Deputy Secretary Hansen Highlights President Bush’s Strong Support for Higher Education, Challenges Colleges and Universities to Control Costs

U.S. Deputy Secretary of Education William D. Hansen today testified before the Senate Health, Education, Labor and Pensions Committee, discussing President Bush’s strong and unwavering commitment to higher education and federal student aid programs.

Hansen discussed the president’s unprecedented increases for Pell Grants, to help our neediest students afford college; the availability of more – and more affordable – student loans; tax relief to help working families pay for college; and the Department of Education’s efforts to ensure the integrity of the student-aid programs that are administered by the agency.

Hansen also challenged colleges and universities to “step up to the plate and do their part to curb their spending, become more efficient, and lower the cost of higher education for American families.”

His statement is below:

Mr. Chairman and Members of the Committee:

It is my pleasure to appear before you today to discuss the Bush Administration’s commitment to the Federal student aid programs. I appreciate this opportunity to underscore President Bush’s commitment to these important programs, which are instrumental in ensuring that all Americans have an opportunity to obtain the knowledge and skills they need to succeed in today’s competitive workforce.

The President’s FY 2003 budget proposes the highest levels of funding for student aid in the history of these programs. The President has requested funds to provide $55 billion in new grants, loans, and work-study funds to over 8.4 million students. The keystone of the President’s higher education agenda is the Pell Grant program — the most effective and well-targeted of the student aid programs in helping low- and middle-income students attend college. Under the President’s plan, funding for Pell Grants would be increased by over half a billion dollars over last year’s level and more than three times the current level of inflation.

Pell Grants: A Presidential Priority

President Bush has made strengthening the Pell Grant program and budgeting responsibly for its full costs his highest priority in higher education this year. Funding for the Pell Grant program has grown dramatically, a testament of what can be done when Republicans and Democrats work together for the good of America. From 1995 to 2000, funds for the program grew from $6 billion to $7.6 billion. Since President Bush took office, he has fought for an additional $3.3 billion for Pell Grants – the largest increases proposed by any President. The $10.9 billion that President Bush has proposed would fund almost 4.5 million needy college students — half a million more than before President Bush took office.

Last year, the President expressed his concerns that the $4,000 maximum award mandated in the FY 2002 appropriation act was not fully funded. Currently, the Pell Grant program is underfunded by nearly $1.3 billion. In order to ensure that students are not harmed by this lack of funding, the Administration has proposed a supplemental appropriation in fiscal year 2002 and has been trying to assist Congress to identify offsetting spending reductions in the appropriations process. President Bush has done everything possible to work with Congress to avoid a situation similar to 1993 when the previous administration cut the maximum Pell Grant to students by $100. Let me be clear, if Congress fails to act now, millions of low- and middle-income students could see their badly needed Pell Grants reduced or even eliminated. Failing to address this problem now and continuing to spend now and pay later could result in a cut of $400 for the 2003-04 academic year, the largest cut ever. Therefore, to protect our neediest students we believe that Congress must do three things to solve this problem — Do it, do it right, and do it right now.

Moreover, to ensure that this situation does not continue to occur in the future, the Administration is proposing that Congress authorize the Secretary of Education to set the Pell Grant maximum award for the upcoming academic year based on the available funds in the appropriation and the best available budget projections in January preceding the beginning of the academic year in July. This will ensure that students will receive the maximum benefit from the funds that are available for them during the upcoming academic year.

I have heard a lot of things said in the past few weeks about the President’s support for Federal student aid, and most of it is simply untrue. For example, this report released last week jointly prepared by the Democratic staff of this committee states that the Bush budget “cuts Pell Grants from $4,000 to $3,900 and gives financial aid to 375,000 fewer students.” That statement is out and out false. So let me set the record straight once and for all. Pell Grants are the President’s number one priority in higher education. He has proposed higher increases in funding for Pell Grants in his first two years, than were enacted during the eight years of the previous administration. Four and a half million students – nearly one-third of all the students enrolled in higher education – would receive a Pell Grant under the President’s budget for 2003. That’s a half million more students than before he took office. And most importantly, the President is doing this in a fiscally responsible way.

Student Loans: More Available and More Affordable Than Ever

It is also unfortunate that recently some have tried to scare students and their families with statements that the Administration is trying to raise student loan interest rates. The fact of the matter is student loans are more available and more affordable than ever before.

Earlier this year, the Administration joined Republicans and Democrats in Congress to support a compromise measure that would maintain stability in the student loan marketplace and ensure that access to low-cost education financing for students and their families was not interrupted. That measure, which President Bush signed into law in February, extended the current low variable rates until 2006 and established a 6.8 percent fixed rate thereafter. Had we not acted together in a bipartisan fashion to extend the current rates, the student loan programs would have been thrown in disarray and families would be scrambling right now to find the money to pay for next year’s tuition bills. This law builds $8.2 billion of new money into the loan programs over the next 10 years.

The result of this compromise and the one that was reached in the 1998 Higher Education Amendments is lower interest rates on student loans than ever before. By historical standards, today’s 5.99 percent rates are a bargain. In July, they are projected to drop to their lowest point ever – just over 4 percent. If you factor in the advantages of in-school interest benefits and increased tax deductibility, the effective rate for many borrowers will be under 2 percent.

Additionally, contrary to the gloom and doom stories coming out from various congressional offices in the past weeks, student loans are more available than ever. Over 10.2 million students and parents will be eligible for these low-interest rate loans in 2003 under the President’s budget – over a million more recipients than when the President took office. So let’s stop scaring America’s families. Student loans are widely available to more people than ever before. They are more affordable than ever before. And thanks to our recent work together, the programs are more financially stable than ever before.

Another important benefit in the student loan programs is loan forgiveness, and the President has sought to more than triple the loan forgiveness for mathematics, science, and special education teachers in low-income schools. Under the President’s proposal, these teachers would qualify for up $17,500 in loan forgiveness, up from the current $5,000 limit, for teaching in high-need schools for five years. Unfortunately, this committee failed to take action on this proposal last year, and I urge you to help the President help local communities attract and retain highly-qualified teachers in schools where they are needed most. Let’s not let another year go by without acting on the President’s plan to relieve the debt burden on the hard-working teachers who are helping to leave no child behind.

Tax Relief to Help Working Families and Students Afford College

Another Administration accomplishment in higher education has been on the tax front. The tax relief bill that the President worked with Congress to enact last year not only lets working families keep more of the money they earn right now, but targets additional tax relief to encourage savings for postsecondary education, make student loan repayment more affordable, and encourage the private sector to offer higher education assistance to employees. Let me list a few of the highlights for higher education in the President’s tax relief package, which total over $22.7 billion in savings for working American families over the next five years:

• Eliminates of the 60-month limitation on student loan interest deductions and increases the income levels of individuals able to claim the deduction. This change makes this tax benefit simpler to administer and increases the affordability of student loan repayment. ($3.4 billion over 5 years)

• Increased the annual limit on contributions to education savings accounts from $500 to $2,000. ($1.23 billion over 5 years)

• Adds a new above-the-line deduction for qualified higher education expenses. ($11.97 billion over 5 years)

• Allows tax-free distributions from Qualified Tuition Plans (Section 529 plans) used to pay educational expenses and permits private institutions to offer such plans. ($2.32 billion over 5 years)

• Makes the income exclusion for employer-provided educational assistance permanent and extends the benefit of the exclusion to graduate level courses. ($2.8 billion over 5 years)

Taken together with the tax benefits already on the books for higher education, over $10 billion each year in tax breaks are currently being provided to working families who are struggling to meet the skyrocketing cost of college and to students who are repaying their student loans.

Consolidation Loans: A Viable Option for Some Borrowers

Consolidation Loans were created in the mid-1980’s to allow borrowers with loans from multiple lenders to combine their loans into a single loan. It also allows borrowers with high-debt levels to stretch out their payment terms beyond the standard 10-year term that has not changed since 1965. In 1998, Congress standardized Consolidation Loan interest rates across the two student loan programs at a fixed rate equal to the weighted interest rate of the underlying loans, rounded up to the nearest eighth of a percent.

As the median student loan amount tripled over the last decade from $4,000 to nearly $12,000, the dollar volume in the Consolidation Loan program grew dramatically throughout the 1990’s increasing from less than $2 billion in 1994 to nearly $13 billion in 1999. Most of these borrowers have been out of school for some time; many have embarked on high-paying careers in medicine, law, business and other professions.

Consolidation loan volume in 2002 is expected to exceed $15 billion with approximately 483,000 borrowers taking advantage of this option. Most of these borrowers are consolidating variable-rate loans, which are at 5.99 percent and will drop to just over 4 percent in July. These loans are capped at 8.25 percent. The Congressional Budget Office has estimated that providing consolidation subsidies to these borrowers costs the government $1.3 billion. In addition, the Chairman of the House Education and Workforce committee has asked the U.S. General Accounting Office to examine who benefits from the current Consolidation Loan program. As we move into reauthorization, asking questions like these will help to better determine whether Federal subsidies should be more directed to help needy Pell Grant recipients gain access to college or should continue to subsidize relatively well-off professionals. Although the Administration never adopted a policy to change this program, we look forward to working with you to find better ways to ensure that deserving students are not left behind.

Rising College Costs: A Real Problem for American Families

As a member of the National Commission on the Cost of Higher Education I witnessed first hand the anxiety that parents face when they look at the cost of sending their children to college. These escalating costs have simply priced many families out of the market and denied them educational opportunities. Over 40 percent of our high school graduates do not enroll in postsecondary education, and low-income and minority families have suffered the most. More than half of the high school graduates from low-income and Hispanic families do not attend college, and the enrollment rates for black students lag behind white students by nearly 10 percentage points. With over 80 percent of the growth jobs that provide self-supporting salaries requiring some postsecondary education and training, and the gap in earning potential between those with a postsecondary education and those without continuing to grow, it is clear that colleges need to get serious about controlling their costs.

To address this growing problem, the National Commission on the Cost of Higher Education made several recommendations on all stakeholders in the higher education arena:

• Strengthen institutional cost control;

• Improve market information and public accountability;

• Deregulate higher education;

• Rethink accreditation; and

• Enhance and simplify Federal student aid.

I am pleased to report that the Department has been doing its part to address these recommendations. Earlier this year, working with the House postsecondary education subcommittee, we reviewed the thousands of suggestions they received that were submitted from college administrators seeking regulatory relief. We then sat down with representatives from colleges across the country to find ways to implement these changes in our regulations to ease the administrative burden on schools and students. These negotiations just concluded, and in a few weeks, we will publish proposed regulations to implement the changes that the colleges requested. In our office of Federal Student Aid (FSA), we have been working hard to improve customer service, and simplify the financial aid process. In March, after consultation with the Advisory Committee on Student Financial Assistance, I directed FSA to implement the simplified needs test to streamline the financial aid application process for our neediest applicants. We have also included accountability measures and more simplifications in our Department strategic plan.

We are committed to continuing to do our part to solve this problem. Colleges must also step up to the plate and do their part to curb their spending, become more efficient, and lower the cost of college for American families.

Program Integrity in the Student Aid Programs

Secretary Paige and I have moved aggressively to address long-standing management problems in the student aid programs. We are committed to removing the student aid programs from the General Accounting Office’s high-risk list. Senior staff at the Department are working with GAO to identify and implement a series of concrete steps to make this long-standing goal a reality. Within the context of the Secretary’s overall management initiative, we are implementing new financial systems for the student aid programs, as well as the Department as a whole, and are proposing a new, streamlined funding structure for student aid administration that encourages innovation and efficiency while linking funding to workload and performance.

Conclusion

A quality higher education has never been more important to our nation. Now is not the time for partisan bickering and political grandstanding. Nor is it the time to scare American families away from college. The bipartisan process that culminated in the No Child Left Behind Act and the tax relief act last year stand as great examples of how Congress and the Administration can work together to improve the lives of all Americans. We look forward to building on that success as we move forward together to reauthorize the Higher Education Act.

I will be happy to respond to any questions you may have.