARE PIlOBlBrrED ntOM READIl\G, COPYING. OR
DISSEMINATING THE TRANSMISSION.
PLEASE CALL (202) ~1.3000 TO
A.IUI.ANGE FOllllEnJll."1 OF 4NY TRA.'ISMlSS10N SENT IN ERROR. TRAJ'o'K YOt:.
•
~PAG£(SI TO FOUOW
)
�FEE 97 '95
<JS:22PM
"ncr
0, SECRETORY
UNITED STATES DEPARTM£NT OF EDUCATION
omC& OF1'fm.SECRI:rAlQ'
February 7,
1~95
Paul Dimond
To:
Bill G.lston
Gene Spe"ling
From:
Frank Holleman
Chief of Staff
Subject: Revised Consolidation Plan
On January 31, I faxed you the proposed Direct Loan Consolidation
Plan sent from Secretary Riley to the President. The plan has been
revised in one respect, Section 6, and today the revised plan was
sent to the President, with a cover letter. The revision proposes
•
t.hat the Department, at least during the first year, not allow
'single FFELP loans. which are repayable over 10 years, to be
consolidated into direct consolidation lo~ns, also repayable over
lO years. Sorrowers with single FFELP loans would be permitt~d to
obtain a direct consolidation loan if they seleet another repayment
option, such as the income contingent option.
For your information, attached is the Secretary's cover letter of
today's date and the revised plan.
Attaehmemt
•
.00 MARYLNt'D A\'J:, 5.W, WASHIIfG1"01'f.
O..r m:.I.tll1on 1# to
f:n4'MtY fqWlI <1Ce«.
ox. :Z02(t'l
(I NWllUllon GMln pl'l;/JI'\_ .a~f.Qft4.I ~Uomec r~hoql ~M No.tto~
�FEB 07 '95
"
es:W'r1 OFFICE OF SECRETARY
P,3/13.
•
•
UNlTED STA'ffiS DEPARThIEI\'T OF EDUCATION
February 7, 1995
Honorable Wlllilllll J. Clinton
The Whito lIouse
Washington, DC:' 20500
Deu Kr. President:
On January 31, 1995, 1 transmittea to you the Department of
Education's proposed plan tor implementation of the Direct Loan
COnsolidation proqram.
In Section 6$ we discussed the issue of
COn$o11dation of single FFELP loans payable over ten years into
direct consolidation loans also payable over ten years. Wo
recommended that the Department would not promote such
consolidations and that the Department vould. where appropriate,
counsel aiainst th.... ; however, if a borrower insbted upon
consolidatin9 a single FFELP loan to a lO-year plan, we
•
recommended that the borrower be permitted to consolidate in that
way.
staff and I have tbought further about this iasue and would
like to revise the proposed plan submitted to you. Our
My
rBco~endation
is that,
durin~
the first year of direct loan
consolidations, the Education Department not consolidate single
FFELP loans. payable OVer ten years, into direct consolidation
loans payable over ten years, for the following reasons.
Ae we stated in th.. proposed plan transmitted to you, we believe
the Department has the legal authority to consolidate a 8in91e
FFELP loan into a &in91e direct consolidation loan with a ten
year repaymant plan. However, underlying the design of our· plan
is the conclusion that we should proceed cautiously, consistent
>lith our ability to handle the administrative arrangements of a
complicated prQ9ram during the first year. For that reason. we
recom=ended consolidating only ~p to ene million loans the first
year. about 5t of the outstandin9 loano, and a careful approach
to publicizing the program. The statute expressly provides the
Secret~ry discretion to "not offer such loans it, in the
Secret;..ry's jedlJlOent, the Department of Education ,:loes not have
the necessary oriq1nation and servicing arransements in place for
such loans.
Of all. borrowers seelc.1nq consolidation, those with Gingle loans
Who want to remain in a tan-year repayment plan have the least
•
need to consolidate.
Borrowers with multiple loans need the
benefit of being able to make one loan payment to one lender.
Borrowers, even those with a single loan, can benefit from the
additional repayment plans offered by direct consolidation loans.
inclu.dinq the income contingent option.
HovQver, borro...ers with
�"Ell 07'95
P.4/13
0S: 23PM ort!C£ OF SECRETARY
.' 0
.0
Page
~
- Honorable William J. Clinton
.. s1nqln loan Who are seekinq to consolidate but retain their
'r....ant ten-year method of repayment .... e primarily receivinq the
benefit only of lover. interest ratea. During thia first year,
When ve vill be facing the difficulties Of beginning a nev
FCl<Jram, ve belia"e va should focus our r"source" on horrowers
who consolidate aore than one loan andlor take advantage of
repayment options other than tha tan-yaar repayment option they
currently have. .
FlU:ther., lIome member.. of congre.. s have expre....ed the belief that
SUCh conBolidations are, in reality, refinancinqs rather than
consolidations. Tbey therefore beli"",e that such consolidations
are cont.rary to the intent Of congreaa in enacting the program
and &hollle! not be includee! in our diract loan consolie!ation
program.
•
In addition, under our proposed direct loan consolidation plan,
borrowers vith Il single YYELP loan can still obtain a direct
consolidation loan it the borrower wants to select a repayment
option other than the ten-year method. A borrower vith a single
FYELP loan would be able to obtain a direct consclidation loan
with the extended payment option (more than tan years). the
graduated payment option, or the income contingent· option. All
would pormit those borrowers to chcose a lower monthly payment,
if the borrower decides that a lower monthly payment is what the
bo%"Z'over vanta or needs.
these reasons. va believe it is the better course not to
allow borrowers with single YTELP loans to consolidate into
clirect .:onsolidation loans vith a ten-year repayment option,
cluring 1:he first year. Tlli. approach is cOMistant with our
dBcisiol\ to proceed cautiously the first yaar as we develop cur
aclminis1'.rative ability to handle t.his program. As indicated in
the pIa" I sent you on January 31, at the end ot six months we
are gol"q to evaluate the plan as a vhole; at that time, ve can
For
consider how the program has operated in this respect also and
decide how to proceed in the future ..
Therefore, enclosed 1s
It
revised Version of the plan I submitted
to you on Je.nuary 31, wbich contains this recom:mendation in
section 6.
Yours sincerely,
\
•
~
Richard W.
Riley-.~"
�FEB 07 •95
\lS' 23"M CFFlCE OF" SECRETARY
•
Fe4cr!1 Direct consolidation Loan Program Roll=Oyt Plan
Tbi. 40cument sets forth-the proposed plan for rolling out the
Federal Direct Consolidation Loan Program and specifically
4iscuSS8S the folloving'
1. Legislative Authority tor the Federal Direct Consolidation
Loan Program
2.
3.
Benefits to Taxpayers
4.
COnsolidation Test Project
S.
Implementation process
6.
COnsolidation of Single FFELP Loans
7.
Access
8.
Tilllinq
9.
•
Benefits to Borrowers
Savinqs
•
�P.6/13
•
A
PU!JiI
J'OR IlIPLEIIEIITA'nOll OF THE
I'llDIDIAL DIRl!C'l' COIISOLnlATIOlI LOlIII PROGRl\l'I
The plan lias J>een prepared in response to the President's
~ tllat tho Secretary llllou14 sW:ntit to hill 'by the end
of January 1995 .. plan for iapl_tation, of the Direct Lean
Ccmsoli4ation Progr.....
l... Ic9:ialatiyll AutIIority for the Federal PinG .C!lnsolidttilm
LCIM Program
•
In the 1993 omnibus Budqat Reconciliation Act, COngress expressly
provided that, in certain Circumstances, ~rrowers would be
permitted to consolidAte Federal Family Education Loan Program
("ELf) loans currently in repayment into the Federal Dircct
consol1d1at1on Loan Program. In new section 428C(bH5) added to
the Higher Education Act. congress provided that if • ••• a
borrower is unable to obtain a oonsolidation loan from (his/her)
lender· or if the borrower • ••• is unable to obtain a
consolidation loan with income-sensitive repayment terms
..ccepteble to tbe borrower from (his/her) lender •••• • the
Secretary • ••• lIIIall offer any such borrower who applies for it, a
Direct Consolidation Loan.· Thus, a borrower who satisfies
either <>f the two conditiona can obtain a Direct Consolidation
:t.oan.
That aama section qces on to provide that a borrower who applies
for a Direct consolidation Loan =ay repaY'it • ..• as requested by
the borrower ••• either pursuant to inco=e contingent
repayment••• or pursuant to any other repayment prOVision under
this section."
I~ S~1rYt
congress allowed an FFELP borrower 'to consolidate
hia(her FF&L debt (as well as other Federal ed~cational loan
debts) into a Direct consolidation Loan it the borrower could not
obtain a consolidation loan or a consolidation loan with income
sensitive repayment terms, acceptable to the borrower, from
his/her lender. This plan describes a measured way tor the
8ecreta:.-y to implement this Congreuional desiqn.
•
The currentoutstandinq FFELP loan portfoliO 1& approximately
$i2 billion representing soma ~ million borrowers. These loans
are held primarily by lenders and secondary markets; loans in
default are held by guaranty agencies and the Department of
Education.
�",
..
..
•
3
ilmeUtll to BorrlMltll
Direct loan consolidation provides important benefits to
i>orrove:<'e in repayment. (II.I Borro\lerB can choose from a variety
of repayment options, includinq the income-continqent, or pay-as
y .......,_ option. (bl Borr_era thUII have the opportunity to lover
their monthly.payments and adjust the repayment of their etudent
loans to . .at their eurrent, finaneial and personal needs. This
ineludes, for example, borrovers "ith families, borrovers
startinlJ ne" bw;ine....e.. , and borrovers "ho decide to do eo_unity
work. All can benefit from these repayment options. (el In this
vay, direct loan consolidation qives borrowers flexibility and
more control over their lives, by allow!n; them to seleet the
repayment method that best fits their personal situation. Just
as i>orrC)wers may choose to lower their monthly payment"i>orrowers
may also chanq8 repayment options and repay their loans aore
quickly, it they choose to do so. (d) In addition, borrowers who
are dissatiB~ied with the service they are receivinq from their
lendars viII have the option of movin9 to another loan servicer.
As a reault, direct loan consolidation should encourage better
servicing of student loans by all lenders and loan servieers.
•
At. the same time, the choice. is in the hands of the borrower ~ No
borrower 1n repayment is required tD seek a Direct COnsolidation
Loan. I)irect Consolidation Leans are all about choice, options,
and cRIIl!,eti tion •
.l..
DlnefitB to TaGlIller!!
Tbe Direct Consolidation Lean program 15 desi;ned to ,convert
outstandinq loans into Direct Loans. Direct Loans utili.e
Federal funds at the Gov8rnment'8 borrowinq rate.
As a result of
tbiG change, the net savin;s of the loan proqram would be
approximately $420 milllon for every one million consolidations.
It consolidations occurred at the rate of Dne million per year
over thQ next five years, the net savin95 VOQld amount to a&
~ch
as $2 b.1.ll1on •
.L.
s:mlllolidatign 'fest Pl'pjec1;
As a reGUlt of the publicity qenerated fellow in; the President's
october 1994 press conference and a few ertieles in the press,
the Department received approximately 100,000 inquiries about the'
Direct Consolidation Loan Proqram. The Department has selected
the first 35,000 of these inquiries for a consolidation test.
Tbe purpose of this test is to determine:
•
•
'.
•
the understandin9 of the information and forms which
vere mailed;
the type, size, and alJe of loans being
consolidated;
the effectiveness of the computer ayatem •
�rEB 07 '95 e5:24PM OFFICE OF SECRETARY
•
4
Based on the information·obta1ned from this test, ve vill revise
and improve the material and processes, as appropriate, to insure
effective implementation.
These first 35,000 inquirers vere sent a brochure that described
the Direct ConsoUdation Loan Program and the IndividUal
.
Education Account (lEA) repayment options available under it.
The brochure included a tear-off coupon that requested
information about the borrowers' outstandinq loans. Interested
borrow...,.. vere told to caplete the coupon and return it to the
Direct Loan SGrvicinq center. All of January 16, over 14.000 of
the 35,000 inquirers Who vere lIent the brochure had returned the
coupon with loan information.
When received at the servicinq Center, estimated monthly
repayment '-OUllts are calculated under the various lEA options
for each borrower. That information, alon\J with an application
for consolidation and other information, is mailed back to the'
borrower.
•
Those.borrowers who are seriously cansiaering consolidation are
instructed to complete the application form and return it to the
Servicinq center. They are also \Jiven a toll-free number to call
if they wish to speak to s counselor who can assist them in
.aking their decision about consolidation under the Direct Loan
Program,
Wben apl?lications are received, the loan holders are contacted to
determine the e~act payotf amount, payoff Checks are \Jenerated.
and mailed, the note is proceSsed, and the Direct consolidation
Loan is entered into the Direct Loan Oriiination subsystem. Once
the loan is booked, it is forwarded into the Loan Serviainq
system where it joins the stream of all other loans in terms of
communications, bills, and payment processing.
~anuary 16, 55 persons completed the process and their
loans are nov being consolidated. ~hermore, these 55 persons
Vere called by the Department and they indicated that the
aatariel they received prOVided them with the necessary
information needed to makO thoir decision.
As of
~
•
XU1eaentat1!!D P"nl!;!lU
The De~nt is ~ecommendinq a phased-in approach, with our
goal to consolidate no more than the loans ot one ~illion persons
(approximately
of those in repayment) in the first calendar
year. We plan to achieve this throuqh a controlled public
information campaign consistinq of 4-6 information announcements
placed in aajar newspapers in tey cities plus public service
announC8eente (PSAs). The cities in which the announcements vill
run vill be selected based on estimates of loans in repayment in
a state. They will he Beatt.red throu~hout the country and the
5'
�FEe <ir1 '95
•
05'25PM OFFICE OF SECRETARY
P,9/13
5
Dapar1:loent will ad.just its, publ1c ift£o"",.tion campa19n based 9n
the level of responses received.
After an assessment ,of the test materials an4 procedures, the
Department will .ake all necessary revisions in preparation for
rollinq out the Diract Consolidation Pret;ram. Specifically, the
Department is planning the following steps:
1. Send info~ational brochure$ to all inquirers beyond. the
111itial 35,000;
2.
Send. application forms and other ..terisl to those persons
who respond to this information;
3. Assess the impact of tho controlled information campaign and
adjust the approach, as appropriate;
,
4.
•
s.
Reassess tho Operation of the Direct Consolidation Loan
Proqram after 6 months; based on that review, make any
appropriate modification. and revision. to the program;
Develop a 5-year plan basad on the results of the 6-month
re'lj.ew.
If'the Department is overwhelmed with requests after its initial
information campaign, it is prepared to handle additional volume
after a three-month delay to gear up. If such a delay is
necessary, tho inquirers vill be notified and provided with a new
response date.
This lov-key, considered approach will allow the Department to
implement the Direct Consolidation Loan Program while gathering
the necessary information for assessing its efforts and makinq
modifications ae necessary. The Department,vill track the
results as follows:
-
•
!I'IImlXIr ot Inquirers
Number of Inquirers vhe tollow up with loan information
Number of Inquirers who actually submit consolidation loan
application ferms
Number of loan consolidations completed and volume of lo~ns
DistribUtion by type of loans and dollar amounts of loans
consolidated
Distribution of consolidation borrcvers by income
Time required fer process
Number and types of questions raised by inquirers
Appropriateness of communication and forms.
one area to Which the Department will pay spacial attention is
the certification on the Direct Consolidation Loan Proqram
PrCllliGS()ry lIote. The borrower certifies that he or she has
contacts!d his or her lender and v!is either unable to obtain a
�,
.
FEB 07 '9S
05' 2Sf'M OFFICE Of" stCRETAAY
•
consolidation loan or va. unable to qet acceptable income
sensitive
tOrJllG
en the coftsolldaticn loan.
Some concern hes been
expressed that tbe Department bas not made that requirement
visible on0U9h and this 6-month period will'provide the
opportunity to ensure that this certification is highligbted and
to deter.mine whether any type of validation is appropriate.
Tbe Department viII proceed carefully, as set forth above, and
monitor ita results. We viii adjust our plans based on our
actual experience.
,
.L.
~Udition of
Sinqll! J"m.P Loans '
Tbe Department has tbe statutory autbor1ty to consolidate single
FFELP loans, payable over tan years, into direct consolidation
loans, Also payable over ten years. However, so~e Conqressional
staff representing their ~mberB have taken the position that it
vas neVer Congress's intent to permit consolidation of s1n91e
loans tor the purpose ot interest rate reduction. It is their
position that 'consolidations of such loans are in reality only
refinancinqs.
•
While the Department reads the statute to pe=it such
consolidations, the statute also expressly grants the Secretary
the au~\ority to "not offer (direct co~olidation 10an&J if, in
the Sec,...tary'B jud9ment, the Department of Education does not
have th'a necessary oriqination and s"rvicing arrangements in
place f"r such lCHlns." Tbi. plan otherwise. in the proposed
limit on the number of
d1re~t
loan consolidations and the planned
publicity for the prQ9ram, reCQ9nileS the need to proceed
cautiou.ly vitb this pro9rBm, consistent with the Department's
a~inistrative capacity to handle the work it will entail.
The Department therefore recommends that, during the first year,
borrowers with single FFELP loans, payable over ten years, not be
permitted to consolidate into direct consolidation loans with a
•
ten-year repayment plan. Such borrowers dO not have the same
need for'conso11dat1on as borrowers with multiple ~oans or
I:>orrovers with single loans who seek one Of the other repayment
options (aucb as the income contingent option). During tbe first
year, ~e Department's administrative resources should be
allocated to those borrovers with the greatest need for direct
loan consolidation. Borrowers with .in9le FFELP loans would be
permitted to obtain a direct, consolidation loan if they seek a
repayment option other tban ths ten-year plan they currently
have.
As atated above, at the end,of six months, ve vill evaluate the
p:oqress of the proqram and can consider this iS8ue again at that
time for tuture years.
�fEB 07 •9S
•
as' 25PM
OffICE Of SECRETMY
P.1U13
7
Access·
.
...
One of the major criticisms against the full implementation of
the Direct Consolidation Loan Proqram is the concern thet it will
cause access problems tor students still in the FFELP. The
Deparl:l!l<.nt believes that this concern is unfounded.
"
The first priority of the transition from ths FFELP to the Direct
Loan Prcc;rram i. to ensure that every IIUqible student attending
an eligible institution not yet participatinq in Direct Loans
continues to be able to obtain a loan throuqh FFELP. The Hiqher
'Education Act, howevllr I dOG8 not impose any effirmat,ive
obligation on,private lenders to make FFEtP loans. Although the
Act end the Secretary's agreements with the quaranty aqencies do
require the agencies to have lender-of-last-resort (LLR) programs
for their desiqnated areas, most of the agencies do not have the
legsl authority, funding and/or operational capacity to make the
loans themselves, if they cannot find lenders to do so on their
behalf. In fact, none of the LLR proqrams that has boen approved
by the Department to date provides for loans by the guaranty
aqencie& ths.salves.
•
congress antioipated the possibility of loan access problems
during the transition, and the Student Loan Reform Act of 199J
enhanced the Department's tools to deal with that possibility.
Although to date, the transition has seen only isolated loan
aCOGSS problems, there is a remota possibility that there could
be systemiC problems as a result of the substantial economic and'
structural chan90s takinq place in the student loan programs,
particularly the Direct consolidation Loan program.
Loan access problems could relate to particular schools or
qeographic areas or. in the most unlikely case, could be
syatemic. Those relating to particular schools have tended to
arise from the unprofitability of the loans to schools with hi9h
default rates, and such loan access problems are likely to be
small in maqnitude. Thoss relatin9 to particular areas would '
arise from a geO'lJraphically uneven withdrawal of lenders as the
lending community contracts during the transition; and sueh
problema CDuld be solved by lenders from other areas, since the
loans themselves would likely still be marqinally profitable to a
lender that vas otherwise in the busineas. The solution for a
systemic problem would depend upon the excess operational,
capacity of the remainin9 lenders.
•
Tha tools available to the Secretary for loan acceSS problems are
the follo",1ng:
•
•
•
Jawboning
tender of Last Resort (Student Loan Marketing
Association)
Lender Referral Fees
�•
•
8
•
Federal Aclvance
Detailed descriptions of each ot these options are Bet forth
below I
a. Jlwl>9ning;. 'ale Departlllent has alway .. pursued all
reports of lOin aCCeSB problems that have come to its attention.
In these cases we have ascertained the facts from the schools or
student.. involved and then urged the pertinent guaranty agencies
or lendors to maxe the loans.
b. .lander of Lut SISon (studl\\!)l; Loan Harketirur
Asso;iation (SLHAll. SLMA is legally obligated to act as Lender
of Last Resort (LLR)' in all geOCfraphical areas. The langua'l'e of
the pertinent statutory provision is different from that tor the
guaranty agencies. SLMA's 109al responsibilities are reinforced
by the Secretary's power to increase its offset tee of 0.3
percent of all loans held to 1.0 percent if it does not
substantially cemply with a request to make LLR loans. Last
spring the Department negotiated with SLMA a comprehensive
certifi~~tQ of insurance for $200 million of LLR loans.
The
Department also recently arranqed for SLKA to make unsubsidized
Stafford loans in Texas, when the guaranty aqency there was
•
unable to arrange for the reqular lendars to do so.
The use of
SLKA to solva access problems involves no added cost to the
Government and will be the next option after jawboning.
c. Lender Referral Fee. The Secretary is authorized to
enter into lender ~eferral agreements with guaranty aqencies for
them to assist students in find1n~ villing lenders. A fee at O.S
percent Of all resulting loans may be paid to the guaranty
agencies for their services; contrary to the normal prohibition
of fee-splitting, the aqencies may share this tee with the
lenders. Since this authority has never been used, it is
uncertain Whether some portion ot thie relatively ~all tee would
be sufricient to cause a lender to make a loan otherwise viewed
as not economic, and whetber the Department couid effectively
prevent its Use on loans that would have been made without it.
The regular guaranty agency system Would have to be used to
diBtribute'lender referral fees, because the Transitional
C<laranty Agency (TGA) does not bave existing lender
relationships. Of all the available tools, the lender referral
fee is the only one that would result in increased costs for the
Government ..
d. [edlt,l AdVAnce.. The Secretary is authorized to
adVance fWids to guaranty aqencies for LLR loans. There is no
statutory limit on this authority, although the funds would have
to be apportioned bY the Office of Management and Budget (OMB)
before &~y advances could actually be made. The guaranty agency
is to be paid a fee established by the secretary for the service.
presumably in lieu of any interest payments. Althouqh the
•
�•
•
9
Seeretary 1. not authorized to advance funds directly to other
potential lenders, including SLKA, for this purpose, the guaranty
ageneiee are free to pass on the Federal advances under similar.
arrangeaents. LLa advances would come from program funds; which
are not. limited in ...cunt. The coet of the advances for
budgetary purposes would probably be baeed on funding rates,
guaranty agency tees, anticipated defaults and possibly internal
administrative expenses, rather than the amounts of the advances
themsalves. Operationally, Federal advances could actually be
made within a matter of days atter authoriZation by the Secretery
and apportionment by OKB. Since the guaranty alTencies vould be
only a conduit in the prOCIOSS, the Department vould lae tha
Tranaitional Guaranty Aqency (TGA) exclusively for this function.
SLKA would be the first choice to make the LLR loans under this
approach, but other secondary markets and banks might be needed
in the event that the demand exceeded SLHA'e operational
capacity •
.L.
Uainq
As soon as a roll-out plan is approved and the processes are
operating effectively, the Department vill beqin implementinq the
Direct Consolidation Loan Program:
•
It is anticipated tbat the implementation will be underway within
4-6 weeks after approval of the final plan and the processes are
operaUo"al. As previously discuSGed, at the end of the first G
months of full operation, the Department vill assess the success
and e!!e'~tiveness of the effort and make vhatever modifications
_y be necessary.
L.
1Iay.I.D!IS
It is diffIcult'to determine the interest in consolidation since
this vill be the initial effort in announcinlT the various lEA
repaymant options. Ae previously discuesed, on the basis of cost
eetimateG the net income to the Federal Government vill increase
by approximately $420 million·dcllars tor every one million loan
conaolidations, or as much as S2 bil110n over a five·year period,
it a million consolidations occur each year.
It should be noted that the Direct Consolidation Loan Proqram, as
in the case of the Direct Loan Proqram, vill be operated·by
private firma under ITovernment contract, not by a large influx of
Federal employees. We anticipate that lese that 5 additional FTB
Federal ..ployeee will be needed to implement this plan.
•
As the proqram expands, additional contractors vill be selected
through the standard government eontractinlTsystem.
�Pllg~
I
or to
THE. W!-E:TE HOCS"S
Office of the Press
for
imm~dlate
Sec.:e~a::-y
Release
February 1<1,
J 99!>
PRESIDENT CLINTON AT THE 77TH A.NNUAL MEZ'rING OF
THE. AMERICAN COUNCIL ON EDUCATiON
Hyatt Regency
San Francisco, California
11:45 A.M_ PST
TEE PRESIDENT:
Thank you very much.
Thank you,
Jwlie~,
and tr:Llnk
Your welco:ne was woren :.he five- );our ,,:a:'l~
r:de.
::,a~l:JhteL)
I want. to comJratulate you aU 0:1 tl':is meet~"Q, und
, w",n: to tom:k Juliet for her leadershlp and ;,1$0 $/,:' ;;0 Franl: Jenl:>~l:,
....-110m: know .:ii.:. carryon the Council's outstardl::lj worK am: stfO:1g
lcaderst)ip in :Jigr.e:: ed:..:catiorl, I wish you well, anc I ';n delig!1ted :':0
sc::e y:::-c. again,
1'0:":
ladies and gentiemen.
:. ,"ant to tha:>k the cnt~re Ar,erican Council on 2duc;aticL Board Qf'
C:irectors '::01' eClcorsir.g ;;:1.:r t.fiddle Cl2.5S Bill of Rights.
I t Hill Quil(l
€ c h.:c"tl.o:, il:1d t'::Ell.~inq ",cross Amer2-ca, and I WElrlt to S;;!y p little won:,
ilDOlet 1.[ ir_ ~! ;,-ew 1Il0c-€ c ts.
You will have to play an importnnt role j;:
maki::g it il l"ealic::y, ilr,d : k:::::w that you'll be interested in what T
thlnk yo'J ha\'!2 t::: do <llong with Htla:;: I have to dc_
Lee I'!'.C ~;i<y a;; the O,H;:S~t >1f-,at an honor it is fot' me to be here with
llIy longcirne f!·ienCl, cur S>Jcretary of Education, D~d; rUley. He has
really done .., 1f{on,~erful Jep, .pm: r ~:n 'Jery, ~:er1" pro.;o of him, /\('1,i hO
is respons£ble fer tne :ac;: t;.ha;; we r,ad ;;he ffiOSC su.ccess:,;l year lnse
year in promoti:1q advar.ces i:<'ecuca::i.on in the Congress in at least 30
years in the United States, .and I thank him for that. (Applause.)
I'm also glad to be here for the second straight year and to have
Juliel's suggestion that ~aybe I should thing about becoming a college
president when I am once again unerr,ployecL
ILaughter.) Now, before we
came out here, she gave a slightly earthier description of why I should
think about thilt.
She rer.d.nded me that President: Kennedy, when asked
why he wanted to be president said :t:at. t:r.e pay was pretty good, a nice
house came alonq wi til "the job, and you work clos;l! to home, and that was
l.ik~ a lot oj' college presiden;: 's jobs.
(LacgbtBr")
Over Ne'.·, Year's I met 11 college p:::asiden:: whQ to~d me t.'1at we :Mel a
lot in common with people who J:Gn cemeteries.
He sl1.ici, you know, If yOw
run a cemetery, you've got a whole lot 0: people ur.der you, bu:.: ::::>body's
listening,
iLaughter.) On the hard days, whe:1 yoc're a;:,out to cry, you
can think of that and laugh a litt2-e bit: about it.
::.augh::er.:
~ve have mor~ in common than that.
Yo:.; are tl,e keepers or a great
t:::ust of thif: ni",tion, the most di.ver.s.:? netl10rt:. of .)""",:::(;i:10 j;; :.:hc e:lt:.re
werld.
It's <;! spur for our economy and a magt.et tor ::t:r people nnd [or
people acId i(lcas from all dround I;he qloDP"
T corr.e CQd;:.y <IS some:;':l'";c who
sp,;nt somB of J;he hDppiest yei'lrs of his 1:1 fe ~0~J;;rdng i:, coll!:lges dnd
',;:l~V'~;·Sll.;:ic;S,
v.s $Of!leon,~ ~Iho \~ot'ked as a qov,~nl()t' ~L.t'eless:y to ,:civ;;nce
L:lI! c~use o~ ~d~;Dticn and now,
in ~hi5 job. ~~ ~ou~ pn~~ner tn r very
lwpOt'lar:t ~fS$ion i"tl b v~rJ ilnport~llt rimo ill o~r :oIJn~tl"S ~i~~ory.
Cur job -~ YOl;CS and mine together .... is to rededr.e ~h~
pac::nersl1ip to err.power O:.J.r people through edilcation ant..: Lhro'Jgh tt'Dinir.g
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1I11!2001
�Page 2 of 10
t.o face the demands of this ,1ge.
That's cea.lly why I ran foe pJ:'E:sicient.
1 believe it is the responsibility of our generation to work together to
preserve the American Dream for all Americans, and to ensure that we
move into the next century still the strongest country in the world,
And I think the best way for us to do that is by building a new
partnecship in our country between Americans and their government and
between one i:lnother.
I've called that partnership The Ne'"" CovenClnt -
more opportunity in return for more responsibility, and a renewed sense
at' citizenshi.p and community.
Ln that New Coven.::mt, governm8nt's
r0sponsibiJity is to expand opportunity while shrinking bureaucrocy, to
eJllpol:.'er people to make the most of their own lives, and to enhance our
s~curity abroad,
but here at home as well.
ilt the o;ame time, we have to demand more responsibility frolll 8very
citizen in rE!turn -- more res~onsibility for our country, for our
corrununities, for our families and for ourselves.
As we end this century, we are facing dramatic changes in our
economy" our government and our daily lives.
As we move Clway from the
Cold War. into the Information Age, we face a world that is both exciting
and ve::y chclllenging. a world where knowlerige is t:he :)as,is of wealth,
(:J:'.ciHion "nd pow',r, and where technology accel'=rat'~s t:h", pace of ch<lnge.
[n i, world ljke that. those who h<lve the skills to prosper will do far
beLLer than £Iny generation of knericans has ev,:;r: (1011(,
nut: tilose wilo
lacr~ the ability to .lea::n and to ad<lpt 11I"Y be 10:'t b'Jhind 110 l1Ie,LL:er how
ha.rd they work.
That is part o£ the frustration of America todi:IY -- lhat thel'e are
so many of our £ello\'1 AmeriCiJns who are working harder and twrder and
hal"der, and never feeling that they're rewarded, feeling that they're
falling further behind, having less time for their children, having less
time for their spouses, having less time for the things that we know as
the quality of life, and just plO\~ing ahead.
It leads to people having
too much anxiety and too little hope, and it leads· to special
responsibil~ties for all of us.
At: the heart of all three of the responsilJilities that I said the
federal government has -- expanding opportunity, ernpowed.ng people,
enhancing security -- is your work:
eciucation.
[t is, indeed, the
essence of The New Covenant.
Now, more than ever, education and
ti'aining are the keys to opportunity [or every AmeLican. and the future
will only make that more true.
They will only wOl'k, of course, if
individuals ollso assume the responsibility for themselves to get
themselves eciucated, and to impart the value of education to their
children, to their families and throughout their communities.
But it is
clear that the key to opening the American Dream for all Americans as we
move into th(~ next century is our ability to broadly s~read the benefits
of educ,l t i on.
l-'or [(Ion~ than two dec,lcles, I have not budged rL'o:n tllis cOlwi.ction.
I h2i(i, oL'; it turns out, fo~' this job the qooci ;:or-,,:uil\) 0:' ~F()'.-JinCJ lip ill a
sta~e which its,?lf WelS burcJened in ,\merica's ",c';"lLe.si: e:.:plo,slon "I:ter:
World War II for lack of eciucation.
An,i I have worked now (or about 20
years, relentlessly, to constantly change the ro18 of govecnmellt so that
it wastes less money and does fewer things it shouldn't, but so that at
the same timE~, it serves people better.
It insists on accountability,
it promotes excellence, but it especially emphasizes educating people.
[VlIerica no,,",' must do that if we have any hope of preserving the
Amecican Drecilli in terms of all of ouc people, in terms of an expanding
midd.le cJass instead of one that is shrinking and constantly being
divided betwE!en the haves and have-nots, not in terms of money, but in
terms of educiltion.
As a governor, I invested more in education, and in
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or 10
higher stilndards 1'or our students, for our teachers <lnd for our schools,
anci in tryin~ to make it easier for our young people in Illy state to go
to collr.:g(:.
The Nat.Lon At Risk Report, back in 1983, confirmed the crying need
[01- changes .Ln our public schools, and I was glad to work on trying to
cflilnge the conditions in ours. At the end of the decade, I was proud to
be one of the governors who reached out across party lines to work with
the Governoc, Association and with President Bush and his White House to
cr21Cl: a new n21tional educ21tion goals -- goals which we then wrote into
law in the Goals 2000 program, and which we are doing our best to help
schools aJ I across Jl.Jnerica to achieve on their own.
ti·9m t:ilf~ t·i rst day r became Presi.dent, we have been committed in
Lhis administratjon to rainventing government in illl areas, 11ut
e~peclully lr1 t?dllcatiorl.
OUI.· i".lpproacn i.s not -- <Ind J ~·epeCit. is ·not.
We have dereyulated tht: It:clera':' govl:;nulIenL's
La micromarleHJe eH1ything.
role in education, in the public schools and e.lsewhece.
We hClve wOi·ked
to inspire reform at the grass roots level.
We have recognized that our
job is to define a road map, clear standards of excellence and then to
work to empOl-Ier everyone in ·this society to reach those standards
through 'education, to support the educational institutions all across
this country, to support the students and the families to help them to
reach those standards of excellence.
Inste21d of defending the status quo, we have worked to change it.
We've abolished 13 of the eduction programs we inherited.
We have cut
another 38 programs that we thought were less than essenl:ial.
We have
consolidat0d 70 more programs in the budget r have j\lSt sent to
Congress.
And all of this is designeej to empower scuclents and working
p~ople, not educational b~reauccaLs; to help teacher~ to do their Job.
not to help the federal government to regulate 1lI0re.
Others have talked about such things, but our administration has
actually cut over a quarter of a trillion dollars in federal spending,
we have reduced more than 300 domestic progrDms, we have eliminDted more
than 100,000 people from· the federDI pClyroll, Dnd we have useci the
savi ngs Crom the payroll reduction to put 100.000 more police officers
all our· screets .in community policing settings. not run by the federal
govcrnm8nt. but people who work at the gr21ss root.s 18vel on the problems
Lhey conti-ant: every cJay.
\1e ar0 on our way, if no other la·.... passes, to cutting mOL·e them a
quarter of <1 million people [rom the federal payroll <lnci putting all
those resources back into making our communitie~ more secure.
And the
budget I have just sent to Congress proposes another $]~4 billion in
spending cuts.
But my strategy is eliminating yesterday's government to
meet the ciemands of today and tomorrow, to give us a leaner, but not a
meaner government; to cut government to reduce the deficit and to
increase our investments in the future --in education, in technology, in
r:esearch, things like Head Start and Goals 2000, and the defense
conversion pl:ograms we supported, and the medical research programs we
supported.
Thes,= things make us stronger as a people.
They build opportunity,
anc! they cl'"mand responsibility'. and they ar:e good for Ttinerica.
I'ITe
should be discriminating in this work we i]re doil1Cj
We should move
IJeyond rhetoric La reality.
Lel others talk about cutting spenciing; we
hav'= done it. and we'd like some more help.
But \~e have 1:0 realize why
we're doing :.t.
We're doing it to lift the country \1P anci bring the
country together and move the country forward. not to Lind some way to
di.vide us in a new and different way so we have more rhetoric, more hot
air, and less progress.
Let that be our commitment:
to do better.
(Applause. )
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You kno\.J, now I aC!lli t t:hat some in the new Republica:! Congress see
in another wa~'.
':"'r.ey ::hink educat.Lon at the national level ::'5
jest a:!cther -"rea ':0 cu: an~ gel::'. Their proposals wi 11 cut i:1vcstme:1ts
:.1' Cl..<r .fl.n:u.r>~ <Jt:d .:.i:C~ea5e ::he cost of student loans to OLJt· j,i;e(J"\~~$n;
students to '"'.]n£1 t<lX :::U;:5 Eor the ,..ealthy.
They wj 11 limit the
"Vi' i labi lity of lc..:e:·-::ost ::-::i~·ec:: loans to middle c}11S!;; sl;t.l(j'~nts 1;0
increase proCi::s for the rr.'..:::dlBJ'wn in ti-Je st".xkr'lt 1,0ans, even 1.:hough
t:lat medns a niqher defici<:_
Indeed, ttlf: o,lly l.hing they have proposed
spending mOJ""0 money in education on are funds going co middlemen by
limiting the amount of the direc~ loan program, by cutting it off, juse
as ie's becoming more and more successful.
educa~icn
And som~ of them don't want to ~eL)vent the Cepartrnent of Educatton
"s I h,)ve done to mcke it s~ro;)\lc;r &na leaner and :;"ore 0ffectiv;~; th>ay
want to obolish it altogether, Well, I th:.r:k Ol.ck RiL:.y's \1orth th\!!
mon~y.
U\pp 1"tUse. )
And so,
I want you to know ::hat to
a~:'
or"
~his,
r
wi 11 flght t:'tese proposals -- every step of t·:1e way.
join ;r;e in fighting them, too.
...,iL 1 say, no.
I
And 1 want you to
The fi.~nt fer education .lS t.he figflt for tho A,~,ecic;)n DrearL
I t is
t;)e ::-i.~r"t foc America's middle class.
It Is che [ig!".t for the 21st.
cen:o...:.c:y.
:t sf:o,]1.d, ;:herefore -- and I err:phasize ,.::: sho*..;ld C:le.ceroro"
-- be a bipa;:-::isan fight.
When we passed the CleHI11nt,C);'y ;;:"10 Seco:lc1ary
Sducat.:.o:) Act las;: year, drastically .ceducinq resu~bLicn, enp::as.lzing
more help ::0 poor children in n~ed, giving teache;:s and school
principals m::re flexibili::y, i;: had bipartis;m su?port.
Look, I ;..'a:1t to work with this new Republican Congress ::0 help
America. "itle support ;nany of the same initiatives,
I supponed ::hem
\.-Jtlel'1 they passed :he bill ::0 apply :0 Congress all ::he taws ::hey p'..lt on
private employers.
I reave s"JpportJ?d OJr ccmr10n <.'tifon:s LO red;;ce the
bucde'1 or unfurde:c mancates on st!>te ana ,10<':211 90vBrnm(,nt~,
I hflV€!
suppot"Led (jivi.ng .':",o!:"e ~·lex;.bil;.ty to the states .:.11 fhliStUng w(tl£flre
n:form and heultn care ,eform.
I' \It: s>.1pporC>$(t the line-item vOto.
Btl!:
we clearly ~)ave our d.:.::er:e"ces.
Look at the student 2.oan re-far:ns.
fie e2.iRlnaced Cfle middlem<:lH ,;,nd
got the fund$ directly to :he schools and the borrowers whicfl meant
unbelievably -- lower fees, Im..er interest ra-:::es, easier: repayment
choices far students, i t rr,eant less pape:cworx. less red tape, less
bureaucracy to administer tr.e progra:ns for colleges and un.lversilies,
a,lcl it me«nt mUCh, much lower 80sts :;;0 lhe taxpayecs,
(1lll· ;)101'os,;;1,
bi:lion over'
to
:::~e
1.,
sL~ldenr;:,
wh~11
.si."-Y~~H"
;'l!~d
fully 'mp.l<,?,.d.. r:V?U, v.i ,1 StlV'~ LI,,? t;;,~;paye:s $12
p0ciod, W~l!.~O loweri:h1 t!H (;Oih 0:· CO.\:?!]0 lCi'1f\s
reduCir1(] the; tl;1sS1il!S t:Q yo:.::.
T:ti\:'
jr;
fl.,~jnv0n:"liV:J
Go",/"eL'l:1en<. ill;: its best.
That is t.he :)ew Democrat: bp,ll·OBC!).
it ought to
b~ the new Republican approach.
But, instead, they wnnt t.o cap these
loans.
I want to expand them,
I want to i:1clude .:.11 the schools and
all t:!l.-e students who want to be a part of Chis progrlH:l by 1997. '10U.r
cnoice. bu~ I'll be darned if I want to cet
tha:.: it !,.jill he19 you .
i~
off
Erc~
you when I know
The:r' \.-iBn:; to P;': J!or the t:ax cuts in th(ur (;ontl'llct ror :\,:ner,ic2. by
eL.:nina-:.:ing the s::udent loa::'! subsidy so that we: st:a::t c:\an;ing in::e.::est.
on the lO<ll":s ::"'0 ol.;r poo:::est: s1.udents whil'i:l they're in col2..ege. that
COF;~S 52 bj ll.:.o;'l a year.
Th,,:: adds 20 percent on th0! average to :he
cost of 901:1<:;1 to college fo); some of our needies!;, Sll1(ients to pay ror
L~X CU~$.
It is not right, That would be the bigges~ CUt io s~udenL
findnci~l aid in the history of the United States.
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Out' approach 1$ to help stude::"JLS and :::heir hflnl-working parents to
CUt bureaucracy, to reduce ~he deficit by noe subsidizing noncompetitive
middlemen.
i mig~t add that these who wish to compete for student lOans
ar~ now doing I;;:' in many places for lower costs than they were providing
when t~e so·...ern::tent \\133 giving them .a locked-down guarantee because of
the competi1.:..ion f::c::t the direct ':-O.;i!] pt·ogrilrn.
Now, th,H is 01.,\1' approach, Ti':e o':f;er ap:,:::oach ~~o,lld increase the
cost: Ot 8ducatior., wo:..11o keep ttl;:: b:J:::aat:c:::"cy at;d the c:.d tnpe, and
would jncrease the deficlt by 9uara"t;:ei:v'J bil ",0"", iJ:,d bJlliOt,5 lIIo::e :irl
no-risk funds to mi,idleme;-; .il: I;flG st'.lCI;'.t _oan sys\:'<l.\;n.
II; is wrong
It
is ...·r0:19.
And we ShOdld not su,m; :cr iL
P,;)0 1 ~?PQ lOt, won'1,; l:;ull"id
:or il. I hope you'll stand up ,lui fi:;r.L ~~r -:"
li\p;:'<iH:<;:'''')
Now, as you well know -- and 1 want to emphasize -- we are not
tHlklng about a give-away. This Depar:::ment. of Education has gotte:'
toug-her on enforcing laws against default. And t:te default rate has
dropped by one-third. The net annual cost to the taxpayens h';1$ fa110:1
by almost ::wo-thiros since we have been in office, froIT $2,8 billion to
$1 biEion, because we're enioccing the Laws egains:. default.
:;: th~nk
it :s ;.;r0:19 t(} default on your student 10>3"
This Depar:.:men,;; of
::ducat::'on ha~:; qot::en cough with scam opera1.:ors masquerading as n:sher
f:duca t ':'0;;.
Am:: everyone of you wanted us to do ttnt,
Now, with t"is ?r00ress, ; hope we can contlJhh': to ,,'emove tpe
l'equlLlor:y b:lrc.:cns frc:n many Dt the strong institutiors with pn)ve:1
r~:;ord$ of respo;;stbL",ty; c:;at's whi'lI: you wnr:l \,JS to do
That's ;;:'5
Vil18r.tine pl'E:sent i.0 you,
(Applause,)
But that's the ....- ay we ought to be doiog th;s. Secretary Riley will
work wi th you ~o find a better way of balancl-ng the flexibility you want.
with our obl~gations to the taxpayers,
But the point is, other people
talk about this stu:f, b'.lt when I showed up in town twO j'<?ars ago, I
found a student loa~ program that was too costly, helplng tOO few
people, save too few 8ptians to the borrowers with a red-tape headache
to you, and the taxpayers we::";;: being ripped off,
And v,,~'ve trJ.ed to
Ch,1n(jC
Lt.
Now, I'ihen we prop8sed :;:H)!Se c!Lrecl; s::t:den:: l::ilI~5, O~j( Oppom;nts and
t:hose who vl<l(lted to. pr'Qt~Cl. tna st",:..i,CS quo $,;:':( t:.hilt. Lilt':' 1''2(:erd t
lJovernment: W<IS completely ~r.c"pablo 0:' admi:'!isL8r'irHJ a lO~1n program.
Well, they weren't right; t.hey wer.e wro:'!g.
I get a letter that was sent to Terry Hartle by Jerome Supple, the
President ef Southwest Tex~s State in San Marcos,
It's a big school
now; i t has 21,000 students.
It distrtbutes grants and loans in excess
of $23 million,
President Supple wrote about what direct lending has
meant to his school, H~ etlso wrote to ee, but Dick Riley gave me this
copy of i'lis le~ter to Tel"ry Hartle, and:;: liKe -Lt better tha;:) what the
sr~ec~',,'Citer~; P'Jt: in, so :r 'I'll goil19 1;0 \~rite what he ac::ua:ly said.
(LalJ(].,te:r ,md appla'Js~.)
Tn_.; .$ '"hnt h'~ $<lid:
"\~!!: ,11,"i";1 ClWelCe of I;he cont;;;:rr. of sc:;,e n,emcers
at :re (hfl;(;ial ;:::onununity about.: ttl';! shift tc ,ij reel: lcndin\!, Flr.d co.:'!
lnducst!'lr;(i ~;'Ie concern :':oc a less of revenue.
However. the savi;1gs to
Lhe govcr:1ne;')t 8:1C t:;,e im;:>roved seevice to. other s(;\tdents o~fered by
dirDct: :endi!l<J are of greater impon<lnce. The other argumerlt that the
:.'ederal goven,:ne:1t cannet effec't:ively administer such D prog'rDrtI and tr.uc:;
rely on the expe::::cise of the private sector is counter to our
experience_"
Listen to this: "The results have more than met our expectations.
We have gene fro);; an insti..;:ucior. that wos scra1tlbll(~9 to meet our
students' r:eed, eften after c:nssi:s have HarC:(lld, to an institution t.hat
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W,lS one of the first in the state to get awards out last fall -- so
ec1rly, i:1 faGt, that it had a positive effect on our admissions program.
While t;,e direct lending progr·am has shared some of the some of the
credit for t!1.e improvement of our financial aid services with our
hard-working and talented staff" -- there's a good politician -
(laughter) -- also true -- "there is no doubt that direct lending allows
us to serve our students better. Alld finally," he says, "it is
legitimate to express concern about the ability of the Department of
Bducation to manage the direct lending program and full capacity, but
the experience to date suggests they COln do this very '....ell.
It.i S c(lre
that the fed,~r(ll government creOltes <l pL·ogram th<lt both saves money <lnci
illlproves sec/ice to its constituents."
(Applause.)
I.isten to what the students say.
1 got a letter trom Marie Lyons,
student -- ratheL' more typic<'ll these days. She wrote to
!lie V) Sfly thaL she had given up hope on going to college.
But with our
lo"n rci'o·rms, she's been able to go to MUrrill" S~c1L.e Ulli'/e~'sil:'i in
Kenu:c;;y, studying criminal justice.
She'll be ~he first person in her
fmlli 1 y to graduate from college.
,"l
~O-year-old
You knoh', we can't take hope away from people like Marie Lyons, and
all the other people now that are flooding back into your institutions
-- into the community colleges, into the four-year institutions, because
they know -- they're way ahead of the politicians. They know what they
need to do to make good lives for themselves, and they're com.ing to you.
They're coming to you in record numbers. But people like that deserve
the best opportunity we can give them. They <'lre very responsible: they
iJJ"(~ working hard.
They are people frOIll ,,11 races and income 0rouPS Clnd
back~rounds with a million different life stories; but they are chasing
<l common cireilm.
Because of people like that, I,<,'e shouJcl not abolisll the
[)t:.=partlllenL or Education, either. We should not: do t:1at:.
(Applause.)
You kno\~, everybody talks about this being the information age.
The White House and now the House of Representatives are in this little
friendly contest to see who can do the most high-techy stuff on
Internet: and call us on the computer and see what we have to offer,·
read the adm~nistration's budget. But if this is true, if the new
economy really is based more than ever before on knowledge and skills,
we have to do more of education and undercutting education at this time,
saying that this is not a national concern, that would be like
undercutting the Department of Defense during the Cold War. We won the
Cold Will" O(~CilliSe we stayed stronq. And we will win the fight ror our
OWl' futur~ nTld a place in th~ 21st century if we stay strong with
edUG,ll:.i.on.
Thc"lL is whClt w~ 5l11OUld do.
(/\ppllll:s'~.)
·tOli knO'11 our future dt:pencis lipan it. As Presicient, as hilS already
saici, I've worked pretty hard for us to do well in this new war for
the minds <lnd hearts of our people and for the future. And I cia think
one of the smartest things I ever did was to appoint Dick Riley as the
Secretary of Education. One of the reasons is, I find that once you
become Presicient, sometimes people -- even people you think know you
very well all of a sudden don't really tell you what's on their minds.
It drives me nuts since I don't mind hearing what's on people's minds.
Sometimes they don't want to hear what's on mine in return when they
tell me, but it's okay.
(Laughter.) But one of the things you need to
know about the Secretary of Education is, we've been friends since I was
btorely old enough to shave -- he alwtoys tell51 me what's on hi.s mind.
(Lc"lUgr.t\H.) And \~hat's on his mind is you and your students ,lnel the
fu~ure of this country.
b'~en
So I'll say again, we're cutting inessenti.al education progr0ms.
We've saved more money by going to the direct student loans tlwn they
can save by cutting out the people who work at the Department at"
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Sducatl.ot" t';ho are we tryi::1g 1:0 kid here? He is wort::h the invest:ment;
the other pe';ple who wo!"k 'J:!l.ere are 'dorth the investment,
We are !101: ::,un:1!..ng eCt:!catio:), bet .we are trying to energ4.z.c: it ar.d
create opportunity anc shine a light to the future.
This is a classic
battle, bnd we ought to fight ~t and win it together. -- oot just the
battie to sa'/e the CepllI:t:-aent of ECt:cation, no:;. just a bo;':lttle fot' the
dl t"ec1. lO<ln proqram, not just a battle agai~st i-ncre.1sing tho cost of
student loans, but: the lar-ger issue -- ,;lnd i wi!l S,lY f1SJ,1in -- this
O\;g::;: to be a bipat"tisa:1 battie thaI. we fi'gh;:; .';0 t.n(.1,; we C<ln m'.HH. O~H'
H:sponsioi!i:y to prepa:-~ our chiidre::1 for- the 21.'.'11. r.:entlH'y <'Ind so that.
w,~ can make o:he most of ou:- m·.;n lives.
ror two years, we have done everythi:-.g we could do to prepare our
people foc the ne'" economy,
:"ast yea:: ""he:; : ca::Je oeioce YOll, I
prese,nted a c'omprehensive aqenca for lifelong learning,
I'm proud to
report that with the last Congress, 'de d2d prod~lce <i tremlllndcu:?ly
SLCCeSStul r<.~cord in achieving t~at aqBnda.
we re:o:::med Het!ld Start !lnd
expanded j t by 30,000 more children. ;',nu :;ext Y":ilC, : Wiln;:: to 0xpand .it
:lq?in by at 1east that many. That's 'Hhy I"ie':,,?< C:Jl::.:,LH;) i:lesse:lt4.cl
!Jrogrnms, :,~\: only ::0 reduce the deficit, bu'. to p ..:t; '..1">; ,~o:~ey vJhcrG t:il~
:.:.(:0;)2e m)(~d U:.
[thLnk. the t~xp?yer.s 'd<1f't; '.b~ H!.H~d $"L':' p:~ogrc.~
O!;;p<.m~.O!d
(i\p;~:au5e.
i
tie passed =he Go<r.ls 2000 program, ano, [or the f1cst;; dm']!, h! s;::ell
Ct;t a r..;'.r;.ion;ll underst.;:ndi:1g of what our young people' IUDst 10i!icr. :0 "
compe::e :'r, I:.lle \-:orld. Tti::: goes dght to the he<'lrt of th~ W:1c~e
apprcac:' 0: :he r:at:"oo?l /:'ole in education -- flot tt"Y~Xlg to tell poop:e
how to teach or regulate how they spend every day C.fle! every hour, or
control I:.r.elt'. through a blizzard of paperwork, but to set national
standards and then give state and local governments the control, the
poweL the opportunity, and, where we cop .. , the resources to get the job
done. to giV0 them tr,e flexibility ;:hrough waivers of complel< federal
.ules ana n~forms like charter schools and public school choice, And to
do it. wtth no new federal regulations to diminish s~ate and local
control,
I'm proud of thllt.
The 113Y w.:,,' re runn~r19 tr.at prog::::am is the way the t\!daral
gove!'nment ought to relate to the sta::&s in the area of puuUc
education. Ide are rais!.ng the :::ar for everyone.
All of cur young
people are going to have to :::0 be::ter.
I :.:hi;')i> we all imow that. All
of our parents and grandparents are 9:::ir.9 to have to 'i!;~lp out yeung
people to do better. All of you if: th1s room now accept as a truism
that we have the best; higher ed~:;:ation system in t118 world, b\~l thin: we
have to do better in our school $yste~s :<-:.2, and W1 arl]! a11 goin\j to
have 1.:0 teacr, the higher standa,:,'ds, to ~10!,>: t:,e r.igher st:nndards, to
learn thG tliqhet' stO!nd,l):d:::, .
cOIT,;nunil:ies, OlL, b'lsines~'~;"~' Uloy'rc g:::1'19 ~o huv0 %0 :::tch Ln
!\ite< cue young people, we know -- :Ir.d ;et i'(,.: say tn:s witn
a.l 5~~cerity end cocvLc~ions -- we know that teo locny of tnem ete still
t.rying tc lie",I!';') .;.r, at:ulospheres th'll:, ~,ee too dO[l1,inatclG by vic:e:.c!;: "nd
on:qs, ':'r,cy c{;n't ,...;aH: Clolm the halh or learn i:< tr.e c~as$roorl',s
bec&,Jse ct',Ely're afra::.d Cor their safety, then: all the reforms will not
l;e success:-,Jl,
(1\:,.
fled do
mor~,
That's why ou::: making ouc school environment safe and disciplined
and drug-freu are important co all the other standards being aChieved.
and why we hiJve worked so !Hl.l'O in this administration and: in t:his
Depanment of Education to maKe sure that all of our legislative efforts
included the safe schools initi"Hiv()s,
-fou know, some young people -- E ouqht ;:0 omphd:.>i::e, too, because J
know who aU is oue here -- dO:1';,: plcln to <;10 on :'0 iour~y<:).:,r' coll,;ges;.
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And th<:.L'S nne.
rt" they don't plCln to do thilt, \'.'8 'Llso have to rn<.lke
sure thilt th'3Y have the academic strength and skills they need to
compete.
That' s \~hat our school-to-work opportunities act was all about -
to reinvent the relationship of high school to the world of work and the
work of post-high school education with high standards that enable our
students to learn in class and to begin to reach out into the real
world. Alonq with their classroom learnings, they are learning real
jobs, dealin9 with real people, and we expect them to go on to some
post-high school education as well.
We' I',') rlC)l~ doing this with a biq nat".ional bll:·p.AlIccacy; we'r8 doi.nCJ
Lt wi.th qnHltS tlnc! advic~ and help (I:lcl sUPPO:'l :'0 !,=t e'lery ~t:.1te s'~t up
,', fie:·:ibJ8 network, working with employees and S.:h001s and th~
post-secondary educational institutions to make sure that we fill this
'.'!rl()C;rIOUs Slap in the Arnerican system.
There are too many of our young
people still who, neither get a four-year college degree or at least
helve <1 good school-to-work transition they way many of our competitors
do.
These reforms -- everyone of them -- will make sure that more
capable students are coming into your institutions, which means you'll
have to spend less time bringing them up to speed.
I know that would be
a relief to all of you.
A lot of us have been working on it for years
and ye<lrs, but I believe it will make a difference.
SomaLhirlg ulse we did last year that I 'In very p~oud o~ Lhat LWO or
01' you have already mentioned to !lie todDY is our national service
pI'oqrDm, ;\JneJ~iCorps.
It already has 20,000 A.lllericans tak:ing
t'esponsibility for improving their country Zit the grass roots level Zllld
8ClrninCj some money to go to school.
It is <l very, very importLlnt thing
for this country, and I am very proud of it.
t:hl"(~e
Americans like the 16 members at the University of CaliforniD at
Berkeley, who have 750 of their clDssmates tutoring middle school
students and helping four local police departments set up neighborhood
watch programs.
Now, that's just one example of hundreds I could give
you of what a modest federal investment can do to get a bi.g result.
Eighty-nine members of AmeriCorps in Texas immunized -- listen to this
104,000 infants in Texas ~wo summers aqo.
(Appl<lLlse.)
Irl Simpson County, Kentucky, AmeriCorps members are teaching
seco:](j-tJraders to read, and they've already raised the reading levels
there trom 010 years behind the official st<lndard to one year ahead of
it.
Now, ag.:dn, some people in the new Republican Congress say that
AmeriCorps is a waste of money, bribing people to cia service, an
expensive way to send people to college.
I say it's about the best
thing that's happened to this country in a long time.
(Applause.)
I'm
going to fight to keep it, and I hope you'll fight for that, too.
And
[or all of you that have had AmeriCorps projects on your campuses anci
with your students, I thank you, and I hope more of you will ask to do
it.
f,o,Te'vc got a lot: more work to do.
We have ~o protec::. the Pell
Grants, and as Juliet said, my budget raises the maximum grant by 12
percent.
\';e all know the Pell Grant program go:::: in I:rouble, and we had
to !1I<lke it solvent again, and it hasn't kept up with the economy.
But
this is a good step in the right direction.
We've got to preserve the work-study program, the other
campus-based programs that we all know are important to the students on
your campuses.
And we've got to keep moving forward on university-based
research with expanded investments and less red tape.
I do not believe
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�Page 9 of 10
:ha::: it is ";;:lB right thi:1g to do to take universities out of the
partnerships we no·.... see formi!lg.
In defense conversion, for example,
where w~ are doing remarkable things with the decline of the defense
budget, ta.king some of that decil.ne .and putti:'lq it into partnerships
between l.miversi"Lies anc: private compar.ies with some federal investment
lind b whole lot of pcivate :'r.ves-c:nent. i'lQ4lJl, :.hen: ,!l'~ $ome 1n the :'leW
(angles:> ',-1~I::;' say, ;et's c;et tid O~· <.11 t:1at.
Trilt:'s our competitive
(;(l<.]u -- ('1search, oeve:'oprwln:.:, r.. J..nd ;.,::;.rk, [[,aking C01'lv~ctl.Ons, moving
~orwijrd,
{.. ll of this is an ilg8:1:;,:) that \>.::::rks.
Ll his Stete of 1,1li<;lricDfI
Sdu;::{l.tion addzes>5 earlier t!us :;;or.th, to \>ih.i<:h S€cretary Riley alluded,
he said that AInerica is turni:)g ~t:e cor:1er ::r:Q~, being 61 ""tion 61t risk
in educatIon to being a fHltio:1 or; tha move, ~"Qll, you've got: rr:y I'lord;
! will fight for the eciucatl.on and training ::eforn;s t:"la:: wEI keep us on
tne move. And 1 want you to fight for them, too, and ',.,.e will wi.n
because the American people are for us.
Now, that's why I have proposed this Middle Class Blil 0: Rights,
because I want to emphasize what we st~ll have to do. We can't just
preserve what we've go;;; we've got to keep going forward.
Allover thls
country there are people who are saying, wel.L ;: reae! .;:.bout tt'.is
re:::overy and I know we've got 6 mUlion new jobs; bu~ it's nc';;; <:it:ec::ing
me, I s-::i1::.. reel 2-r:secure .;:lna uncertain 2nd I hZtv€n' ':. g:;::::ten a raise,
T,)8 t·1idde C.Lass Bill of R::.S"hts, r thlnK, shou:r1 be called the B~ll of
;Ughts d;1d ?\8sponsibill.ties because, like all the o::hel' things we'v0
been talkir.s abo;y:: tectay, yo';! "arl't take ,:;dv;;mtoge or it urtie3S you act
responsl.bl':l,
It does offer a tax CUt for people, but only if they're
behaving res)or:sioly -- rinsing the~r children; educating themselves 0('
t'r)eir chiJciren.
,
From your po:r.t 0: view, ;;ho.'l: n,es" impOl:tan:. purLS oi it 6ro a tax
deducLior~ ::0:- t~0 COSt of education aft1?:t hi."Jf: '1choo!; an IRA ::nat 'lOll
can wi thor-aw from tax-tree for education and foe OthiH purposes like
b\:ying tl (leahI'. insul:zmce pol icy; <'In';; the collapse of 10 ot the
government's training programs into e prograft'. whicb" person who's
eligible for federal crainir.g help because he or she is unemployed or
working for d ver.y 1o;..; 'vf.ge can draw 0:1 ar.d just take :::he rhoney, up to
$2,600 i1 yea.f, to an ir.sti,;;<;cicr. of his or her c:Jc::.ce, <Jotting around
the .t:ederal bureaucracy, getting arccr.d all the ;:rogra:;,s and 90lr)9
direct to a Lot of you.
[low, tilLs is a good thing, ;lOti I thar.k you for endors.:r:g i t , aut r
your h,tlp to make i t htlpper:. Why is it a geod tIH:)(J? It·s a good
1::-J:cCj, li ("51;. 0: all, because it: will lower the cost of. lh'l.:1g fo::
hae<i-workir:g people '.. . ho l1av7 gott:en no benefit. out of :.:his cl.!!covery yet.
3\lt i:lsl:ti:ao o( just giving them a quick fix, it: lowers tn\Hr cost of
living bec<J.l).;;e it. increases their standard of living over the long run
by putting t;'e money into education. I t is the right way to give tax
relief to ~he middle class,
It; is consisl:E!r:t. with long-term control of
the deficit.
It is consistent with il conunitment to long-term economic
growth.
f~nd r ask each of YOll to do what you do best "now * - to help
teach peop,;,e abou~ this, to talk about it; because this ::esolucian is
rea:ly dee, Ol.:t what we really need -\$ for every member of CcrllJ!:ess :::0
;,enr from overy college president; every dean of students; every ",ember
of every 1::oa::d of t~"1)S:':~QS; every stqdcnt body presldent; every student
0::'1(1;; i:oil 1:.: 0:\ ~r. the coc:H:ry, hey, dol.' t: :::ake lha LnLe!'est: s\1bs~dy <l~Jay:
hey, d:::.r,'t stop us f!"om 9~;.:ting l~~ di::(!!c't tOfilIS: he'l, pass the t--ii.ddle
;l0.'1ci
Cl~s5
Dill of
\
~ights.
E<Jucf.l:i::.r; is t~& key "1:0 ::iUt' fu:.:,;re.
t!. OU4b: j10~ t:o be " panisan
issue.
I f there is one thing in the wide w~r1cl :.:haL ought to unite us
on Lhe way tc) the nex\: century, it should he ou:r: common cortuni;;ment to
explode the potential of our people.
I heed YOlJr help; I want your
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help; you can do it. But the resolution has to be a first step, not the
last step. Be heard in every office of every member of Congress in the
United States, and we will have a great victory.
I need you; I want you to do it: I'm confident you will.
very much.
Thank you
(Applause.)
END12:21 P.M.
PST
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1111/2001
�-., --
Page I DrS
THE WHITE HOOSE
Off~ce
(S~n
of the
Pr~ss
Fca~c~sco,
Secretary
California)
to: Immedia;:e- Release
PRESS BRIEfING
BY
OE;PU'l'Y ASSIS'l'ANT TO THE. PRESI::EKT
E'OR ECONOMIC POLIO' GENE. SPE~LING
Aboan:! ?r€ss Plane En Route to Califorlll,;1
MR. SPERLINC:
1 Just want LO \;i.':e b pre .... ie~" of I-J!lat the
P=esident's speech is going to oe on today
We cn:r.k this is a very
i:npor:ant. speech.
1 think ;:hat for all the L:nes :hat ";;;,,,re a:::e
ci: :'::eren:::es iJnd disagreements on things that strey l.:lLc j401'; pc_iL':cs nc,d
personali:ics, today this is a speech that really gets us to where we
should be, which is a fundamental policy difference between
t~e
President
and rnlr_y of ::b.2 :CiOll'lDerS -- flot 6.11, but m<tny of the melhbers. particularly
the le!lderBh!.p, 0: the RepcbllCa:1 Partji.
I thi:1K it ~s abo~t ~ [~ncarnen:al differonce in the ro10 of
the feder-ill go"err.i1Ient in educaticr. atJc i:. e:lpoweri.ng people eo llwest in
themselves, and partl.cularly In the role of .. h<2 federill government in
t.erms of allowing people to <Jet higher educfI:..lo:1 Olnd ,)ccess ;'0 coll"HN.
If you look i:1 th~ package, t~ere is a~oct three pages -- it
says, dr~win:::l the line on education, which very much lays out six areas
Lr:0t I thinJ\ thQr¢ is a very clear, crisp policy diff~I'enC<7S br;otweon us
ar:d r;;u'.y i;l ~l".e Republican leildership.
And they are six an;!as in which
the Preslden= teday will lay d0\10 a marker th3t he wi tl Light them every
s:e~ 0: ~he way on these issues, and that we will have, 1 think, a good
and hores:.: nilti:;:ral policy {UiLloque.
A lot of the p00ple we dlsag::a~
with on these issLes ar* honorable people who we agree with in other.
issues.
But t!iis is just a fundamental policy dEference.
I f yO'J look at the f.:.rst -- I :r:i:1k if you Wd:'!t t.o look at a
very fundamental difference, the first issue is expansion of 'the new
student loan reform program.
It: 1993, t~e new st'.Jd0rt loan rofoJ:Jn
pc;gri:n was p05sed"
it ,.llcwed for dir-ect ie,d:.c<;, 0r.d ,:: 1):lc'Aed
stuGenlS LO !}e:: en individual edllcaticn aCCOU!1t whe:::e they could have
:Jexih!e rept.yment;. systems.
1 mean, it's pretty simple,
The old sYSt{?:n
;)JC t:18 fode,:al gOIr0£h:n:=nt subsidize 8, 000 middle mon, ,*ssentL::l': y
C!Jara:1teeins tf'.;ur, a certain am.ount of profit, whd>? feeleral taxpayers
toek mest of ere rest. What the direct lending program did WilS it tOok
ou:" the mJ..ddle mClf'. -- it ::ook ot:.t ;::he middle man and the ::esult wEiS lower
f~es for s::'.)dor.ts, savlr'lg ::i:er~. 5.:2 b.cllL:n over five '1e./1r$ for students,
and saving tne government. 54,3 bilL.on ever Lve years,
So it's more
convenient for studen~s,
It saves thell'_ :no:'ley.
It saves the taxpayers
money.
Now, we are now at the pOi:lt, .our' a(imi.:l:.stra"ion, where some
of r.hese Lr.ings can be judged by just looking ~t ho"," ;.;r,\,!se tn~Lg$ a~'~
,,,orklng . .The 'tJi!;l.y it \·jorked is that five pefcent 01:' tho schoels ca:ne ';'
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in Lhe Lrst year, :C4 schoc~s,
::r, the second year it went up to 40
pIHcef'.t of the loan vol urne, 50 we have 3:1 '):dd1 t lontll 1,495 schools. The
record on the Erst 104 schools i.s ex~remely positive, And I would
encourage <lnybooy here '':0 go::; talf:. to ::!'.e :04 schools; I>.e don't hQve to
have a hypochetic1Jl d~ba::e cr. this,
If yOu look at the articles that have been written -- we
included the Newsweek "rt i.cle, Jane Bryant Quinr: from :eb;:uary 6th; the
Cr"'l'oniele of Higher Ed\\cation article -- if 'IOU 1001( in The tl,~shing:,:o:1
?ost !::oday, you have the head of the -- student ::irwr,c;ial aid
administratcr saying nearly every experience of the 104 has been
positive, ~a::1Y of you went with t.he President. to Michiga:. at Dearborn
w;;ere ',.~ eLi::: <1 rOClndtilole and where the IJrilversity of tvlicniga'1 pres!der.t
i,al':Gd .abO.L that ~~ ';-las JuSt: d::0rn~1t::((.:.
t~ow studenl:s can go directly ';:0
:.h::i!.' .::;cile;Je .and <;Jot thei:: loans directly from there at lower costs.
what. we have is we have the Speaker saying he'd like
.1en::in9 ,):ld we hOive Con0l":lSSffiiln Goodling, who 1
shouLd point out is a person t:1a:: t:1ls 2d;~.:.r.i5tration .'las DE;811 able to
work with on issues, bu::. where wa disagreBe -- he wants to l:.mit and say
that only 40 percent -- that we have ~o limit ~t to what it is right now,
at 40 percent of the schools t.hat are cOr'.ir.g in 1.;0 ?j s:::al Year' 95.
SQ
1.:0
21iminilte
now
dlr'~c::
Now, here you have a popular program; yOJ have peo?le
talking about aHowing choice, and here's a char.ce to a!low the other 60
percent of schools to come in and participate in a streamlined f~deral
,H'Oqt'i3:n thilt saves them monay, that'S mor~ cO(Jveni,::nt, and: th.1nk .tt.'s
[: n; t; I.; it s i;;-.p 1(: w:Jy it:' s hapPen ltlg -- tnere b. Ce 8,000 middle mell ..:1-.0 have .2
direct =ina~c~al lr.terest in Keeping the old system going. This is a
very Simple debate -- this is a very slmpl* policy issue bet.ween what's
good for st'.ldents and wha:::'s good for the consumer bankers and guaranty
agencies i:H,d ::.'1e':"r lobbyists.
I t ' $ betwefHl 5tud~nts :md bankers and
their lotbyis::s. And we are gOi:l'J :;0 Come down on the side of students
,;ind that's where we're gOlo9 to stay. Ar'.d I think that h'e will have il
lot of support. if people leave the ideology behind and look at the 104
schools.
'T'he second issue is 'on what: -- wr_ece t~ere is j:.Js:;: i"l cleve
difference b'HweEn us -- is on whether we want to disma~Lle or pro;:;ect
and expand the current college access programs. rle oeliw>,e very :nuch
:..!,:"t: ;.ho ?ell Grant:s. that: the in-school intsres:. s:.msidy (or . ,tude;;,.:!;;
<_::'u JUSt oI1)sQlvt:Jly criLical building bJocks Ln allQw:..r.c; pe-Q,:::e tc ge 0:;
",flO gil: nig:')er educat:.on,
t1e have i:;creased the maximum Pell Grant by 12 percent, to
go up to 25-;:0' llG:xt YC$r: i t \'/o'J:d be ::he lnghest:: ever.
W'," fire- trY.1..r:g
to pro;:;ect: p;:oiJr'a:ns 21ke -.:he .1r.-school .1r.terGst which says th"t when a
student who is on a subsidized Stafford loan, 4.5 million students are in
school, their interes~ does not accrue. This makes a dramatic
difference.
If yO'J are a student who oor;:ows $:7,000 over £::;ur years, if
the Republicans cake away tI'lis beno?:it. Lla: loan, =a::~·,er: tna!] paying
back $11,000, would go up 53,:00 to $20, CO;), T!1e stmie:1t'E monthly
payments would go up is percent. That is a rira~atic diff~rence and would
h0V8 a major effect on college access.
Q Now it never accrues to the student, ch.;::t i:;terf;s'.: is
r.Ever due to the st;;.dent -- it's in perpetuity for the loan subs;'::;,l zed by
the gove r:1ment?
t-;R S?SR:':NG:
T:ie .-:t.;dEmt PilYS that without flaving LO p0'1
::.ho- -- tho :..~)teres;;. dess net .accrue while they're in school. Once they
leave school the interest does accrue if they're not paying it back,
Q
The
in;:~"e5t,
~r.
",fiect, 2S paid by the govnrnment dlJring
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the time he's in school?
MR. SPERLING:
Yes.
Q But T guess what I'm trying to ask is d00S it then
decrease by a net amount the interest the student hilS to pay on t.he sum
Lotal of the loan?
MR. SPERLING:
It's quite simple.
If you are a student and
you had borr'ow8d at th8 m<l.xirnurn amount and you had $17,100, YOll would
start paying off $17,100.
If the interest -- if this benefit is taken
away, you would start off paying $20,000.
Q
Three years of interest on a $17,000 loan.
MR. SPERLING: So now, they have called [or eliminating this
that is a saving, according to eBO, of $9.56 billion.
It was called for
elimination -- in the Kasich* Fiscal Year 1995 budgeL called [or
eliminating the in-school interest subsidy, and then again, when we
challenged them to come forw<Jrd with some suggested savings dUl'ing the
'94 campaign, they put out a list of savings and again listed this as an
option that they would use. And they have never backed off from that.
The !ligher education community is oPEJosed to this; W8 are
opposed to tllis. Two-thirds of the people who benefit from this are
families making under $30,000, and I think this really is an issue of
fundamental priorities.
We all want to reduce the deficit. How Clr:r~ you ~Joing to do
it? They're going to say that they need this [or deficit: snvings.
But:
while they're trying to save $2 billion a ye,l:', ht:n.l:H; aid Lor '1.5
billion stl:dents, they proposing a Sl"JO-billion capital gains tax CUt
over 10 years. Now, that's not about the deficit reduction, t!lat's just
ai)out priorities. And we think it is very misguided priorities ~o try to
get your savings from something that we think is a critical investment in
higher education and increasing people's standard of living.
Q Now, this is not on the table right now, as opposed to
the first on,=? This is in the Kasich budget proposal of last yeElr, but
it's not i'lctually being advocated right now? You think it migh~ be, but
it isn't, right?
MR. SPERLING:
I think i t is vet·y much out there.
It was in
the Kasich proposal.
It was one of the savj.ngs jJut fo."tll in tIle $176
billion in savings they put forth during the Congress.
If they'd like to
back off this, if they would like to respond to this by saying they don't
want to do that, we welcome them to join us in calling fa!" protecting
this program. But that's not what we've heard.
We've also !leard, on January 31st, the Speaker talked about
replilcing the Pell Grant program. That's a January 31st speech. I-]e' ve
also seen both in the Kasich budget, cutting in half the campus-based aid
p.cogram, which is tile program --it's three programs; the Perkins loans,
the supplemental educational opportunil:y grant pcogr.:ltll, and l:he
work-study. That, too, they would cut in half, at a savings of 52.87
billion in outlays over five years.
Tn terms of the -- going l)ack -- the ciir'~c:.: lerl<iing progr1l1ll
that I rnentioned is HR-530. That is the bill number that caps direct
lending at 40 percent and does not allow it to go on its current path, or
even the accelerated path that we now propose that would allow over the
next few year'S every school to join the direct lending program.
The third issue where, again,
I think thel:e is a clear line
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is Otl national SerVlC€ .
;'Jc"':, one t-'l-=-ng that \>135 strange \'Ias th8t wher)
the Speaker spoke -::f .:::"epla::2-r:.g the [8-=-1 Grar:ts, :le spoke nbout w<wt Lng to
tid college aid ~o people working.
':'hat's e.>;:~cr::ly whr:t rHl\:._Lon~lJ. ~H~t'vic0
does
gives people a gran:: for col::'ege or '1i]b2:::" ed-:..lGBtion if they
serve their community_
We believe, 3gai:-" ~'I~t ~ve ~o not ha1.'e 1;0 lJe just
at a h1'pothe~ical phase, tn--'.-s p-,:,ogr:;:.r lS ::0 pl1;lce,
I'm sure that if sG:::ebody digs ~2r enOIJl/l ,hey re (joing co
find some imperfections, bi.l: 1 th,l;-:k :he Qver'...-hel!(linq t~(;'""',J~It: of the
eV:.cenee is that this'is a :;remendo'.ls program, :r.;:c .It is ;J gre,,: ;;n1.9
Eo:' its buck because L\; is doing $e'-"0ra1 th:';-,gs <I(; 00'~e·
11: 1.'3. Ht a
very low cost, helping peop.le -- r.el f1q- ;,,;;-;:i(;~ O~LCE!l'S ::igh:: gar.g crime
jq :::',e corn;run:ty; helping disaster vic:..ims; l;e':p1.:,g All so;:ts of
cc;;-.:nt.:tJi::y sE:rvice; at the same time, bUIlding a civ:c 58038 0:
r8spOllsibi:jty and giving people aid to college tr: " '4';:y w;,zn:e they've
earn~d it and worked ror it.
P<gain, we hope chere will be
CtlSiH1 b'-J;:;port fa: :;:1-:$,
S;::ecter, SLevens, Leach, Chafee, Gunderson sup;::::;;r:ted not:one: servi;-;e,
kJe're hoping that others will support it.
WE: should pain:: out that the
\'IE.y t:oa-: the s-:ate commissions are appoinced bV goverro::"s, thei'::<?
bi?art:.sa:1 _.- ::he.::e .;ire many Republican qOV$cnoYS who ~\,;;·.:e ,")ppOln:::'0o
cor:::.:liss2-ons that are successfully running this Pl-oposa.l.
And a'sp-lJ, r
t:1:r.k chat :':;;:5 is Q: clear line th.. t we aJ~e (i.fOWl_fE} nnd tr:flt we will
~'iqht fe,c <Jr:d figh:: them a::: every turn to protect the natio:H,l ser:'li::e.
':"he £oc~tb -isst:e, <Jgain 0:1 coli<?ge bccess, is the
President's p::oposa1 to give families up to $10, 000 deduction tor col.le:;-p?
t'Jitl-on 0'::: r_ighe:: ed:J83tion.
:~ow, we are hopeful Republicans will come
co ::.he ;:ab';'e and help us !Jass Uus.
This has been the proposal that h<ls
bl'l-en tnG m:::~;t .l.r.:-t:::<,rat:ve aile thE: most popular, and wet think that theret
I-lil: be bipartisan s:J;::;por:t.
But :-ig;,t r.o'''', ",:':':'8 we are 1',0P.l.og to [lod -- whlle we have
laid ou-::: saving,s t~ pay for t;,:s, the ,~ouse Cor,t::act pl0ce';lds lOOKlr,g for
savings [or $~7G :::.:.11ior; over :C years fo;: a :::dp1.tul gino::: tax cul that.
is retroactive and ;-li"lere 70 perce:-.t (; thiS beneiits 00 :0 960ple mak1.Lg
over SlOO,OGO, and a :1et.:t:-:a':' cos;: ::ecove:1' boondogglo that 15 50
e>:pensive and 15 suer-. 3 givea\'Iay t:-.at I th.l.nk ,.t is ;lIiliL.r;g r:he
Hepublic.:ans blush.
And I \':.:.11 de=i:l.:.::e1y be w~.ll.l.J)g t.:::: p:·edlct.~~ and Bt
10ilst hope -·-that th~ sensib.f-e Repcw.l Lca.OS wil:' convinC0 the House
leadership to give up tr.is pro;:::sal.
A..-v:.i ce:-.·t.Di;)l1', -it :;:,121' wer.e to give
up this proposal and the $i.CO 0-'--1.1 Lcn t;H!!y :,ee~:. ov~r 10 years to fund
t:.is, they c;01.11d come to the table anc do some::!',ing .;:0: t.he si x to 12
mil.~lon peol.11e WllO would ber'eH~ 1:-10~~~ the cOL:'>;t;.:: ::dtion ta.:: credi;;,
F1fth, I thl-nk is anot.her: sl;ark d:-vis.:.o;) -- 1 ::hln"
the
role of -::he federal goverorrcent in playjng .;J leDdec:srii; rol;! i::1 eleme:>tDr1'
8;)d :3econdary education.
I'ihat "Ie :wve been promot:-.r:0 ':'t; G':(lls 2000 i!:L
believe, eXf!(,;t.ly what; the A.merican publi:: .')up9"orts_
I:. is feder-al
lE!edership, ',Jhde 8-1.Lc1-Jing t'efcrrn to t(~kc pl0.cC <:t t;,e rc,ss :::;Qts -
bottom-up ~·e;:orrn.
The Goals 2000 tho\:. 1.5 being .::.t::ac
is a s::rcw lUar..
T:18 Goals 2('00 that -Secretary Ril0Y and che
C("~$ ;le:ped S":'9port 13
one ~l:-,ere '~he federal government plays a leadership YO <,e, blAt ~f'.
e,-l::o!';r.aging <l:1:::! empowering communities to CO!11~ u;:; with c::',e:::r o",n ,:;,'.an5,
with cC:':">!I1;Jni ty-or.ier;ted, ~i tizGn- invol ved plans.
We do bel~eve there is a natlonBl role in edJcatlon,
We co
be:·:..eve t:,a-:: we have a r.ational interest that goes. beyond ar,y sc;,ool, ;;J;)Y
co:r::l!;:1i::y, ,,1:1')1 statE . .t\nd I r:h,,,nk that has served this country 'tJell.
Nm..; ::';-,ere .:..5 r8.re 0: an e::::::r;of(>ic reason for b01ng conc8rned a:);:;ct havir.g
a national 5:J::::cess i:1 ed'clcation, and the federal govi;t:nment does p.~al' a
1ir::.-::ed co':'e. com:;:>ared to :oca~ sove1"nmen~, but i;::'5 h~stor1Ci"c11y been 00
iroport3r:t or,e.
~'1e're goi:1:;] to flght to protect Go"ls 2000 ilncl t~o 8>,.par;(1
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i::, :.r:d ..Ie "ai.: 0;:::,o05e :1",';'0 &ffc.ct:s co abo,~ ish ~h'~ [)cran~:t'Jnt.: of
Etbcation, ..:hich s~rd$ ::to ,..;ro"9 :nessage to th0 country, ilrld it senc:$ ~::\(~
'.<I(ong mess,:.qe t:: the 'clorld about o:J.r comfl'i::ment to lnv(:sting in young
[y,ople and nakin", sure :.J,;<:t Ol::: s;.::.;den::.s are gotting skllis l:.lJDt ',,'ill
,dIo..; UllS nation to cc.:,pete 1";) ::r.e g~ob.a~ economy,
Finally, a six::h issl:>2 :s ",eaa Stact, NovcmbrH' 11th, eight
2fter the elec>:ion, :iea::; Start ...: as one of ::hl? proposals that th(1! Speaker
said could be cn the table.
0" Ja:t;);Hy :t-:.;.t~, CBS reported thG
Judd-Gregg' list 0: cuts t,,01'.: he'd :;zer: C;l.st to cCZ.f.' up \eHch to help the
Sena te Repl..1bl icaDs look for sav ines ,,:) f.1: f i 1.1 ~ '10ir p J cdqe O~' cent tact I
included a ';)0 percent cu;: in Head"' Star';;. ,1.:.,;-;d :.:r.e.:e ~,avc been seeious
conversations about in.cluding :Jead Start" r. a bloc;'; 'l~·an::.
tie nre
al)so10tely opposed to any of: these ,:;roposa",s,
HG<::d SLa:::: :15':: natior.al
S~1;:;CGS3 S1:ory.
Over the last few years, there r:BS Dee" i1 ;:;CSiLive cevl.0w
of it, a sense that even though 1t'S bee;) a SUCCGSS, it C0I..1~6 ':::2 b~::ter,
There was a bipartisan 9LO:;P put t;:,ge::he_ ,-,'It!'l. ~r:e
aC:::.1;-;is'::r-acion that came up with new qoals w1th ::eati $turt, :::::l:C: m,L;'~ l.t
=ocus. ::.ore on quality, it made sure there rias mOLe focus ;)ot. jJ.st:
j ncre5sH,g t!le numbers, but making sure the young psop1e beir;S served
'·Je!."e :;ei;v:; ,:;erved well.
Those reforms an:- tTl place, 2nd of all ;:;:;e
places ::0 go look:.r,g fo::; savings while yo~:'n:: throwing away :noley on
so:'~€t.:o~r:o:; like t!'1e neut:ral cost: recovery,. there's just no ey,ccse Cor
t"lnhng a!)o:.Jt L8t:i"g l.t from poor children and He.ad Start and a pr~g::'a:ri
tha': :-las ;';e8:) il success stOty,
So t8C2Y ... s the dilY wner: people want. to know, wheee is ;;'.,:,<
Pr-esider:t going to dL'aw the line, where ,LS bG g01n9 to ill':" dowf'J fl iMtker,
i-!e's gc:.;'.g to :2,Y.it 0.0\';;; heee,
It 1$ ii fUnObrl1<:htal diLference o~
p"~orities, c.nci ,I:' is fJ fun"tf;JY,,;ntal ,Uffer<:t1ce OL economic pdor~tii::s.
T~)'~ P,esicier~t bel:eves very de;:;ply that :h(? skills !Hid educaUon of ;:he
l'.meLican peo?:e are ar,$olu::ely :u,damentiil to our ability to raise
standards of l.1vings ar:d ;;eep .p_'t1c:ic(l tho mos: powerful <l!conomic rocco in
the world going into ::he yea: 2COO. 'l'na:.'s Abat he oe1i0v(,$ in, thOlt's
whac he's going t8 talk .:lDOC.t :'Od8Y, a:1d :b8\;. 's what we W1.l1 f:qht for
during the ne:·:t Sl.X years,
Q Gene, .1$ he 902-1'.t; t.c ask :;:!~e cOdncll not to use these no ..,
availability of deduc~io;)s, 0;: yO~H': r.ope :;~.at you ca:1 rave corn:inued
access co direct loans'? ls he (jOi:1g to t:J;(je ~h·;!rr rot. to ;:aise tuition?
Because Lh"t:':;; a criticism 50rt'.\! people have said chat :':",ey eouid do now
\~ith lhe.se exp<lndeo funds n'J;,L~i)bLe for cc'.;.ca::ion,
t!18Y JllSt. tut:n around
a~d raise tuition?
MR. SPERLING:
1 'think :.:hat , first of .sL, tu ... tion d'ri
skyroci:et during the '80s,
II: even Idas up faster tban hea:"t.h ca::e,
But
o'}er the l8st fe~~ y'~i;1rs, the competlcion among colleges :,as become mcre
~ierce,
The cieft1cgr?phics tNt them :Ln more of .n campetltlV€ mo:!€!'.
tve
be; iev:: thDt: the rf!<l.d-:el:place w:l.ll be worKing, b:Jt I be:Cieve that ere of
:::"10 ?~'3sidcf;t':'> r,l",S$""qes O~',H' th~ next couple of ;~,o;,th$ wi. .\ be in the
I
sense ~t Lr,e t~ew (avena;')t, that. we have mutual (e$pOns:"bi~itip.s, at~d ;..'~"efl
t'le :"eoera: govern:ncn:: is making cln effort to t112ke cO:::,c:y.: e~:';;icn mere
ac~ess!ble t~at colleges and the state l,gislDcors L.,~t concro~ thenl
s:1::::o..:1d rot taro adva"tclge of that.
Bet wtile 1 ttink we wlII challellge ~hem, 1 ehi:"1k tha: the
-1!Ii",r:':etpi,s,::;s <:no the cc:npetltiv0ness for '3tlJd,~nts w:i 11 ixt the ['l;)in d.:iving
force ::r,at l!i:"l k0Cp ;:;L:ition costs down .
.lUse, ::e;;,em:::er -- certainly, col1'~qe tuition tax credit :::!oes
lo;,.;er costs
15 perC8:1t or 28 perC0;-;t for a f<1l,<11y, but they're still
bearing a l.i<:::ge ::;ost, ';L1d .1: a coll.eg0 roises tlli U.on, faln.llics are going
to feel it, and they' co g().l:1g :'0 h..:;pe:ully, &$ yo~ would expect, go to
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1111/2001
�Page 6 orB
othec colleges that are doing a better job of keeping their <.:osts down
o
talk about merging the Department of Education and the
Department; of Labor_
MR. SPERLING: Our feeling is t:h0L t:!H; Depiill'tme:nt: of
Ect;,:ca:::ion anti the Depart::lent of Labor have been nb1e to work extremely
well toqether on the School-to-Work. Goals 2000 and other issues. But we
suppOrt; keeping the Department of Education d:ld keeping t.he Department of
:,Dbol:'. CeL"titin':y ",3 the Presiden: goes fc!'::t reinventing gover:l::!ent, we
<,u'e \4ill':'r\g :':0 :ook at r.t\.r:y refo['~s <:nd c:<a.:.lenlje the depart;,.ents, ::\At; we
:>311 ie\'e tr:.at rigl-:t now, those refcrms car, take place fast: witr:in ::he
Depattmen~ of Labor, and within the ~epartment of Education separately.
we th~nk t:~ey'::e performing ,,.,'ell and w~ll be going even further through
the V:-Ce ?resider.t "'r.d the Pres ider.t 's R~inve"t:'r:g Gove;:"n:nc:Jt. p;:";:::cess.
b'Jt t.;--,ere is no {iL;':;'St~O" :.;r.f;'re ~s apparer:.t L'y Con:;.:cessmnn
accordi:lg t~ the newspapers, has proposals to pe.rhaps :nerge
them, but I think there are obviously o:,.her p""Oplf: wno ':'0.: il':'G::~s:;o<i in
e':iminat':'r.g ::he Department of Sducacion: c;;!r;;:,;;inly so;n~ prorr:r.~n::.
RepJ::':'iGar.s have s::::::':'e~ out ::r: th9~.
SOllie o£ thelll ,Jr',: C:;':Ll;f..'.r.l.y p,~op'J(l
who have honCL2.b';'e r.ecords on edllcaticn, bllt ~N~ ~l:st beEeve ~heY'l:e
fundurtlentally misc;:uide.d ar.d wt"O:lg, a"d that they ace making their Ci)Se by
setting up a straw mao about: Goals 2:000 and not looking: at: what a very
decen':.rall.ze:i !:::ottorn-u,:;, grass roots-type of reform tl".e Secreta:::y of
Et1Uc<ttiO:l is leaciing,
Gunderson,
Q Will the President speclfically threaten to use a veto on
any of these six issues?
MR. SPERLING:
I think a wise strate~JY by any 1,1h.1.te House is
not to rush to give out their v~to strateqy,
I think he IS going to say
that he will fight them at every turn.
Certainly, che ',.CLO is a powerful
weapon in his at·senal,
But when and on what;. and in "Iha:,. circumst.ances he
will use it, I will leave it to the President to tt;!l.l yOU.
Q
The House, <;is you know, is debe.tinq ~;j)ethG!r to cn.mgt;! the
mcr.ey in the Cdme Bill from funding 100, 000 police to block grants for
citizens and states,
Is the ?resident 90ing to be able to resist talking
about tMoll':: today, and essenti<llly stepp.in9 'On this message of eduCDt:.ion?
[;8C2use tr:at is coday's sco::-y baCK In i-ins;'ington.
~'?". SPERLH!G:
Well, he's speabng ,,;; the Ar..erican Cocndl
of Education_
Clearly, this is where we' t:i! going to be drawing the line
today.
! thid: ~he sto!'y is that ~he President, c;,is week, is laying out
p:ac:.=s \:hat; i'e is go:.r:9 :'0 go to :;he, 'A;;dl to Ii:!!;;: t.ho ;<.~p\:>';icc.n~ 00
iss'Jes -- 0:·, sc::oe fl.ep".l:;~ic2ns - - 0" :S~'.H~:;; Vhl~ '1'~ b01'0\"'~3 d0i::9h' h.
So I .::r.in:': the common t~e:ne :5 tna";: t~e Pces.:..den;.. is GSl.ng Lh~$ week ;:0
draw the 1 im: on sor.:e very fundamentai issues;
100,000 cops 1$ one, and
the role of education and pa:rticu~arly higher educatio:1 foc this
::::ot.:ntry's fu::t:re is ::;;e second one. And I t:hink t!'lat: is 'the thread ella';
t~8S .... oday and the weeke~d together,
Q
foreign policy issues?
Q How about the foreign policy issue$ ir.volving the
en ~peacekeopL,g, ",nci Secret"ry Shnlala' s letter
MR. SPERl.ING:
l'm going to tell you that you're getting out
of my range, and I'm going to let you ask Mi'. McCUf::]' ",boet. those
questions.
o
Foster
ff_
he's gClOq to the wall for Henry Foster,
too.
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�Pagc70rS
MR. SPERLING:
Again,
I'm going to st.ay within my policy
area.
Q your policy area, Gene, there's some confusion. This tax
deductibility for education, this would be a so-called "above the line"
deduction, available even to people who did not itemize their tax
e8tuens, eight?
MR. SPERLING:
That is correct.
Q So this is not just a sop to upper middle class people
with college kids that some people have tried to say that it is?
MR. SPERLING:
No, it is an above-the-line deduction that
would be available for people who did not itemize, and that will be one
of the things that will make it very popular, we believe.
Q In some of these areas he's asked for really big
increases, like AmeriCorps, which might be hard to justify down the road.
ls this kind of a symbolic gesture on his part, or: does he actu(1l1y think
he can get Congress to develop a full funding of AmeriCorps, which is
<llready bigger than the Peace Corps?
MR. SPERLING: We're proud of the fact that it's bigger than
the Peace Corps.
We think that having 33,000, and hopefully '17,000 young
people who are out in the community, making low wages to ser:ve their·
community, to help solve social problems as a way of learning how to work
in their communities and being community leader's and going to college is
a tremendous thing, and we're proud of the fact that it could get to be
larger, and I think we want to do everything w~ can ;::0 move toweJrds the
Pr~sident's goal oC having 100,000 young people eng(1ged in national
service through AmeL"iCor·ps.
I think that the proof will be in the
pudding, and I think that right now the stories you are hearing ,lre very
positive stories about very enthusiastic young people, working in
communities where organizations have bid for them, where state panels
have worked to set things up.
This is another example of national
leadership where the implementation and the design happens at the local
level, it happens with the priva;::e sector.
You have fSt-i, GE, many large
companies working together to make this happen.
As to whether we'll get the increases we want, we're going
to fight like hell to get them.
We'll do the best we can, and we'll make
the best case we can.
Certainly, on some of these programs, it will take
a big fight just to hold the line. We understand that.
That doesn't
mean we' 1:'8 not going Lo fight for the full alilOtll1ts that we believe j,n.
We've been able -- we are very proud that we've t)een able to bring the
deficit down now -- it's projected to be $616 billion over five years,
and still be able to find additional spending cuts so that we can
increase eXCiting new programs like national service.
And, ultimately,
ii we'd put ideology aside, if people look at the di!:"ect lending program
and ask whether it's working, if they look at national service and ask
whethe!:" it's working, the proof will be in the puddi:1g.
And if it turns
out that you nee'd to go slower at some point based on the facts, that's
fine.
But people should also be willil19 to say that these progr<lms
<Irc working and that l:hey're successful.
We should be willing to admit
th8t, put ideology Clsidc 8nd give more people 11 chance to have these
opportunities.
THE PRESS:
Thank you.
ENDll:55 A.M.
EST
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III 1/200 I
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�EXECUTIVE OFFICE OF THE PRESIDENT
•
COUNCIL OF ECONOMIC ADVISERS
wASHINGTON, D.C. 20500
April 25 , 1995
MEMORANDUM FOR LAURA TYSON, NEC
GENE SPERLING, NEe
FROM:
MARTIN N. BAILY, CEA "~I?
ALAN KRUEGER, DOL 1\" i, .....
,;-,L'tY
DAVID LEVINE, CEA c.
HALSEY ROGERS, eEA""
SUBJECT:
The Impact of Education on the Economy
We enclose the review you have requested of the evidence on
the effects of education on the economy.
•
A one-page summary is
enclosed. Please circulate as you sea fit. We feel that it might
be worth.givinq a short briefing on the issues to interested NEe
participants. We have collected copies of the refer~nces that can
be made available to anyone who wants to review the original
studies.
Attaclunents
Summary
The Impact of Education on the Economy
•
�•
TIlE IMPACT OF EDUCATION ON TIlE ECONOMY: EXECUTIVE SUMMARY
•
The educationallevei of the U.S. workforce has risen, both over the long term
and over the past twenty years. U.S. students compare unfavorably to those in other nations on
tests of math and science. Test scores have been increasing in the U.S., especially for
minorities.
•
There is a very well-established relationship between the amount of education of
workers and higher earnings. There is debate about the causes of this correlation, but the weight
of the evidence strongly suggests that providing additional education will increase individuals'
.
subsequent .:arnings. The return to education bas been rising.
•
The evidence shows that compensatory preschool education programs such as
Head Start improve subsequent school mevemenL The evidence is not yet available to provide
a full evalua.tion of "school to work"-type programs but the initial evidence is favorable.
•
Education and training pay off for workers wbo already entered the labor market.
Worker training is generally an essential ingredient in the adoption of high performance
workplaces.
•
•
Increased education is associated with better social outeomes, sucb as less criminal
behavior and better bealth. This suggests education is a good investment for society. However,
the causal1ink between education and improved social outeomes is not as well established as for
education and earnings.
.
•
Programs that make education cheaper or more available appear to increase the
amount of education.
•
Children wbo experience poverty between ages 6 and 15 are two to three times
as likely to drop out of school as non-poverty students, with adverse effects on their subsequent
economic 3"d social performance. The cost to society of having children in poverty is
substantial.
•
There is mixed evidence on the impact of increased per pupil spending on school
porformance. The 1966 Coleman Report and several subsequent studies suggested little linkage
between dollars spent and student achievement. More recent analyStS suggests school resources
do affect test scores and there is evidence suggesting that increased .school resources do add to
,subsequent student earnings.
•
Since education raises the earnings and productivity of workers, most economists
conclude that it contributes to overall economic growth. Evidence from cross-country
comparisons generally supports the conclusion that education contributes to growth.
•
.
�•
April 25, 1995
TIlE IMPACT OF EDUCATION ON TIlE ECONOMY
I. TIlE EDUCATIONAL LEVEL OF TIlE U.S. WORKFORCE HAS RISEN IN
RECENT YEARS.
•
American workers now ba•• more years of fonna) education than ever before. Recent
, years have seen the continuation of three heartening trends. First, more students are
finishing high schooL In 1973, 14.1 percent of 16- to 24-yeat-01ds were high-school
dropouts; by 1993, the mIe had fallen to 11.0 percent. Part of this improvement is due to
increases in the gntduation mIeS of African American students, whose dropout rates have
fallen much more sharply than have dropout mIeS for white students. Second, more high
school gntduates are attending college. Since 1980, the percentage of high-school gntduates
who enrolled in college following gntduation has increased from 49 percent to 62 percent.
As new workers have replaced older, less educated workers, the share of the labor force with
a college degree has also increased, from 16 percent in 1973 "' 29 percent in 1993. Third,
total gntduate-school enrollment has grown almost as rapidly as undergraduate enrollment, in
percentage terms, over the past two de<:ades; among full-time students, growth in graduate
enrollment has been much faster than in undergntduate enrollment. The result of these three
trends has been a more educated labor force: average years of education per worker climbed
from It.S in 1973 to 13.0 in 1990.'
Test scores have also risen, although they remain urump.....ive by international
standards, Over the past de<:ade, 'test scores in mathematics, science, and verbal skills have
generally risen for children of almost all ages and racial and ethnic groups. These test-score \
gains have been largest among African American students. Despite the gains, there remains
room for further improvement: U.S. students continue to trail students from most other
industrialized nations on international achievement tests in math and science.
n.
,FORMAL EDUCATION CREATES SUBSTANTIAL ECONOMIC BENEFITS,
BOTII FOR TIlE INDIVIDUAL AND FOR SOCIETY.
More educated workers earn more', and the gap is
increasing~
[0
1994. for example, the
median fuU~time worker with at least a bachelor's degree eamed 74 percent more per week'
than the median full-time worker with only a high school degree; this gap was only 36
percent in 1979. The rewards to education and training are one of the most wen-established
•
1 U.S. Department of Education. National Center fOf Education Statistics. Digest oj Education SlaJiJth,:s.
1994; and U.S. Department of LAbor. Bureau of Labor Stalistics. Labor Composition and U,S. Productivity
Growth, 1948-90, December 1993.
.
�•
2
fmdings in economics. 2 Positive returns to education and the recent increase in returns have
been documented for a wide range of foreign nations, as well as for the United States,'
Labor demand in high-skiU occupatio... is increasing. Taken together, the two trends
noted above-the greater numbers of college graduates, and the increasing earnings gap
between college and high-school graduates-suggest that demand for higher-skilled workers
must have increased in recent decades. And indeed, occupational evidence supports this
view. From 1984 to 1994, whereas employment growth in occupations whose workers have
low levels of education averaged only 7 percent, employment growth in high-skill
'
occupations averaged an impressive 32 percent.
There Is solUe debate about the cause of the eOlTelatloo between education and earnings.
One problem is that people with high ability are disproportionately likely 10 reooive above
average education, but would also have been disproportionately likely 10 reooive high wages
even if they had not reooived so much education. In addition, education can payoff for an
individual because education Is credential that siguals high ability. even if little Is leamed at
schoo). To the extent those with more schooling would be more productive anyway, or that
schooling is just a rat race for credentials, then increas:ng educational attainment will not
raise natioual output.
•
Nevertheless, much of the evidence indicates that the economic rewards to education
accrue because schooling actuaOy makes students more productiv. as employees, and Dot
primarily because schooling screens out low-ability students. One recent study showed
that a year of coOege education increases earnings by 5 percent to 10 percent, even
controlling for family backgrounds or leSt scores in high school. This result hold. not only
for four-year institutions, but also for community colleges,' Anotller study examined
identical twins, who obviously share similar family characteristics and identical genes, ~d
found that each year of additional schooling raises later earnings of the more-educated twin
2 Willis. I{oben, 'Wage Determinants: A Survey And Reinterpretation of Human Capital Earnings
Funclions, ~ in Orley Asbenfelter and Richard Layard. cds., Handbook of Labar Economics, Volume I, Elsevier
Publishen:, 1986,
) Psacbat(qJOulos. George. ~Retums to Educalion; A Further International Update and Implications.·
Journal cf Humatl R,sofirces, Volume 20, Fall, J985; and Freeman, Richard B., and Lawrence Katz, ~Rising
Wage Inequatity: 'T'he United S4ttes vs. Other Countries.· in Freeman. Richard B., 00., Working Under
Differem Rules (New' York: Russell Sage Foundation), 1994.
•
4 Kane, Thomas J, and Cecilia Rouse, Labor M.arh:l Returns lQ Two and Four-Year College: Is A Cudil
a Credit and Do Degrees MaliC? Working Paper IrJ 11, lndustrial Relations Sectinn, Princeton University,
December 1993,
'
�•
3
by about 13 percent.' A third study found that each additional year of schooling due to
compulsory·schooling laws IlIises earnings by 8 percent (although statistical problems limit
the precision of this estimate).'
m.
LEARNING THROUGHOUT THE LIFE CYCLE HAS HIGH PAYOFFS.
Head 81Jlrt and similar compensatory pre-school programs have substantial_nomic
payoffs. Critics of Head Slart-style program. have noted that although the progrnms
substantially increase the IQ test SCOteS of participant children reJativetll non·participants,
this lest-score advantage disappearn by the end of grade school. But studies that have looked
beyond this narrow measure of intelligence show that despite the erosion of IQ test-score
effects, .preschool programs can give a persistent boost to academic achievement. Compared
with other students with similar chancteristics, graduates of Head Slart-style programs are
less lilrely to be held back in school, less likely to be classified as speciaI-<Oducation students,
and more Iilrely to graduate from high school. As a result, the progrnm appears to yield net
benefits not only for participants but also for the taxpayer.'
•
"School.to-work"-type programs am be suctessfulln improving studeut outcomes.
Recently, substantial governmental effons have been devoted to strengthening the link
between high schools, community colleges, and the workplace. Although these efforts are in
many cases too recent to have produced results that can be evaluated rigorously, preliminary
results are encouraging. For example, California'. Partnership Academies, which combine
high-school education with career-focused training and work experience, have apparently
been quite sUctesSful in reducing dropout rates among program participants.' ·More definite
results are available for estaIlli.hed programs targeted at high-school dropouts, such as the
highly successful Center for Employment TllIining in San lose.
\
j Ashenfelter. Orley, and AJan B. Krueger, "Estimates of the Eoooomic Returns to Schooling From a New
Sampl>¢: of iwins, • Amt'riam Bcorwmjc R~vi~.. De<:embet ]994. Other studies of twins h.ve found smaller,
but still positive, effocts,
(i Angrist. Joshua and Alan Krueger, ~Does Compulsory School Attendance Affect Schooling and
Earnings?," Qrgmerly Journal of Eronomics, Vol. 61, No.4, November 1991.
7 Barnetl. W. Steven, ~Benefits of Compensatory Preschool EQl,ICauon. ~ Journal of Human Resourca,
Vol. 27. No, 2. Spring 1992.
.
•
i Hayward, SC(:ky. and G. Tallmadge, EvallJ(1.tion of Drop<)lIt PrevemioR and Reemry Projects il1
V<iCaliCMl Educatien, d11lfi final report, Research Triangle Institute. November 199.3; and Stern, David. et al..
~aenefits
and Costs of Dropout ~ention in a Program Combining Academic and VQCIltional Educatioo:
Results from Replications of the California t'cninsula Academies,· EdUCaliOM/ Evaluation and
Policy AJUllysl.r. Vol, 11. No.4, 19&9.
'
.
Third~Year
�•
4
Education and training for experienced work£rs have economic benefIts us "eU. One
recent study concluded thaI each year of education provided through a Pennsylvania progllUll
for older displaced work£rs increased earning. by some 7 percent.' And a recent study of
the Job Training Partnership Act, a Federal ProgllUll providing training for economically
disadvantag,d clients, found that participation increased the earnings of adult males by 10
percent and the earnings of adult female participants by 15 percent. These earnings gnins
were one and a half times greater than the costs invested to produce them.'o
Firm-provided vocatlonalll'alning bas positive economic bnpacts for participants and
employe.... For work£rs, a year of either on-the-job or formal training raises wages by
. aboul as much as a year of college education. II There is also evidence that firm-provided
training leads to productivity gnins. A survey of small manufacturing firms in Michigan that
received training grants from the Slate government found that the additional training provided
by manufacturing firms significantly raised productivity by reducing wastage." Aoother
study of formal training programs in manufacturing fmns found that firms that introduced
training programs in 1983 had productivity growth that was 19 percent faster. on average,
than at other firms."
•
Some evidente ruggests !bat training Is _
elTecti•• "hen combined with other
innovati•• workplace practl.... In prnctice.·companies that train their work£rs well tend
also 10 bave adopted other inoovative prnctiees-for example, pay systems that reward
productivity, as well as managemenl structures that give frontline employees the ability to
suggest and implement improvements in the product and workplace." Severai studies
suggest that taken togethar, these policies are more effective than training alone.
Evidence of the effectiveness of these human-resource practices comes from a variety of
industries. In manufacturing, a multiyear study of steel finishing lines.,showed lhat plants
9' l.acobsou, Louis, Robert L.al..onde, and Daniel G. Sullivan. ~ ~umr
Dislccated WmkErs, unpublished manuscript. September 1994.
10
Classrocm Troiningfor
Hi Bloom, Howard S,. et al., The No/loMl JTPA Study: Overview of lmpaas, Benefits, and Costs of 1ille
l1~A.
Abt Associates, February 1994,
11
Lynch. Lisa, ·Private Sector Training and the Earnings of Young Workers. ~ Americall Economic
Review, Vol, 32. No, 1.. 1992.
11 Hotzer, Harry et at.. -Are Traipillg Subsidies for Firms Effe>ctive?· The Michigan E~perience:
lndu.f(riul mid Labor ReUzfimu ReviEW, NQvemher 1993.
L3 Bartel, Anne, 'Produ<;tivlty Gains fwm the Implementation of Employee Tntining Progriuns, •
Industrial Remlions, forthcoming.
•
14 U.s. Department of Labor, Hi~h Perjonnorrce Work Pradkes and Firm Peiformance. 1993; and
Levine. David L, RdnW'ming the Workplace: How Business arid Empwyees Cun 80th Win (Brookings, 1993).
�•
•
5
using highly innovative human-resource management systems (Le., that had incentive-based
pay and employee involvement as well as training) had the highest productivity: these plants
were in operation 98 percent of scheduled time, compared with only 88 percent of the time at
companies with tr.Iditionai work practices." Another study concluded that
high-involvement steel minimills not only excel in quality and productivity but also enjoy
lower employee tumover.16 Moreover, these results are not unique to the steel industry. A
comparison of productivity in several industries in the U.S., Germany and Japan found that
adopting best-practice production processes generally required extensive worker training."
A worldwide study of the automobile industry found that a coordinated change to an
involvement-oriented human resource system can simultaneously improve product quality and
productivity." Studies of the electrical components industry and of companies with flexible
manufacturing systems have found similar results."
Although most of the detailed studies are in manufacturing, high-involvement human
resource policies-that is, policies that give all employees the ability, incentive, and power to·
improve constantly their workplace and the product-also appear to yield benefits in service
industries. One study of 850 publicly held service companies discovered that high-skill,
high-involv"ment work practicp.s predicted organizational performance: a one-standard
deviation increase in the measure of high-performance work practices correlated with a
reduction in employee turnover of more than I percentage point (for example, from 14
percent to 13 percent per year). It also correlated with 16 percent higher sales per employee
(controlling for capital per worker and research and development spending), raised annual
cash flow by $3,800 per employee, and raised the market value of the company by more than
$18,000 pel' employee."
\
J' IchniClwski, CaseY. Kathryn Shaw, and Giovanna Prennushi, "The Effects of Human Resource
Management I'ractices on Productivity,· unpublished manuscript. March 1994.
16 Arthur, Jeffrey B.. "Effects of Human Resource Systems on Manufacturing Performance and
TUrnover.· Academy of Management Journal, Vol. 37. No.3, 1994.
17 Baily, Martin Neil, and Hans Gersbacb. "Efficiency in Manufacturing and the Need' for Global
Competition," Brookings Papers on Economic Activity: Microeconomics, forthcom.ing.
18 MacDuffie, John Paul, "Human Resource Bundles and Manufacturing Performance," University of
Pennsylvania, Wharton School of Management, June 1993.
•
19 Cutcher..(Jershenfeld, Joel, "The Impact on Economic Perfonnance of a Transformation in Workplace
Relations," Industrial and lAbor Relalions Review, Vol. 44, January 1991; and Jaikumar, Ramchandllll1,
"Postindustrial Manufacturing,· Harvard Business Review. Vol. 64, November-December 1986.
20 Huselid, Mark A., "The Impact of Human Resource Management Practices on Turnover, Productivity,
and Corporate Financial Performance." Academy of Management Journal, forthcoming.
�•
6
IV. EDUCATION AND TRAINING ALSO HA VE NON-ECONOMIC BENEFITS.
HIgher Ie.els of education are associated with better health outcomes, more effective
eblld-rearing, greater political participation. increases in ebaritable giving, and less
participation In crho.. Iligher levels of education improve health behaviors and decrease
mortality rates, and more educated individuals also appear to behetter parents to their
ebildren." Some of these outcomes produce positive externalities for society as a whole,
and not simply for the educated individual; examples are the lower crime rates and lower
rates of infectious disease that are associated with education. These results should be
interpreted with some caution, however, due to uncertainty about whether these relationships
reflect causal links (see below).
Society pays large _
fl)l' eaeb individoal who falls to reaeb Ills or her educatiooal
potential. Iligh school dropouts are far more likely to be convicted of crimes than are those
with higher levels of education. For example, on any given day iIi 1992 almost one--quarter
of ali mal.. between IS and 34 wbo had not re::eived • conventioual high school
diploma-but less than 4 percent of those wbo had-were either In prison, on probation, or
on parole. Based on 1m figures, the present value of total prison, parole, and welfare costs
over an adult lifetime for each Individual who does not graduate high school averages
$69,000, Costs are only about $32,000 for each high school graduate who does not attend
college, and just $15,000 for each person who has attended college."
•
Theoretically, it need not be the case that education gyses law-abiding behavior. It is
conceivable, for example, that certain innate traits lead some young men both to drop out of
school and to commit crimes, sO that compulsory education for those young men would do
nothing to reduce their propensity to commit crimes, However, the evidence in Section ill
indicates that suulents who attend more schooUng not ~use of innate differences, but for
reasons such as compulsory schooling laws, nevertheless enjoy higher earnings. These
results indicate Ibat the higher earnings of Ibe more educated are not due solely to innate
differences in ability. Although this is not direct evidence, these results suggest that higher
.
levels of education would also reduce crime ard welfare dependency.
II Haveman, Robert, and Barbara Wolfe. ~Schoolin,g and Economic Well·Being: The Role of Non~~1.afket
Effects"'. The journal of HlUtUlfl Resources. Volume 19, Number 3, 1984,
u.s.
n Economic Report of/he Presidenl,
Government Printing Office. Februazy. 1995, flP; 181~188,
Figures are present value disoounted at 4 % annual raW: for 00S1S of prison. welfare. and parole between the ages
of 18 and 54. based on 1992 data. The oosts of prison and parole do not include the costs borne by 'the victims
of crimes. which are probably much higher,
'
•
�•
7
V. FAMILY INCOME AND TUITION COSTS AFFECT EDUCATIONAL
OPPORTIlNlTIFS.
BolTOwing constraints mean that college costs may bave a pal'tlrularly large effect on
educational attainment. If capital markets functioned perfectly, any student for whom the
returns to education were greater than the interest rate would be able to borrow enough to
cover tuition and living costs. Thus low- and high-income students with similar abilities
would be expeckd to enroll in college at similar rates. But in pnu:tice, future earnings tend
to be far less effectlve as collateral than are physical assets such as houses. A:> a result,
students cannot necessarily borrow enough to cover the costs of education; Thus college
costs matter more than they should: even when costs are low enough to make education a
good investment for a low-income student, they may be too high for him or her to slay in
scbonl. A variety of evidence suggests that by easing the borrowing constraint, government
can substantially increase educational attainment.
•
Lower coUege tuition leads substantially more students to euroU In eollege. The net cost
of college education appears to have a substential impact on the likelihood of college
enrollment for l'lw-income students. For example, one recent study has found that students
from· states with low public-uniVersity tuition levels are more lilre1y to attend post-secorulary
oducation than students from other states, even after controlling for a wide variety of other
foetors that (:auld cause this difference." Because the effect is stronger for low-income
students than for high-income students, it seems likely that borrowing constraints do indeod
eonstrnin educational analnment, implying a role for government.
Government aid can also play. an important role in driving down tbe cost of <oUego, and
thus inducing more students from low-income families to attend. There is a subSllintial
amount of evidence that for low-income studenlS, the availability of grant aid strongly
increases the likelihood of participation in further edueation.'"
Th. low I.vels of educational attoimnent or low-income students (caused both by
borrowing constraints and by otber risk factors) are costly in tenus of lost future
productivity. Por poor children, rates of school completion and advaneement to post
serondary education are much lower than for other children. For example, children who
2J Kane, Iltomas. ~College Entry By Blacks Since 1970: The Role of College Costs, Family Background.
and Returns to Education, ~ Journal of Political Economy, October 1994, See al~ Manski, C1tarles, and David
Wise, College Choice ill Amerhv. Harvard lJOIversity Press. 1983.
•
14 McPherson, Michael, and Morton Shapiro, Keeping Colkge Affordahle/ Government aM EducaJionai
Opportunity. Brookings Institution. 1991, p. 214: HaUptman, Arthur M., and Maureen McLaughlin. ~ls the
Goal of Acces>, to' Post-Secondary Education Being Met? ~ Washington, D.C,. American Council on Education.
191H!.. Jensen, Brie L. -FinanCial Aid and Educational Outwmes: A Review,· College and University, Spring
1983; Leslie, Larry, and Paul Brinkman, The Economic Value of Higher Education, McMillan. 1988; MAASki
and Wise, op. cil.
�•
8
experience poverty between the ages of 6 and 15 years are two to three times more lilrely to
drop out of high school than are students who never experience poverty. A recent study
commissioned by the Children's Defense Pund, which added up the costs of low educational
achievement for the 14.6 million poor children in 1992, estim.red that each year that these
children spend in poverty costs the economy somewhere between $36 billion and $177 billion
in reduced future productivity and employment. (Again, these estimates assume that the
productivity benefits of a year of education are as large for poor students as they are for the
average student.)
VI. ARE WE JUST TIlROWlNG MONEY AWAY BY SPENDING IT ON SCHOOLS?
'The evidence on Ibe payoff to school resources Is mixed. This is probably not surprising;
it is inherently very difficult to estimate the effect of school resources Ott student ""hievement
because schools with troubled students (e.g., many from single-parent families) may need to
spend more on everything from melll! detectors to attracting teacbers. yet still show below
average test scores or other results.
'The Coleman Report-whkb in 1966 found only a weak relationship between school
resources such as class size and standardized tost scores-bas had a huge Impact on Ibe
polley debate. Many subsequent studies also have found an insignificant relationship
between test scores and school inputs." and a majority of educational researchers probably
hold this view.
•
More recent ovideoce rmds Ibat more generous school resources bave beneficial e«eeIs
on student test scores. An important recent study re-analyzed previous research and came
to • very different conclusion-that the litl"rature had too many statistically significant
findings to support the view that school resources have no effect on test scores." In
addition, the only largeMscaleTrandomized experiment on class size and student achievement
ever performed in the U.S.-the Tennessee STAR experiment on grades K-3- concluded
that students performed better if they were assigned to smaller classes. Smaller class size
had especially beneficial effects on !est scores for low-income students and for black
students. (A number of researchers have criticized the implementation of the experiment, but
there is no strong reason to doubt the conclusion.)
fu contrast wllh the tost-seore Ilterature, most studies Ibat look directly at the
relationshil) between school resources and students' subsequent income or educational
attainment tend to find a positive association. ·Because test scores have only a weak
relationship with economic outcomes, such as subsequent income, it is important to look at
:ij
•
Hanushek, Eric A., "The Economics of &hooliog: Production R'ld Efficiency in Public Schools. ~
Journal of EC{J1wmic Literature, Volume 2.4, Septemher 1986,
26 Hedges,., L. V.• "Does Money MaHer'!. ~ unpublished working pape(; University of Chicago, 1993,
�•
9
the relationshlp between school spending and economic outcomes. A recent review article
concluded that on average, a 10 pen:ent increase in school resou«:eS leads to a 1 to 2 percent
increase in students' annual income later in life." However, other studies have raised
methodological concerns with this literature, and have argued that there is an insignificant
relationship between school resouroes and students' subsequent income. This remains an
unsettled issue, but we think a ease can be made that school resources lead to higher income
for students down the road.
VB. EDUCATION CONTRIBUTES TO ECONOMIC GROWTH.
•
New evidence empbasizes !bat education Is an !mpomurt determinant of the speed at
wbicb the economy as a wbole grows. A large body of literature has sbnwn that countries
with the highest initial levels of education in 1960 or 1965 typically grew the fastest in
subsequent decades." One re<:ent study, in trying to pinpoint just bow education makes its
contribution, has shown that countries with better-edueated lubor forces are better able to
take advantage of technologies developed in other countries;" this factor is li.lrely to have'
c"ntributed to the growth successes of Japan and the East Asian newly industrialized
countries. Sketchier evidence suggests that even within countries, states and regions with
better-educated labor forces grow more rapidly." Theoretical economists also emphasize
that a well-educated workforce can raise the productivity of R&D (for example, because new
innovations are implemented more quickly), generating the technological improvements that
are the crucial ingredient in long-term growth.
The cross-country evidence for an education growth effect is nol Irrefutable, bowe.er.
The central difficulty with these cross-country analyses is that countries that "got education
right" also got many other things right. That is, countries with high levels of education
tended to be those with high inveStment rates, low inflation rates, a strong expert orientation,
and stable political systems-all of which are believed to contribute to growth. As a result,
disentangling these factors to determine which of them has contribured most is no easy
matter. Still, most growth economists believe that in combination with other factors,
l1 Card, David, and Alan Krueger, "Th('l &oOOullC Return to S<:hool Quality: A Partial Survey,"
Princeton University, 1994.
2$ See. F(lr example, Barro, Ruber1 J., "Econorn.lc Growth in a Cross Section of Countries, ~ Qual1erly
Journal oj Eco'lomicr, Volume 106, May 1991; and Mankiw, N. Gregof}'. David Romer, and David Weil, ~A
Contribution to the Empirics of Economic Growth, ~ Quanerly 10l1r001 !if Eronomics, Volume 107. May 1992.
•
19 Benhabib. Jess, and Marlo; M. Spiegel, ~The Role of Human Capital in Eoonomi:c Development!
Evidence from Aggregate Cross-Country Data: Joumal ofMQnefary EconMltcs. Vol. 34,1994.
30 HoJtt-Eakin. Douglas, ·Solow and the Sw.res: Capital Accumulalion, Productiv'ity, and Economic
Growth,· National Ta,")ourflill, VoL 4Q, No.4, 1993.
�•
•
to
education plays an important role.
Educational improvements have contributed significantly to"postwareconomle growth In
the United States. If we accept the proposition that more educated worlrers are paid more
because their education makes them more preductive, then we can estimate education'.
growth effects directly by measuring increases in the educational attainment of the
workforce. Using this method, the Bureau of Labor Stalistics estimates that between 1963
and 1992, improvements in education added 0.3 percentage points per year t£)!be growth rate
of GDP-meaning that education acrounted for about 20 pen:ent of per-<:apila inoome growth
over that period. This estimate depends crucially on the assumption that the earnings "effects
of education equal its effects on the economy's productivity, however. If in fact education is
just:signalling, then 0.3 pel1:entage points is an overestimate; if instead education has positive
spiJlovern, tllen the ru:tuaJ contribution of education may be even greater. Training and on
the-job leanling also contribute,t£) economic growth, although we have no estimates of the
magnitude of these effects.
'
Educational improvements for lower-skilled workers cau belp ensure that they benefit
fuUy rrom economic growth. Facwrs that contribute to growth, such as technological
advancement and increased trade, sometimes benefit higher-sldDed workers
disproportionately. The computer advances of recent years, for example, have probably
contributed to economie growth wblle simultaneously shifting labor demand toward the high
skilled workers who can best use the new technologies. To keep lower-skilled workers from
being left behind by growth. it may therefore be necessary to increase their levels of
education and training.
•
�•
May 29, 1996
MEMORANDUM TO GENE SPERLING
FROM:
JON ORSZAG
SUBJECT:
Stats for the Princeton Speech
EDUCATION AND ECONOMIC GROWTH:
•
A study by the World Bank found that better-educated countries grow faster: a 10
percentage point increase in school enroUment raised income growth by 0.3 percent.
SOURCE:
World Bank, "The East Asian Miracle", Oxford Univ. Press (1993), page 48. "An increase
oj 10 percentage paints in the primary or secondary school cnrollmenl rate would raise
per capita income gn.lwth by 03 percent." The estimate is based on cross-economy
regressions for 113 economies betwet:n 1960 and 1985,
EDUCATION AND JOB GROWTH:
•
•
In the next decade, 44 percent of the new jobs wiH require some form of education
training beyond a high school degree.
SOURCH:
•
•
Bureau of Labor Statistics.
Bureau of Labor Statistics. Monthly Laber Review, November 1995.
Over the next decade, jobs that generally require at least an associate's degree arc
projected to grow faster than the average rate.
SOURCE:
•
job
During the next decade. about one~half of the 30 fastest growing occupations will require
education or training beyond a high school degree. This includes occupations such as
systems analysts, computer engineers. operations research analysts, surgical technologists,
electronic pagination systems workers, and occupational therapy assistants and aides.
SOURCE:
..
Of
Bureau of Labor Stailstics. Employment O/Jflook 1994·2fJ(i5.
Jobs that require a college degree (or higher) will account for 6 million new jobs over that
next decade -- that's 34 percent of total job growth, significantly more than the 21 percent
share of 1994 employment accQunted for by these Jobs.
SOURCE:
Bureau of Labor Statistics, J:..mpJoymenl Outlook 1994«2f)(j5.
�OB-I6.-95 J9:0:!.M
FROM SEll, PAUL SIMON D, C.
SENAIOR PAUl SIMON
-(1
'o/
~o 94561818
FAX COVER PAGE
lituiteb Jii;tat£5 ~ettate
'WASYINGTON, D.C, 205101302
POOl
("i)MV,llU:f$
lASOl<' ANn HUIW\N t!f SOJ~r.s
j\JOC"R'i
8l!CXiEI
1202) 224 2152
FROM:
PHONE:
I'
L ~I:: : !o~bM~(J~"', ~,[!., =~I~1~~~~:n~~~O~~,L~:lnljM:J,:,J:,~ ~ :,t:s~:~:V~~~~:ge:I:_'=:-~~===_=-__,
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DATE:il [ro I
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MESSAGE:
.-'~'--------------~
-
�.08:-16-.95 09:01AM
FROM SEN, PAUL SIMO* ), C,
•
Ii' A X
To:
August 16,
P002
IIEIIORANDU>I
(2 pages) ,
Gene Sperl; fl· I
From:
Date,
Re.
TO 91562818
Bob Shire"",,,
I'J95
Possible BJI.' '\'ul,.ive Action on Student LOans
AS we discussed, here .Ire my initial thoughts on action that the
President could take I ~ rein in guaranty agencies at the same
time reminding peopl!.' I hat the guarantee program is not Uprivate
j
I
sector. " If you nee,! lI1nre d@t:a:11 s on any of these pointe. l.et me
know.
(I willl:le out de town August 18-27).
Action 1; Stop Praud. waste ~d Abu~e. Require any entity ~hat
controls federal mon€'v and is fully backed by U. S. taxpayers
(e.g. student loan 9"",anty agenciesl to abide by the same
ethical rules that apI' I y to regular federal agencies and
employees. Prohibit. 'ooflicts-of -interest CSush proposal) I
eliminate self -dealin' j. limit salaries and wasteful spending.
Background:
•
Guaranty 1gencies were originally the vehicle by
which Gt.;J.cea were to ;;I!are in the risk of the student loan
program. At the time, the assumption was that states would have
a financial incentiv~ 10 keep a close watch on the agencies, But
i t has been decades S I I;ce states have been asked to contribute.
so the funding and r j: ".k is fully federal (even though some of the
agencies are state ag, ·ncies). However. there have never been
clear rules as to how .•gencies can spend t.heir federal money.
This has led t.o numepll!S abuses:
Self-dealing: A:J,,,des Contract with their own boarc members
for services or Illll~chase land or buildings from their own,
officials.
Confl.icts of Inr ,':-f.;st: Agencies both police the hanks in the
student loan pr<,>!' am AND work for them as contractors
servicing their luanS. The lnspector General has raised
this ao a dangcJ I "u.;' conflict of interest that hac cauced
problems at a PiWtll€X of agencies.
(Other variations of the
conflict problciH Ildve arisen at other a.gencies) .
Salaries! Many ol these IInon -profit" agencies pay their CEOs
more than the S(:,Tctary of ,Education makes. The highest
paid guaranty ag' 'ley head make" more than $600.000 " year,
•
Waste: The most, '"jI:'egious axamplQS {cars. arework, donations
to director'S sp' 'llse' s charity) are at the South Dakota
agency. which ttl· Department is already trying to shut down.
Bue t.here are mOl!' at other agencles.
Effect: The conflict df interest rule would be t.he most
difficult one for tho .Igencies to take. It would force them to
split their operatioll::, potentially at. great initial cost {though
�7-95 01 :34PM
FROM SEN, PAUL SIMON D, C,
FOOl
TO 91561818
8
•
FAX
To.
From:
IIEItORANDUK
Gene Sperl1ng
Bob Shireman
Date:
FAbruary 17, 1995
Re:
Need help from Treasury Department
"SAving$" fl.gures from the: swit.ch 'to d.irect lend1ng does not
count the reduction in the use of tax-exempt bonds for state
student loan secondary markets (which apparently had a five-year
cost of $2,4 billion in 1993).
In iidri i t,ion, thQrQ seems t.o bQ
BQlne
question ao to whether the
bonds Should be used in the first place (in 1984 there was a
controversy) .
One guaranty agency (USA Group) actually used tax-exempt bonds to
purchase their grand headquarters, using the agency (federal
propartyt) as collateral.
It would be helpful to ha've someone at thG:
~reD.sury
Depo.:rtment
who knows the law around tax-exempt bonds to look into these
issues. I've attached some· items that would help them get
:-started.
4iteel
fre~
to have someone contact me
abou~
hat
:ext
,
d
this.
t,
,s
pt
'(
•
lo
�02-l1-9501:34PM
. .
..
P003
FROM SEN. PAUL 511!ON D.C.
PAGE
~-
•
9
The New York Times, January 10, 1984·
28 Loan
A9$nC~e8
According to the National Council of Hiqher Educfttion Loan·Proqrams, there
are 28 state agencies that make or buy student loans. By the end of 1983, they
hald an estimated $1.7 billion of loans they had originated, and another SI.3
billion they
h~d
bought from other
l~ndero.
By comparison, there were an estimated $26.2 billion of outstanding
Govornment-quar~nteed lo~nD
at the end of 1983; and Sallie Mae's
hold~n9S
amounted to $4.3 billion on Sept. 30.
aernard Friel, An attorney at Briqqs & Morgan of St. paull and chairman of
the student lo~n finance committee of the National Association of Bond Lawyers,
said the state agencies existGd largQly because Sallie Mae's resources wer6 not
enouqh to meet the demand for student loans.
By pUQhin9 8ta~O Gqenciee towa~d Sallie Mae, he said# the Oepaxtment of
Education's actions ~ are detrimental to the student loan program because the
terms offered by Sallie Mae are not as economical~' as those available through
tax-exempt bonds. He also said state laws do not allow some agencies to sell
taxable bonds to Sallie Mae Or other investors.
I
C.
Increase Dispnted
Mr. Conlan and other state officials dispute assertions that tax-exempt
financings .l.ncrf:.l:aSe 'the cost to the Federal Government. If the bonds are
taxable, he said, the Government subsidy on the student loans is twice as large
AS the subsidy paid on loans financed wlth tax-Qxempt bonds. Tho larg&r 3ubsidy
payments would offset added tax revenue collected from buyers of taxable bonda.
Mr. Conlon And other particip~nts in the student loan market also say that
the focus of Sallie Mae has been n the most profitable kinds of lendinQ. They
say ,that emall loans and loans in rural areAS are'better served by local
agencl~~
than by sallie Mae.
Edwa.rd FOx# president of S-"lliq MaIO, diemiosad aD "myths r ; mOGt of the
stories that thli! aSSOCiation does not cooperate with local lenders. " I t is true
that at one time Sallie Mae could not do all the things we would have liked,"
said, but no~' that it" capitel base has been lncreased to $487 million, from
$93 million a year ago, "we are much MOre willing to accept riSKS."
h~
LANG~AGE:
ENG~rSH
•
�PA:l
FROM
_-'- SEN.
D1-17-9501:34PM
.....
•
SI~ON D.C,
__
~I'
POOl
TO 94562873
,
•
The Cbronicle
Q~ H~iber
Educ&tiQn, l/lJ/95
U)lUsiana PlaT!.{ 1.0 Is.sue &ndJ
for lUduad-Rate Student Loans
"'
S """""""'". . ,""""
isiua is tJtimaut:1
....oy '" lIlY lOr <OIIqc S)JIlG.
_
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... $101) . . . 51.<100_. p!aO
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apfI'o_brlht awc"s SOUC....
miss.ioft~
pcrilapc
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or their parcma
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'''*''' lout ....w bo e1ioibl< for
tho
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«IWd be
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the
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«:II M6I:lft:
c:ollcp lOt.iI.t III
lnllren rues OM IMf'UlIrap polm.
the rata on hi4trai .Cll4c:1'lC
which II no.llt 1.J) pol"etM:•
,~a 't
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MM'lOf . . . . . .
wlo'"
pr..,.m
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'·1 dtkl' see uy rcasotlwhy we
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-Hilt .HYDE.
~------.-------~~j-
~.
'NOTE!
•
£xample of new proqram for student loan
ta~ e~empt bonds.
-
�.OHHS 01 :34?M
FROM m. PAUL mON D. C.
to 94561818
POOS
�0.2-11-9501:34PM
FROM SEN, PAUL SIMON D, C,
TO 94561818
P006
�0.1-17-95 01: 34PM
FROM SEN. PAUL SIMON D.C.
.
,
•
U~
TO 94562918
P001
Funds provides default prevention and collection
~ystem
support services to USA Services for a fee.
Effecti.ve April 1, 1993, the employees and operations of the
studetn loan secondary market functions of USA Funds were
tran3fered to SMS.
A Funds
rovdle. a $100,000,000 interest
In erest 15 paya e a a varla e ra e an
outstanding under the line are payable upon demand by USA
but no
than April 1, 1998.
l~ter
F~nds,
If demand has not been made by
USA Funds prior to October 1, 1997, SMS may renew the line for an
additional period upto fiVe years: however, the line is due and
payable upon demand during the renewal period.
USA Funds provides certain of its office facilities to USA GROUP,
EdUcation Loan Servicing Center, Inc. (ELSC), USA Services, and
5MB. These occupance charges are recorded as 8 reduction of
charges from affiliate.
ELse
•
pro~ided
collection
ser~ice&
for education loans held by USA
Funds prior to April 1, 1993, for a fee.
During 1993, USA Funds transferred $40,000,000 of cash and
investments to USA GROUP, which was charged directly to fund
balance ..
During 1993, USAF Funds sold computer equipment and sofware to
arr111ated entities. The purchase price was equal to the
carrying value recorded on the books of the affiliated entities,
Ourin9 199L USAt fundI sold computer Qquipment .nd $oftwara to
USA GROUPS, Inc. for $3,687,000. The purchase price was equal to
the carrying value recorded on the books of USA Fu~ds.
f
The Series 1999 Economic Development first Mortage Bonds·, issued
through th& ToWn of Fishers~ Indiana, are subject to a lQan
agreement, mortgage, and. security agreement, which grants the
Town of Fishers a first securj~y interest in property and
equipment of USA Funds having a September 30, 1993 carrying value
o! approximately $42,612,000.
USA GROUP and its affiliated companies hove a combined
cnoncon:ributory, defined benefit retircmen~ plan coverin9
substantially all employees or th~ companies. Benefit and asset
inforatmion allocable to USA funds tor tne defined benefH
retirement plan is not rl?~<:I'ly detprmin.<!:hle.
USA GROUP and its
affiliates also sponsor a co:nbined defined contribution incenttve
plan for their employees. Contributions to the plan are made
annually by each company at the discreLlon or Lh~ BVd.;uJ::. u.c
Directors and/or Trustees.
•
�THE WHITE HOUSE
WASHINGTON
September 10, 1995
MEMORANDUM FOR THE "RESIDENT
FROM:
JEREMY BEN-AMI
GENE SPERLING
SUBJECT:
Update on Status of Direct Lending and Other Student Aid Programs in
the CongreSSional Budget Process
As you know, the House and Senate agreed in reconciHation of their Budget Resolution on a
figure of $10.4 billion in entitlement savings in this area over 7 yean; (this was a reduction
from the original mark in the House of $20.8 billion). This level of savings cantt be reached
without large cuts in benefits to students receiving aid. This memorandum will outline where
we are in this area in the Congressional Budget process. We have also attached a two-page
budget update on the major student aid programs,
Direct Lending
Republicans have targeted the Direct Lending Program as a way to help reach this level of
savings. To do this, they have engaged in some budgetary gimmickry: As a part of their
budget resolution, they ordered the Congressionat Budget 'Office to include administpltivc
expenses of the Direct Lending Program, which are estimated at $441 minion for next year,
in its budget calculations -- but not the Government's outlays to administer the Guaranteed
Student Loan (GSL) program, which arc estimated at $270 million nc:xt year. This change
gave Republican opponents of Direct Lending a justification for claiming it is slightly more
expensive than the Guaranteed Student Loan program. and therefore it should be eliminated to
reap the bUdget "savings" that would accrue under this questionable budget maneuver.
Democratic Members have demanded that this budgetary gimmick be repealed, and some
members of the press havc spOihghted these changcs as questionable (see attached NYT
Story),
Based on these reported savings, some House Repnblican~ have indicated their intention to
repeal the Direct Lending program in reconciliation. They have tentatively said that they plan
to save $1.2 billion doBars over 7 year,) by repealing Direct Lending, coupled with a deep cut
in Department of Education oversight funds for the Guaranteed Student Loan Program, [f
these oversight funds. for GSL are eliminated, it is widely believed that fraud and abuse will
risc substantially and end up costing the government more money in'the long run.
�.'
The House EducationIHHSfLabor Appropriations bill did not call for an outtight elimination
of the Direct Lending program, but it did contain a number of restrictions on Direct Lending
that would cripple the program if enacted. As mentioned above, there is a movement among
Republicans to terminate direct lending in reconciliation. The House bad originally intended
to schedule reconciliation for this Wednesday, but it bas not yet been placed on the calendar
and will likely take place sometime next week. The Senate LaborlH Suboommittee marks up
its Appropriations bill on Wednesday. Full Committee mark is scheduled for Thursday. with
floor action now scheduled for the week of September 25, [t appears that Senate LaborlH is
intending to cap the Direct Lending program at 50% of annual loan volume, but is not
planning on including tbe kiJ!ds of restrictions that are a part.of the House bill. This wUl
become clear when the Senate Laborl H moves to reconciliation on the 20th of September.
There is no guarantee that these restrictions won't be attached when the bill goes 10 the floor
or to conference. !! is currentlv unclear what the final outcome will be until both houses
, move 12 reconciliation in the coming weeks.
Other Stud"nl Aid Programs
Even if the Republicans arc able to count the "savings" from cutting Direct Lending, at the
most they would only add up to 51.2 billion over seven years. That means that a number of
other cuts wiil have to be found to make up the Sl~OA bHlion totaL House Republicans arc
claiming that they will find savings of $4.9 billion by making program changes affecting
schools and guarantee agencies. It is unclear exactly what these program changes would
entail, but rumored possibilities include charging schools II 1% fce for particip~tjng in the
GSL program. and a Slight reduction in the amount that a bank gets reimbursed by the
government in case of GSL default.
By combining the $1.2 billion in savings from repealing Direct Lending. and the $4,9 biHion
in "program changes." Republicans can claim that they will save over $6 billion without
touching students, However dubious this claim may be, it still leaves: a gap of approximately
$4 billion from the $10.4 billion in total savings that must be found, Republicans arc
reportedly considering several cuts in othcr student aid programs [0 make up this difference,
including:
elimination of the in-school interesl subsidy;
elimination of the 6 month post-graduation repayment gracc period;
an increase in loan origination fees.
Of these three areas, the most likely target will by the elimination of the 6 month grace
period, which would Save lhem an estimated $3.5 billion over seven years. The in-school
interest subsidy has become a 'highly politicized Issue among parents and students over thc
past few months, and it is likely that thc), will avoid inflaming this issue. The truth ~ ~
will not know ?l!Y of the details of Wh~H these cuts will look like until both houses come to
reconciliation..:
�INCREASING ACCESS TO HIGHER EDUCATION
President Clinton believes that scholarships and loans 10 deserving college students is a critical
investment in America's future, helping families give their children a chance IO make the most of their
lives.
Now. more than ever, post-secondary education .and job training are the gateway to Amerita's middle
class.
'"
For ins1ance, studies show that for eV9ry year of trnining a person gets after high school, his or
her eamings rise by 6 to 12 percent.
•
Higher education has literally become the fundamental fault line running through our economy.
15 years ago, the typical college graduate earned 36 percent more than a worker with only a high
school degree, By 1994, this gap had doubled to 74 percent.
After 15 years in which college costs increased far faster than inflation but family incomes stagnated.
President Clinton has initiated bistoric cfforts to expand ~college access. His balanced budget increases
overall funding for education, training, and aid lO students by $40 billion. Meanwhile., the Congressional
Majoritys' proposals cut education and training by $36 billion, including $10 bnlion in loan benefits to
students - devastating access to post-secondary grants and loans, and to job training, setting back college
aCCess by years if not decades.
DIRECT LENDING AND INDIVIDUAL EDUCATION ACCOUNTS - CHEAPER, EASIER
COLLEGE LOANS: MAKING COLLEGE MORE AFFORDABLE. P,"sitlent Clinton .fUpports
r.xpamling Il1l!!UJ initiatives; Repuhlicans want Itt ruisl! the Ct1.W In students and uf/uce access. ,
President Clinton supports expanding 1he new direct lending program and individual education
accounts. With the passage of the Student Loan Refonn Act, 104 schools and over 252,000
sludcnlS initiated the program in 1994, On July!. 1995, more than 1,400 schools and LJ5
million students --representing nlmost 40% of all loans lind the maximum allowed under this
year's authorizatioJ'l--began the second year on schedule. The President's balanced budget would
expand the program to ail schools and students. This program is already saving $6.8 billion for
ta.,\payets, lowering interest ratcs for students. and allowing borrowers to choose flexible
repayment arrangements. In time. 20 million current borrowers and six million new borrowers
per year will benefit.
Republicans have proposed legislation [0 reduce funds available for direct lending., prevent more
schools from chOOSing 10 participate in the initiative, and cap participation at 40 percent of all
loans. The Housc Appropriations bill fo( the Departments of Labor, HHS. and Educadon would
also reduce student lo!!n administration funds. by almost 40 percent -- which would deny thc
benefits of direct lending to low and middle income students, and jeopardize the integrity of both
the direc:t and guaranteed loan programs. These actions will stop the growth of cost-effective,
efficienl direct lending in order to keep unnecessary payments llowing 10 banks and unnecessary
middlemen,
�IN-8CHOOL L'lTEREST EXEMPTION: IIELPIN(; STUDENTS AND FAMILIES PAY FOR
COLLEGE. Republicans would raise college costs for up to 4 million students.
President Clinton supports the in~school interest exemption, under which five million need·
tested students with Stafford loans do not have to pay interest while enrolled in school and
during the grace period (six months) between leaving schqol and entering repayment.
Republicans in their budget resolution propose S10 billion in cuts in student loans. In order to
achieve that level of savings and preserve unnecessary payments to banks, secondary markets,
and guaranty agencies. they will not only have to eliminate MY subsidy for graduate or
professional students, but also hit college siudents with higher fees~~for example, eliminating the
six month grace period for interest after college or raising the origination fees that all student
must pay to get their loans.
PELL GRANTS: SCHOLARSHIPS FOR DESERVING STUDENTS - PROVIDING THE
LIFELINE TO COLLEGE FOR WORKING FAMILIES. Praidenl CUnton would raise the
maximum grani 10 a record /ligh and would Increase (IIlnual funding by $3.4 billltm by 2001;
Republicans would eliminate up 10 360.0()O students from the program.
President Clinton has: supported the Pelt Grant program. and proposed increasing the
maximum Pcll Grant in his 1996 budger by 12%. to its highest level ever, $2.620. In his
neW budget. he would increase an.nual funding by $3.4 billion by 2002--cnough to reaeh
960,000 more recipients and increase the maximum award to $3,128.
Republicans: The House Appropriations Committee would increase the maximum Pell
Grant by only SlOO, (0 $2440. Futthennore. the committee would eliminate about
360,000 students from Ihe program who would receive awards between $400 and $600
under the President's proposal. For millions of students. grants make the difference
between going: to college and not going. betweetl Slaying in school and dropping out.
NATIONAL SERVICE - AMERICORPS: HELPING STUDENTS WHO HELP THEIR
COMMUNITIES. President Clinftm tlffers (Jpportunities to nearly $0,000 young petlple in
AmeriCorpj' next year a/om!; Republicans WtJUId eliminate AmeriCiJrps.
l)rcsidcnt Clinton created Ame-riCorps to enable young people to earn money for
education by serving their communities--teaching, caring for the sick. making the streets
safer. Already 20,000 /\mericans are serving in AmeriCorps. and nearly 50,000 are
expected next year.
.
Republicans: The I louse Appropriations Committee would eliminate AmeriCorps and
the Corporation for National Service and cut opportunilies in olner service pro~rams.
Over 4.3 million service opportunities for youth in their communities. would be abolished
over the next seven years. In FY t 996 alone nearly 50,000 young Americans from hard~
working, middle class families will lose the opportunity to serve !heir communities
through AmcriCorps in loca!ly~identitied areas of crucial need such as health care, social
service, and crime prevention, and to eam an educational award to help pay for college
or other training.
�PAGE
. 2
26TH STORY of Levell printed in FULL format.
Copyright 1995 The New York Times Company
The New York Times
August 20, 1995, Sunday, Late Edition - Final
S~~TION:
LENGTH:
Section Ii Page 1; Column 5; National Desk
1406 words
HEADLINE: G.O.P. Revises A Budget Rule To Help Banks
BYLINE,
By ADAM CLYMER
DATELINE, WASHINGTON, Aug. 19
BODY,
After complaints from banks that have seen their share of student loans drop
sharply, Republicans have changed the accounting rules to make it easier for
Congress to kill off the banks' competition -- a Federal program that makes
direct loans from the Treasury.
The Republican-led House of Representatives has also voted to reduce the
amount the Department of Education can spend supervising the system of Federal
guarantees for banks that make student loans -- a program that has frequently
had management problems. The Senate has yet to act on the House proposal.
Under current law, the direct-loan program is expected to provide $13.8
billion in student loans in the year beginning Oct. 1, while federally
'anteed bank loans will provide $15.3 billion. In 1993, the year before the
~ct program was created with strong support from President Clinton, bank .
loans made up all $19.2 billion in Federal student loans.
The direct loans have proved popular with students because the money comes
through faster, and with university administrators, who have found them to be .
simpler to administer. Banks, however, have long treasured the guaranteed loan
program, which offers profits with much less risk than they have on other loans.
A big boost for the direct-loan program, enacted in the 1993 budget
reconciliation bill, was a rule that required the Congressional Budget Office
and the Office of Management and Budget. to exclude Federal administrative
expenses when calculating the effects of loan programs on the Federal budget.
Both sides agree that gave direct loans an unfair advantage in any budget-makin~
comparison, since more Federal money is spent on administering the direct-loan
program than on the guarantee program.
Seizing on that, Republican opponents of the direct-loan program put a very
unusual directive into this year's budget resolution. It ordered the
Congressional Budget Office to include administrative expenses of the
direct-loan program, which are estimated at $441 million for next year, in its
budget calculations -- but not the Government's outlays to administer the
guaranteed loan program, which are estimated at $270 million next year.
r
When the Budget Office followed orders last month the Republicans hailed the
'lres as a reason for "scrapping the direct-lending program,
in the words of
:esentative Howard P. McKeon, the California Republican who heads the
II
�The New York Times, August 20 t 1995
PAGE
3
subcommittee on higher education.
But the Clinton Administration, Senate Democrats and many supporters of
~ct loans cried foul.
Senator Edward M. Kennedy, Democrat of Massachusetts, accused Republicans of
"cooking the books." Marshall Smith, Under Secretary of Education, accused them
of "a venal ?-Bsault on student aid" and nputting bankers first."
Mr. Kennedy and White House officials said that if the administrative costs
of both programs were counted, the direc~ loans in total would again prove to be
cheaper for the Government.
Even one supporter of the changes, John E. Dean, a consultant to the Consumer
Bankers Association, agreed that $160 million in Federal payments to assist the
40 agencies around the country that administer the guaranteed-loan program meet
their administrative costs should be included, although he argued that the other
$110 million in supervisory costs should not be counted because much of it was
unnecessary. The!3e agencies have often been criticized in the past, and in 1990,
one of the largest, the Higher Education Assistance Foundation, went broke while
carrying $.9 billion in loans.
And a conservative Republican economist now serving on the Federal Reserve
Board has· sought to halt the changes for the loan program. The Fe~ governor,
Lawrence Lindsey, criticized the step as "making the change the industry
proposes without looking at other changes."
In a letter tQ Ser..ator Spencer Abraham, Republican of Michigan, Mr, r,indsey
:e that liAs long as it is necessary to provide a profit to induce 2.enders to
_ .rantee student :oans, direct lending will be cheaper. H Mr. Lindsey is in
charge of consum~!!r fina:::.ce at the Fec, and in an interview on Wednesday. he sai":
bankers had ttsell!!cted the change t:hat makes them look good. II
He also said the argument chat un:'versity officials make about the direct
system as simplex' for thew, was lOa compelling argument for the advantage of
direct loans to the econotr.y,"
In Seattle. fc;:)r example, Eric Godfrey, assistant vice president of the
University of Washington and director of financial aid, said the university was
very pleased with the direct-loan program. "We would characterize our first yea)
in the program as being very close to an unqualified success," he said.
The debate does not involve interest rates, which are set by the Federal
Government for both programs.
But Mr, Godfrey said the direc~-loan program was simple for students to
understand and much easier for the university to deal with than the 700 banks
and 40 or so state guarantee agencies it used to work with. Students had $13
million ia their hands in the first week of school last year, compared with $3
million in the first week of the 1993-1994 school year, when t:he university las:
used the guarantee program.
Just as Mr. McKeo~ would like to see the direct program abolished, the
nton Administration urged Congress ~o move quickly to eliminate the guarante,
dram entirely. saying the direct program was cheaper and better.
�PAGE
The New York Times, August 20,
4
~99S
But others argue students are best served by the competition. That has been,
for example, a strongly held view of Senator Nancy Landon Kassebaum/ the Kansas
Republican who heads the·Senate Committee on Labor and Human Resources. Even one
r
'antee agency official, Sheryl Hagemeir, vice president of the American
!.
ent Loan Association, said, "We welcome the competition,lI and said
un~versitie9 that wanted ~he direct~loan program should be allowed to join it,
but not required to, as they could be under existing law.
~.
Terry Hartle, vice president for government relations of the American· council
on Education, said dropping either program would be worse for students because
competition had forced banks to do a better job of providing services, and
continuing the guarantee program would keep the direct program on its toes, He
also said the House Appropriations Committee's proposal to eliminate most of the
$110 million spent on supervision of guarantee agencies was 11a very risky thing
to do. II
One past director of the Congressional Budget Office, Robert Reischauer/ said
the sort of instruction the Republicans had issued to the Budget Office about
accoun~i~g for administrative costs was very unusual. He found it comparable to
a Congressional habit of preferring the lower estimates of politically popular
loans to Israel from the White Hause over the more expensive estimates from the
less-political Congressional Budget Office. But Mr, Reischauer said" the change
made sense, even though it should have gone further and included the costs on
guaranteed loans. "If you are going to do it l do it'. right,lI he said.
Mr. Reischauer, who :"eft the job at the beginning of this year, was preceded
by Rudolph Per:ner,
who has recently worked as consultant to the student: loa:;
He agreed Friday that it was very unusual for the Budget Office to be
~ed how to make its calculations on a program. But in this case, he said,
has put the whole t.hing on a better basis. II He also said it was difficult to
decide just whieh administrative costs should be included in estimates for the
guarantee program.
i~4ustry.
One argument House Republicans make for killi~g the direct program is that
doing so would enable them to ~ake less severe cuts in o~her student loan
programs/ like interest subsidies.
&~other
clear Republican motive is to
attac~
a popular program created by
president Clinton. A July 27 IIDear Colleague ll :'etter from Mr. MCKeon and
Representative Bill Goodling of Pennsylvania, ehairma!) of the House Committee on
Economic a::1d Educational Opportunities, began by denouncing lithe President's
fundamental belief that the Federal Government can run the student loan program
better than the private sector. II
And they cOr.lp':.ained of the Department of Educatior.' s use of its money to
advertise di:=:'ec>.:: loans as "President Clinton'S New Direct: Studer.t Loan Program."
That proved, ::hey sald, that the President lIhas chosen to make the program an
irr.por::ant componE~nt of his re-election campaign.
\I
GRAPHIC: G:=:,aph: "ADDING IT UP: Student Loand Before G.O.P. Rule Changes" '::racks
number of dollars received and number of students receiving guaranteed student
loans and direct student loans during 1993, 1994, 1995, and a projected 1996.
(Source: U.S. Department of Education) (pg. 32)
�PRESIDENT WILLIAM J. CLINTON
OP-ED FOR COLLEGE NEWSPAPERS
SEPTEMBER II, 1995
Dear
Student~
This is a busy time for you. But while you are choosing classes and making the decisions that will
help you build a good life for yourself, the Congressional majority is working to make drastic cuts
in education -- in your student loans, in national service, and even in your scholarships. And the
cuts will jeopardize the future you and your generation arc working. toward.
I want you to know that J oppose these cuts, I will do everything in my power to fight them and to
see to it that the dream of higher education remains real for all Americans, I will do this nol only by
defending the opportunities of those of you who are already in college, but by opening the doors
further to make sure that even greater numbers of deserving Americans have the chance to stand
where you stand today.
For the lirst time in a long time, leaders. from both parlies arc resolved that we must balance the
federal budget. From the day I took office, I've been committed to this goal --,to getting rid of the
budget deticit lhat quadrupled our national debt itl the 12 years before I camc to Washington. So
far, we have made great progress. In three years, we have cUi the delich nearly in half, from $290
billion to $160 billion.
Now we arc ready to eliminate the deficit entirely. On this, the Congressional majority and I see eye
to eye.
But just how we get rid of the deficit is another matter. The majority in Congrcs.'1 wants to balance
the budget in seven years, and do it while giving an unnecessarily large tax cut. But in ordcr to do
these things, the Congressional majority would make enormous cuts in education.
My balanced budget plan would take more years than Congress' to eliminate the deficit, but that's a
small price to pay 10 keep your scholarships, your student loans. and national service safe and welL
It would also preserve our ability to protect the environment and the integrity of Medicare for our
older citizens.
Balancing lhe budget is about more than numbers, It's about our values and our future. Education
has always been the currency of thc American Dream. When I was your age, it was assumed -
based 011 our long history -~ that each generation would have a better life than Ihe preceding one.
Mure than <lnything else, <I good education is the way we pass this vision on to those who come
<,ncr m;.
The rm:t:; speak I'm themselves. Earnings fhr those With no p0:;H;ccundary education have fallen
substantially in the last 15 years. '1110 only people for whom e~rnings have increased steadily are
people cxaclly like you -- those Americans with more education. Every year of higher education
increases your ("'amings by six to 12 percent. Those years also mean ;1 stronger overall economy and
richer lives for tbose \.\'bo h~.\'\·e them.
�BaJancing the budget will be good for our economy and your future if it's done right. But simply I
baJancing the budget wonlt do us much good in the long term if your generation does not bave the
education it needs to meet the challenges of the next century.
Just think over what the Congressional majority's plan, if it went through. would do to you, your
classmates, and any of the one out of two college students who receives federal aid. It would:
•
Raise the cost of student loans by $10 billion over seven years by
charging you interest on your loan while you are in school. This would
Increase the cost of II college education by as much as $3.100 for
undergraduates and $9.400 for graduate students.
•
Deny up to 360,000 low-income students desperately needed Pel!
Grants in 1996.
*
Shut down Americorps, our national service initiative, which gives
thousands of young peop1e the chance to earn and save money for
college while serving their country.
,
By contrast, my balanced budget plan builds on the national consensus that
we must help people help themselves, through the power of education. It
eliminates both of our deficits: OUf budget deficit and Ollr education deficit
My plan cuts wasteful spending by more than $1 trillion, but it also increases
investments in education by $40 billion over the next seven years.
Think over how my balunced budget plan would help guarantee your future
and all the hard work you're about to put into it It \vill:
•
Incrc3se funding for Pell Grants by $3.4 billion. Almost one million
more students would benefit from the scholarships. And we would raise
(he (op award (0 $3,128 by (he year 2002.
"
Expand Americorps to let even more young Americ.ms serve their
communities and go to college.
"
Proteet our direct-lending program, which makes student loans more
affordable. with more repayment options, and saves taxpayers, parents,
and students billions of dollars.
I just returned from Pearl Harbor, 'Nherc I took pan in ceremonies marking
the 50th anniversary (\1' the end of the Sccond World War. In the late ] 940s.
when the veterans \\'c honored left their lovcd ones to go ('liT and serve their
country, they werc the age most of you arc flOW.
�· .
V.'hen they came home, the country recognized their service and their
potential, and it responded with the G.I. Bill, which guaranteed a college
education to every returning veteran. Those who served weren't given n
handout, and they didn't want onc. They were given the opportunity they
needed to take responsibility for their lives.
Your generation has its own battles to wage. You face the choice of doing
something right and difficult .~ or something easy and wrong.
In taking on the responsibility of educating yourselves, you have chosen the
right and difJicuit path, You did the work you had to do to get into college"
You may be working now to pay your way. And your family may have
worked long hours and made great sacrifices to help you get where you arc
today,
You deserve the nation's support. And your future success will likely repay
our com.mon investment. I dQ not accept the arguments of those who
condemn irresponsibility in young Americans and then seek to deny the
nation's helping hand to the millions of you who arc doing tbe right things,
I hope you'll support my efforts !O proit."'Ct education and balance the budget.
"111(: fight lor education is the fight Jor your future. In my life -- and in the
lives of countless Amencuns ~~ education has meant the difference between
the impossible and the possible. It should be true in your lives, too, With
your help, we'll keep it that way.
�THE WHITE HOUSE
WASHINGTON
September 4, 1995
Dear Editor:
As students, teachers. and administrators return to schools
allover the country, I want to remind you of a critical battle
that will take place this fall in Washington over the issue of
education",
To put it bluntly, our educators, students, and
parents need to be aware that our nation's investments in
education -- in our children's future -- are under direct attack
by the Republican majority fn the House,
The President is firmly committed to a comprehensive
economic policy based on balancing the budget, reducing trade
barriers worldwide, and creating jobs here at home. But he is
convinced that to strengthen families, expand our economy, and
raise the living standards for the American people, nothing is
more c'ritical to our nation's future than ensuring that all
Americans have the education and skills they need.
Ed'..lcation has become the fundamental fault.-line in the
Many Americans have
seen their incomes stagnate over the last lS years; the real
income of the typical family has actually declined,
Yet those
with the most education and training have bucked the trend,
Today. the typical college graduate earns 74 percent more than a
worker 1,o;'ith only a high school degree.
Studies also show that
for every year of training a person gets after high school, his
or her earnings rise by 6 to 12 percent. Education j.s the key to
growth in our economy, in wages, and in our standard of living,
standard of living for American families.
To allow individuals to make the most of their lives, and to
provide every Atr.erican the chance to realize the American Dream,
the President has been fighting for better education and
training, by invescing in Head Start and Safe and Drug-Free
schools, by providing resources to train teachers and raise
school standards, and by improving the student loan program.
During the last Congress, Republicans and Democrats together
enacted a historic aeries of-it!itiatives to assist' families.
communities I schools and colleges to expand educational
opportur:i ty i:1 Amerj.ca.,
President Clinton has proposed to balance the budget over
the nex:: ten years_
He· would do so by cutting wasteful
spending, streamliniag p~ograms, a~d ending unneeded subsidies.
Yet he 'dould preserve (lnd increase investment in education by $40
billion ove~ the next seven years; protect Medicaid, Medicare and
the environment; a!1d pr.ovide for a targeted tax cut that would
help middle-income Americans raise their children, save for the
future and pay for post-secondary education.
.'
�By contrast, there are proposals in Congress threatening- to
cut $36 billion from education and training to help them balance
the budget in seven years and provide a huge tax cut to those who
need it least. They have proposed:
slashing investments in Head
Start, abolishing the Goals 2000 school reforms; cutting crucial
assistance to students from disadvantaged backgrounds; abolishing
the Technology Learning Challenge, which leverages private money
for technology in schools and communities; cutting funding for
apprenticeship training in half; abolishing AmeriCorps - the
heart of the President's National Service program; raising
students' costs of loans by $10 billion over seven years; halting
progress on the President's Direct Lending program; and denying
Pell Grants to 360,000 students in 1996 alone.
These latter cuts would be particular:y devastating for
access to post-secondary education a~d training.
By slashing
grants and loans, we would turn back the clock on recent
successes in expanding access, for~ing some students to drop out
and denying others the opportunity to begin.their education, To
achieve the level of savings they are proposing, congress would
have to·raise the costs of college education by as much as $3,100
for undergraduates and as much as $9,400 for gradua,te students_
They would not only eliminate any interest subsidy for graduace
and professional students, but also hit college students with
substanti~\lly higher fees--for example I eliminating the six-month
grace per:_od for interest after college or raising the
origination fee that every student must pay to obtain their
loans. There are also proposals to reduce and possibly eliminate
the Direct Lending Program. preventing more sc:hooli~l from
participating in this initiat~ve, which is already Baving
taxpayers $6.8 billion, lowering interest rates for students, and
allowing borrowers to choose £lexible'repayment arrangements,
I firmly believe that the American people want to balance
the budget and continue to increase investments in education.
The President has shown that it is possible. Nevertheless/ there
are those' in Congress who are determined to go forward with these
extreme Cl,ltS, The debate over this issue will be one of the most
significant in the coming months, if not years.
The future of
this great nation is at stake_
�INVESTING IN EDUCATION AND TRAINING
VS. CUTTING EDUCATION AND TRAINING
-.
PRESIDENT CUNTON'S BALANCED BUDGET
I P£ll GRANTS
for Eligible
Students
REPUBUCAN C\ITS
• Increases maximum award to record $2,620,
reaching 200,000 more students next year,
~ssistance for 800, 000 more students by 2002.
INVESTMeNTS
,
• Sets maximum award at $2.440.
Eliminates eligibility for 360,000 students.
Could raise the costs of college loans by as
Retains federal interest subsidies and six month
grace period after graduation for loans to aU
much as $3,100 for undergraduates and as
eigible students.
STUDENT LOANS
much as $9,400 for graduate students.
DIRECT LENDING I • expandS lending program which is already
,
Student loan
saving taxpayers $6.8 billion; lowers interest
Reform
rates for students: and allows for flexible
, . Could elirr'linate program.
,
• Could prevent aU interested schools from
participating In the program.
repayment plans.
Eliminates 50,000 AmeriCorps opportunities
next year.
• Eliminates more than 4 million other service
opportunities over 7 years.
Increases funding by $345 million next year,
Nearly 50,000 community service and college
aid opportunities next year.
NATIONAL
SERVICE
AmeriCorps
• Increases funding by $400 million, adding
'"lEAD START
Funds Head Start $500 million less than the
Presldent's request.
Up to 230. 000 children wouLd be denied
Head Start in 2002.
32,000 new Head Start children next year.
• Services for 50,000 more children by 2002.
• Increases funding to $750 mIllion next year,
GOA... 2009
Schoel Re:fotrn
•
enabling: communities to help all children meet
higher standards.
Helps states reform education for more than 8
million children in 11,000 schools next year.
,. •
Eliminated.
,
SAFE ANO
DRUG-FREE
SCHOOLS
Funds at $500 million per year.
Safer, more.drug-free learning environments for
39 miUton children in 14,575 aut o{ 15,000
school d!stncts,
Cuts program by 60% to $200 million.
Deprives over 23 million students of services
next year.
Tm.e I Improving
Advanced Skllls
Increases funding tJy $300 million, reducing
dass siz.e, and helpIng as many as 300.000
more Children master basic and advanced skills
next year,
Reduces funding by $1.1 billion, denying
learning opportunities for 1,1 million children
next year.
SUMMER JOBS
Funds 615,000 jabs for young people next year.
,
I
BaSIC and
JOB TRAIN1NG
r:
,
,
,
Increases funding by $2 bilhon by 2002.
300,000 Skill Grant recipients next year.
,
.L
eDUCATION
I' AND
I TRAINING
,
,
•
•
iNCREASES EDUCATION. TRAINING. AND
AID TO STUDEloiTS BY $4D BILUON WHILE
BALAloiCIIoIG THE BUDGET 1101 10 YEARS.
Eliminates job opportunities for almost 4
, million youth over the next 7 years.
I • Cuts funding by $1.4 billion,
I.
No training ooportunities for over 500,000
dislocated wOfwers and 84,000 adults next
year.
CUTS EDUCATION AND TRAINING BY
$36 BILLION INCLUDING $10 BILUON IN
LOAN BENEFITS TO STUDENTS WHILE
BALANCING THE BUDGET IN 7 YEARS.
OMB A.naI~1Ii of die P!e5hbl'$ J'Y 1996 ~I.IC.U 'is. Republican Cuts Included in the
Hour.e laIxorlHHSlEdueaOOn A:P(iMpriltions Bill Paned en Augwt 3. 199ti. md 1M !\t-pubLitan Budget Resol\,rtioo
�PRESIDENT CLINTON SAYS EDUCATION KEY TO AMERICA'S FUTURE
Vows to Figbt GO)) Cuis in Education and Protect Investment in California'S Families
"Culling education in lhe lime of global economic compel ilion v,/ou}d he like cufting
defense spending during the Cold War, 'J ~~ President Clinton, March 14, 1995
Education and training arc cornerstones of President Clinton's economic policy, designed to
expand opportunities for all Americans. Now, more than ever, opportunity in the global
economy depends on skills and education. Yct Republicans plan signiikum cuts In the very
educational programs that help working families. Here is whal thaI means to California:
o
STUDENT LOANS President Clinton supports student loans and opposcs
Rcpublic.m efforl:; to make them more expensive. Republicans want to help: pay for
their tax cuts fQr the wealthy by c1iminuting 3 grace period that allows 4.5 million
students tn defer interest charges while still in school. President Clinton will fight to
stop Republicans from raiSing the costs of college and job Iraining for 363,7:5:1
students in California, The Department of Education estimates that ending this grace
period would mean that a student who bOfn!wS $17,125 over four years l'Hmld owe
$3,150 more, and have his or her momhly repayment amount increased by more than
18%,
()
DII~ECT LENI)IN(~
The President wants to c:xpand his Direct Lending program
which simplilics the application process, reduces fees Ihr students, and orfers
borrtl'l.vers convenienf repayment options, induding pay~as~you-ean, Direct Lending is
saving taxpayers S6.X billion ill udmini;;lralivc expenses. Thc President oppo"es
Republican efforts Co help banks by capping participation in Direct LClIding and
prcv(~n{itlg thtiwmnds of schools and mlliions or students from receiving its benefits.
In the 1995-96 school year. 203 schools in California will participate ill direct lending.
The RcpublicnH proposal would prevent ~my further schools from entering the
prog!<Im.
()
MAKING COI.LEGE AFFORDABLE President Clinton wnlHs to oefer a [,JX
deduction of up to $10,000 to help middle-dass Americans meet the cost of education
and job {raining, Famihes In California wo-uid receive approxlfllalcly $3.178 million
fron'! this deduction over the nexl five years. The President oppo:::cs Republican effbrts
to cut education to pny for tax breaks for the wealthy.
(}
NATIONAL SEHVICE AmeriCorps, President Clinton's service program, offers
young people it hand paying for their education if they give a hand to their
community. The President opposes R..:puhlican effons to gut AmcriCorps ~l!ld pr..:\'em
3,577 studcn{s m Califnl'llta from :::crvlng the-ir coGlmunit:Gs.
o
GOALS 2000 The Pres:idcHt won rmssagc of Goals 2000 io hdp stales and local
communities train teachers and upgrade ",iandanhi for their sc!to"h,. Republicans call
for a 40% cut in the program 1hal \.\'otdJ rcduce st:ppnn for high :::(andards hy
.sJ6.4~O,7J I ill as mun;; as 471 scbuols in California.
\)
SAFE AND J)1{lJr;~FI~EII: SCI tOOLS Pr,csidcllt Clinton n':cu!;!,lli%cs that s;d~(y ill
school \:.; :1 major ;;;onccrn of parents. students. ~Ild teachers. Repl!blitans wanl 10 gut
a rrogram "tbm 945 out ill' 1005 sclMol districts in California :H\\'c already
lmplemented ~ that teaches sl1l{knts to avoid drugs ..md violent.:c. and enahle,.. SCiHlOls
to purchase metal dCic(:lors and hire security pCfsonnd.
(}
l)EPART;'\-IENT O~ ElH)CATION Tllc President helicves siron;!!\, in the federal
nde i:J edneatlon. R...:p'lhlican~ "-';'!lit ttl ahllli"h !he Dcpa:·lmcnt llt' t~d~lCali(ll1.
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LEVEL 1 - 1 OF 3 STORIES
Copyright 1995 Federal Document Clearing House, Inc.
FDCH Political Transcripts
Septemoer 6, 1995, Wednesday
TYPE: NEWS CONFERENCE
LENGTH!
1430 words
HEADLINE: BUSINESS LEADERS DISCUSS MEETING WITH PRESIDENT CLINTON REGARDING
PARTNERSHIPS BETWEEN BUSINESS AND EDUCATION.; WASHINGTON, D.C.
SPEAKER:
JOE GORMAN, CHAIRMAN & CEO OF TRW, INC.
,JOHN PEPPER, CHAIRMAN & CEO OF PROCTOR AND GAMBLE
LOU GERSTNER, CHAIRMAN & CEO OF IBM
OZ NELSON; CHAIRMAN & CEO or UNITED PARCEL SERVICE
DAVID WHITWAM, CHAIRMAN, PRESIDENT & CEO Of
WHIRLPOOL CORPORATION
ALBERT HOSEH, PRESIDENT & CEO OF SIEMENS COMPANY
EDWARD DONLEY, FORMER CHAIRMAN Of AIR PRODUCTS
AND CHEMICALS, INC.
WALTER ELlSfIA, CEO OF SPRINli INDUSTRIES
BODY:
GORMAN: Yes, I've been aSKed to say a fa. words aOQut the purpose of the
meeting. Speci f,cally ~e are here to discuss the funding for Goals 2000. And
as you know, the House bill strUCK the funding to zero. We think that Goals
2000 is critically important. rar more important than the dollars involved.
Important in that It provides leadershIp to the states. It prOvides IncentIves
statl~5 to cause them to transformaUonally change themselv€ ' 5
within their
to the
educational systems,
penaltIes for failure.
its own purposes.
Establish
standar~s,
establish rewards for success t
In short, helping a state develop its own standards for
The leadership and incentives are in Goals
200U~
Forty-seven
states have availed themselves of the opportunity to participate unOer Goals
1000. We think it would set back educational reform efforts in this country
materially if
:
I
~e
are unable in the Senate to restore funding for 00alS 2000.
v€ asked a few of our participating members here to make comments anO ! Id
start wtth Lou Gerstner of IBM.
GERSTNER: Thank you, Joe.
About a month ago, I spoke to tt'U! Governors in
tlleir semiannual meeting in Vermont. And in that talk, : sald thE~t I believe we
ne:!!Jl a fundamental revolution in American education. And, if we c!on~t get that
revolution, we .will see the economic and political failure Of thB- country.
Now? at the heart of that revolution has got to be a recagni ttOn across the
country that we need standardS of high performance from the expect.ation that
every child can reach and must be: helped to reacl, those h1gh stanclards. NOW, we
must have accountatlili ty across the system to reath those standartls.
Goa15 ZOOO Is only a sman portIon of what I think we neea. Blit it is a very
critIcal portion because it i5 the fragile beglnnlng of the establ!Sl1ment of a
culture of measurement standards and accountability in our cQuntr~(. We must go
way beyon~ Goa15 ZOOO. But, if we lose Goals 1000, It 'is an incretlibly
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FDCH Political Transcripts, September b, 1995
negative setback for thIs country.
Thank you.
GORMAN: C1uie Nelson of UPS.
NELSON: Thank you. We've oeen having an enjoyable conversation with the
President and also other CEOs about Goals 2000 and the importance of education
in this country.
Of cClurse 7 the goals espouse p.rinciples for which we can cause
a revolution that needs to take place: to improve education in thi~ country.
Ano, if we follow the goals of 2,000 ideas, it meanS that all kids will improve
their learn lng, t2athers will teath better, and that the outcomes in terms of
what people learn and how they can apply It to future jobs and future living
will be a plus. One of the big concerns I have is the area of measurement.
NELSON: If we don't ~now<how well our kids are doing In school" and can't
them with SChools in the adjoining City, the adjoining state, and even In the
adjoining cQuntr1es, how do we know whother their education systent IS on target.
So, one of the biggest problems we have with GoalS 2000 right now is supporting
what needs to be a measurement system that tel+s parents and kids how they're
doing. Than~ you.
.
GORMAN: There were two bills passed In the I03rd Congress that deal with thiS
issue. One was Goals 2000. The other was a school to work transll!on program.
They're both very important In this nation. They're both bipartisan 'n our
5-tate, Pl?nnsylvania. Governor Casey a Democrat anO I co-chaired the effort
curing his allmtn1straUoo. NOW, we have a Republtcan Governor Tom Ridge, and he
and I likely co-chair It.
So, werve made a transition from one: patty to another in our state with'no
wrinkle In this effort. And I mention that DEcause it demonstratE'S the
bipartisan na.ture of it. we need the high academic standardS and we need the:
use of technology In tile education system. We will In our state and Pennsylvanla
carry that effort on because of the needs tllat are intrinsic right at home in
our state, rega.rdless of what may Ilappen' In othe-r states in the nation.
of 'What ,we ClO in our country to aay we dO r I tl(!lieve,
somewhat b!7.tter than we1ve done in years past. The products are manufactured in
NELSON: 50 much
The s~ills af our people In our manufacturing plants, I think, have
improved consequentially. And in part that has been accomplislled by measuring,
by bench marking these endeavors, one against the other by comparing against
certain standards to see that \ilE're improving on how we do things, particularly,
as we compete all aroutHl the world.
Ame:rica~
j
The fact that we do not establish these kinds of standards of too many parts
GoalS
2000, I know, has very strong support ,within the BUSiness RountJ nible, certatnly
from my own company. And public education in this country is key, I believe,
the lHZY to K through 12 education, key to our continued atJili ty to compete
throughout the world.
Qf our public educatIon system, i believe leaves something to be <lesired.
501 I'm t10peful we'll keeping funding for these progral:ts and support of the;(
ttlrough !2 education throughout the United States.
IUN~NOWN): !OFF-HIKE) Is willing and will be able to bring more highly paid
jobs to this country but only far people and workers that are well traifH?o ..
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,OCH Political Transcripts, Septemher 6, 1995
who have the sound knowledge of the SCiences, Of mathematics, and who can read,
.rlte proficiently. So, what we need i. a well educated work force and only
then we are able to maintain and eKpand our ••nufacturing facilities In thiS
country, which we are very willing to do.
H the educational level of the American worker is not higher th.n tno one In
MeXiCO, .M Southeast Asia the jobs will travel to the place that til. worker IS
cheaper. Therefore,' we must educate' our people better to be compet1tive~ Only
then 44e will be able to maintaIn anti expand our manufacturing pre5ence in this
country.
GORMAN: one f!nal word about the importance Of eoucatlonal refnrm in general.
We're convinced and have been for some'time at the national Business Round Table-,
that we must baSically change the paradigms in terms of our public educ.tlon,
our In.titutlons at every level, not higher educatl.on. we've got the best
hlgher education system in the world.
We've got One of the
worst~
the least
competlt!ve K through 12 education systems in the world.
And increasingly that's becoming evident. So, that's a critically, important
national problem. As YDU know, the Constitution leaves the edUCation, public
school education up to the states. So, our efforts at the Business Round Table
have been lu.rgely focused on s ta te reform.
GORMAN: And broad coalitions are reqUired there. We've appointed CEOs 1n
each of the 50 states to help lead thO.e coa1i tions toward. the kl.nd of
transformational reform that's necessary. The federal Goals 2000 legislation
Which we supported -- the BUSiness Round Table helped get passed in a bi portisa'l
way in the 103rd Congress -- is as Lou Gerstner said a beginning, and indeed ~n
Important, critically important beginning, to all of that.
I'd be happy to respono to any questions that you might Ilave.
QUESTION: Do you ttlinfo:. the President wants business leaders who are
traditional RepUblIcans and have certain relationships with RepUblicans? Do you
thtnk that's going to be influential as the Senate starts making lts decisions
apout ...
GORMAN: Well, I think ttle pt"esident~ •. I know that the President believes, as
1 bel1ev€~ and everyone of our group here today believes I that thk5 issue is a
biparttsan issue, clearly. We: treated: as such and 1ndeed r botl1 tHe House: anU
the Senate treated it as a b1partisan issue in the 103rd Congress. It should be
treated So tOday. Unfortunately, It ha. become poll tlci<ed. What 1 would hope
we can dO, Republicans ar1d Democrats aliKe, from the business community, would
be to de-pol1t1Cil.E it anti get the facts on the table so that peo!lle understand
how critically important thiS really is. And it'S a drop in the bucket in terms
of ttle total tlUdget reform that 1s required. So the President 15 seeking our
support, yes f officially from the BusIness Round Table.
'
QUESTION: But you haven't (OFF -MI~E)?
GORMAN: I am leaving here to join the BU'iness Round Table meeting in
progress. He's "ad it all along •. President BuSh had it. When the Go.ls 1000
was originally announced, as you know, President Clinton was then GQvernor of
Arkansas and ooe Ot the leading Governors in that effort. So, it was a
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rDCH POlitical Transcripts, September 6, 1995
bipartisan event at that time.
(UN~NDWNl:
Thank
And
you very much.
PAGE
<,
so we hope to cause it to remain so.
ThanK
you.
EI'ID
NOTES:
???? - Indicates Speaker Unkown
- Could not make out what was being saio.
off miKe -
Indicat~s
Could not make out what was being 5aiO~
LANGUAGE: ENGLISH
LOAD-DATE: September 10, 1995
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LEVEL I - 4 OF' 4 STORIES
Copyright 1995 The Morning Call, Inc.
The Morning Call (Allentown)
September 7. 1995, Thursday.
SECTION: NATIONAL,
FIfTH EDITlON
Pg. A9
LENGTH: 506 words
HEADLINE: DONLEY TO HELP EFFORT TO REFORM SCHOOLS
EYLINE; PETE LEFFLER; The Morl1lng Call
DATELINE: WASHINGTON
BODY;
President Clinton yesterday drafted eight corporate leaders -- including
Allentown's Edward Donley -- in an effort to save all etlucattonal reform program
With deep Lehigh Valley roots.
Goals 2000, created by Congress just two years ago, sets eIght goals for
America's s~hoo15 to meet by the turn of the centurY,and provides SChool
uLstricts witn money to reach them.
'
But critics worry that the program will impose "politIcally correctll values
on local educators and tNeir pupils.
Fears of federal intrusion led New Hampshire, Montana and Virginia to forsak.e
all grants, creating controversy.
The HOUSE last mOl1th wiped out all money for thE program for the federal
fiscal year that starts Oct. 1. CLinton Nad sought $ 750 million. Now eyes are
on the
S2nate~
whiCh has yet to
act~
u.s. Sen. Arlen Specter, R-Pa., chairs the relevant subcommittee:
j'He inte:ntls to put money back into it," spOKeswoman Margaret Camp said.
Program goa15 range from the ~limination of all aicohol ano drugs from
schools to the gracuatlon Qf 9Q percent of ~igh school studen~s. To meet them,
tile law calls ,for the creatIOn of model acaflel'luc standards that distr1cts can
USe? as guiaE'llne!t~
Donley, former ,chairman Of Air Products aml Cllemlcals, Upper Macungie
Township, and co-chair of Pennsylvanla 2000, said suspicions can be allayed by
creating "~tandards that are academu: in nature ... not fuzz.y social atti tudes. U
Donley and the other businessmen who met with Clinton described GoalS 2000 as
just one step towara a needed overhaul of America's public school system.
"We must go way beyond Goals 2000," sald Lou Gerstner, chairman and chief
executive officer of lBX Corp.
AlbErt Haser, president and CEO of Siemens Co., a German-based corporatlon
with 45,00(1 American employees, warned that he will hire here only as long as
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The Horning Call (Allentown), September 7, 1995
the Knowledge'of the WorK farce Justifies labor casts that exceed those in
less-developed nations.
Among the athers In the Oval Office yesterday were John Pepper, chairman and
CEO of Proctor &: Gamble Co.; 01 Nelson, chairman
Service, ana
an~
CEO of Un'Hetl Parcel
Oavltt Whitwam, chairman, president and CEO of ,WhlrlPOOl Corp.
Carporate chieftains, complaining that today'. higl, schoOl graduates too
aften fall rudimentary jab assignments, provided the Impetus several years ago
for Goals 2000. Active then, Lerngh VallErY business leaders and 2(lucators
continue to work toward reform.
pennsylvania school districts thiS year received $ 15 million 1n federal tax
d.ollars under the program. The money went toward teacher training, parent
centers, computer systems and links between grade s.chools and colleges.
Donley said the fight to improve the standards of public education will
-continue statewide regardless of federal action.
See also the following stories: "Call heard for schools to toughen the rules
•••• by SALLY STREff BUZBEE, AP whiCh appeared on page A09, FIFTH EDITION And "
... but state reform plan called wrong" by C. McOOUGALL, AP which appeared on
page A09, FIFTH EDITION.
LOAD-DATE: September 8, \995
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�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
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Clinton Administration History Project
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Cinton Administration History Project
Council of Economic Advisers
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United States Trade Representative
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1993-2001
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An account of the resource
<p>The Clinton Administration History Project describes in detail the accomplishments of President Clinton's Administration for the period 1993-2001. The records consist of the histories of 32 agencies or departments within the Executive Branch. In general, each organization associated with the Project submitted a narrative history along with supporting documents. These narrative accounts are primarily overviews of the various missions, special projects, and accomplishments of the agencies. The supplementary records include substantive memos, press releases, briefing papers, and publications illustrated with photos and charts.</p>
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Is Part Of
A related resource in which the described resource is physically or logically included.
<a href="http://clinton.presidentiallibraries.us/items/show/36051">Collection Finding Aid</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
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Clinton Presidential Library & Museum
Format
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Adobe Acrobat Document
Extent
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1474 folders in 111 boxes
Text
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Paper
Dublin Core
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Title
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NEC – Direct Loans [2]
Creator
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History of the National Economic Council
Clinton Administration History Project
Date
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1993-2001
Is Part Of
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Box 42
<a href="http://clintonlibrary.gov/assets/Documents/Finding-Aids/Systematic/Administration-History-finding-aid.pdf">Collection Finding Aid</a>
<a href="http://catalog.archives.gov/id/1497354">National Archives Catalog Description</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Format
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Adobe Acrobat Document
Publisher
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Clinton Presidential Library & Museum
Medium
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Reproduction-Reference
Date Created
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6/24/2011
Source
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1497354-nec-direct-loans-2
1497354