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2
AUG-28-97 THU 14:40
P.01
OF EDUCATION
UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF POSTSECONDARY EDUCATION
STATES OF AMERICA
Office of the Deputy Assistant Secretary
Policy, Planning, and Innovation
7th and D Streets, SW
Room 4060, ROB-3
Washington, DC 20202-5143
Phone: (202) 205-2987 Fax: (202) 401-5749
Fax Cover Sheet
Number of pages following cover sheet:
7
TO:
Bob Shreman
FAX:
456-2223
FROM:
Maureen A. McLaughlin
Francine Picoult
Lynn Mahaffie
Sandy Wood
Tia Cosey
MESSAGE:
Contact Margart Word if any quistions
(708-5547)
600 INDEPENDENCE AVE S.W. WASHINGTON D.C. 20202
Our mission IN 10 ensure equal access 10 education and 10 promote educational excellence throughout the Nation.
AUG-28-97 THU 14:41
P.02
ACCOMPLISHMENTS OF THE CLINTON ADMINISTRATION
IN HIGHER EDUCATION
I.
Increased Access to Higher Education
The Administration made college more affordable for low- and middle- income students by
increasing available aid by $10 billion between 1993 and 1995 -- an increase of 40 percent.
With the enactment of the fiscal year 1997 appropriations bill, aid available to students will
increase by an additional $3.6 billion for a record total of $38.2 billion in aid in 1997 for
an estimated 8.2 million students. In particular, the Pell Grant maximum award increased
from $2,300 in 1993 to $2,700 in 1997, and the amount appropriated for the College
Work-Study program increased from $760 million in 1993 to $830 million in 1997.
By 1997, the Department estimates that at least 45 percent of student loans will be Direct
Loans. The Direct Loan program offers borrowers a choice of repayment options,
including income-contingent repayment, that will make it casier for borrowers to manage
their student loan debt. Even the millions of students who have not borrowed under the
Direct Student Loan program benefit from improvements in the Federal Family Education
Loan program and the reduction in fees charged.
To encourage low-income, first-generation college students to attend and complete
college, the Administration requested $500 million for the federal TRIO programs in fiscal
year 1997, an increase of $37 million. The program will serve approximately 685,000 at-
risk students by providing outreach and support services as well as information about
postsecondary education opportunities.
11.
Prevented Access from Being Eroded
Over the last several years, the Department has worked to ensure that changes in student
aid programs do not harm students. The Department vigorously opposed the following
proposals in Congress:
-- eliminating the in-school interest subsidy for student borrowers;
-- climinating the six month grace period;
-- eliminating student aid for legal immigrants;
-- eliminating the Student Educational Opportunities Grant and Perkins Loan programs;
-- increasing the Pell Grant minimum award.
III.
Other Major Accomplishments
The Direct Loan program has revolutionized federal student loan delivery by providing
borrowers and participating schools with a simple, more automated and accountable
system while saving taxpayers billions of dollars. Over 1,600 schools now participate in
the program, and more than 1.7 million student and parent borrowers have received direct
loans since the program began.
1
AUG-28-97 THU 14:41
P. 03
In the three years since the start of the Clinton Administration, the Department of
Education increased total defaulted loan collections more than five-fold, to $2.5 billion in
fiscal year 1996.
Aggressive accountability and collection efforts have cut the student loan default rate in
half in just three years, from 22.4 percent in fiscal year 1990 to 11.6 percent in fiscal year
1993.
The Department has approved 135 five-year Experimental Sites projects at 100 higher
education institutions. These projects exempt schools from certain regulatory and statutory
requirements so that they can innovate to better meet their students' needs, without
sacrificing accountability. The Department will be able to use the results of these
experiments in the future to inform our policy decisions.
IV.
Management Initiatives
As part of the President's reinvention of the way government regulates, OPE has
eliminated or has proposed to eliminate (through Notices of Proposed Rulemaking) 232
pages of regulations, exceeding our goal by nearly 50 percent.
To reduce burden further for schools and students, OPE has reinvented many regulations,
providing for flexibility by, for example: allowing the use of NSLDS as an alternative
method for obtaining Financial Aid Transcript information; requiring fewer student
signatures on forms; and automating certain student verification checks in cooperation with
the Selective Service and INS.
As part of our mission to ensure accountability of taxpayer funds by improving oversight of
institutions. the Department terminated 723 institutions from participation in the loan
programs because of high default rates, and 381 schools were terminated from all Title IV
programs for poor performance. In addition, through the on-going recertification process,
another 291 institutions were denied eligibility to participate.
The Department uses the latest technology to improve the federal financial aid programs
for students and schools. The National Student Loan Data System (NSLDS) is in the final
stages of implementation and provides schools with information in an electronic format on
student aid recipients. Institutions receive free EDExpress software packages to allow them
to administer the delivery of student aid electronically. In addition, student applicants now
have access to free FAFSA Express software.
The Office of Higher Education Programs has reinvented its grant process. Grantees no
longer are required to submit non-competing continuation applications. and have access to
"one-stop shopping" at program offices SO that they no longer have to deal with multiple
offices in the Department.
October 10, 1996
2
AUG-28-97 THU 14:41
P.04
DIRECT LOAN PROGRAM ACCOMPLISHMENTS
Vital Statistics -
The Direct Loan Program has revolutionized federal student loan
delivery by providing borrowers and participating schools with a
simple, more automated and accountable system, saving federal
taxpayers billions of dollars.
The Direct Loan Program is to be phased in over a five-year
period, saving more than $4.3 billion by FY 1998.
More than 1,600 schools participate in the third year of the
program. As of July 1996, approximately 1.7 million student and
parent borrowers have direct loans, borrowing approximately $10.5
billion.
one
In academic year 1995-96, Direct Loans captured about a third of
total student loan volume.
In addition, approximately 82,000 borrowers have consolidated
nearly $1.2 billion in Direct Consolidation Loans since the
program's inception.
Improved benefits for borrowers - Direct Loans afford borrowers several
benefits including: simplicity in obtaining loans, timely delivery of funds to
students, one loan holder (the federal government), and varied repayment plans
with the option to switch between plans without cost or penalty. The flexible
repayment options reduce borrower default and its cost to taxpayers, help
students transition into the workforce, and ensure that the cost of education
is not a barrier to success.
Customer service - The Direct Loan Program's customer focus is reflected
in the enhanced control it gives borrowers. It gives borrowers a toll-free
hot line to ensure quick response to student concerns; questions and problems
are resolved quickly. Funds are electronically transferred directly to the
school and are available to students in record time. Training, technical
assistance and consumer materials are made available to schools.
Simplification - The Direct Loan Program simply does more with less. It
has streamlined the student loan delivery process by reducing the number of
participants to three -- the borrower, the school, and the Department of
Education.
Accountability - Program data for monitoring, improvement and
enforcement is more accurate and more timely than in any other federal student
aid program. The Direct Loan Program reconciled 100 percent of its draw downs
from the federal Treasury during its first year, a first in the history of
federal financial aid programs.
Flexibility - Borrowers have a wide range of repayment options, and
schools are free to manage direct loans in ways that best suit their own
environments. The simplicity of the program has resulted in reduced paperwork
and staff time answering questions and tracking loan applications.
AUG-28-97 THU 14:42
P.05
Competition - The Direct Loan program has introduced market-based
competition to the federal student loan system. Through contracts awarded on
a best-price-to-value basis, the private sector is responsible for all of the
essential administrative processes associated with Direct Loans, such loan
servicing and collection.
Schools still enrolled in the government-guaranteed loan
program have praised the benefits that competition has brought to the federal
student loan system. More than 100 college and university presidents at FFELP
schools recently petitioned Congress to allow the Direct Loan Program to
compete with the FFELP because of the improved service that Direct Loans have
inspired from both the Department of Education and the government-guaranteed
loan program.
Less Red Tape for Schools - The duplicate paperwork that is required
under the FFEL? is replaced by one application, one source of funds and one
servicing center. As a result, financial aid offices are more efficient and
provide better service to students.
Increased Control for Schools - Schools are allowed to implement Direct
Loans with a substantially greater degree of autonomy from lenders and
government and have better control over the loan process.
Innovations - The Direct Loan Program has pioneered such innovations as
electronic Title IV processing, electronic funds management, reconciliation
and automated quality assurance measurements for schools. In so doing, direct
lending has set the standard for student financial aid delivery. As a result,
lenders, secondary markets and guaranty agencies have been forced by the
competition to make substantial improvements in their operations and customer
service.
Recognition - The Direct Loan Program was named as one of 25 finalists
in the 1996 Innovations in American Government Awards Program by the Ford
Foundation and the John F. Kennedy School of Government at Harvard University.
In another first for a federal student aid program, Direct
Loan Programs received a "clean" audit for its financial situation, internal
control structure and compliance with laws and regulations during its first
year of operation from the independent certified public accounting firm of
Urback, Kahn and Werlin.
Education Daily, a higher education trade publication, found
in a 1995 survey that more than 90 percent of participating colleges and
universities rated the Direct Loan Program as "excellent." One hundred
percent would recommend it to other schools.
AUG-28-97 THU 14:42
P. 06
Tax Cuts for Higher Education
fact sheet
The HOPE Scholarship and Lifetime Learning Credit
The President signed on August 5. 1997, the BALANCED BUDGET ACT OF 1997 and
TAXPAYERS RELIEF ACT OF 1997 to balance our budget. put our fiscal house in order, and
expand educational opportunity. The education provisions provide for universal access to the
13th and 14th years of education through the HOPE scholarship tax credit and a
20% tax credit for lifetime learning.
The final tax cut bill enacts the President's proposals. When fully phased in, 12.9 million
students are expected to benefit-5.8 million claiming the HOPE Scholarship, and 7.1 million
claiming the Lifetime Learning Credit.
$1,500 HOPE Scholarship to make the first two years of college universally
available.
For students in the first two years of college (or other eligible post-secondary training).
taxpayers will bc eligible for a tax credit equal to 100% of the first $1,000 of tuition and
fees and 50% of the second $1,000 (the amounts are indexed for inflation after 2001).
The credit will be available on a per-student basis for net tuition and fees (less grant aid)
paid for college enrollment after December 31. 1997. The credit is phased out for joint
filers between $80,000 and $100,000 of income, and for single filers between $40,000
and $50.000 (indexed after 2001). The credit can be claimed in two taxable years (but
not beyond the year when the student completes the first two years of college) with
respect to any individual enrolled on at least a half-time basis for any portion of the year.
Lifetime Learning Credit for college juniors, seniors, graduate students and
working Americans pursuing lifelong learning to upgrade their skills.
For those beyond the first two years of college, or taking classes part-time to improve or
upgrade their job skills. the family will receive a 20% tax credit for first $5,000 of tuition
and fees through 2002. and for the first $10,000 thereafter. The credit is available for net
tuition and fees (less grant aid) paid for post-secondary enrollment after June 30. 1998.
The credit is available on a per-taxpayer (family) basis, and is phased out at the same
income levels as the HOPE Scholarship.
I
AUG-28-97 THU 14:42
P. 07
Other Tax Cuts For Higher Education
Education Savings Accounts
For each child under age 18, families may deposit $500 per year into an Education IRA.
Earnings would accumulate tax-free and no taxes will be due upon withdrawal for nct
post-secondary expenses for tuition, fees, books, equipment, and room and board. The
Education IRA is phased out for families with incomes between $150,000 and $160,000,
and for single filers between $95,000 and $110,000. A taxpayer who uses tax-free
distributions from an Education IRA may not, in the same year, benefit from the HOPE
Scholarship or Lifetime Learning Credit.
Student Loan Interest Deduction
Allows an above-the-line deduction (the taxpayer does not need to itemize in order to
benefit) for interest paid in the first 60 months of repayment on private or
government-backed loans post-secondary education and training expenses. The maximum
deduction is $1,000 in 1998, $1,500 in 1999, $2,000 in 2000, and $2,500 in 2001 and
beyond. It is phased out for joint filers with incomes between $60,000 and $75,000, and
for single filers with incomes between $40,000 and $55,000 (indexed after 2002). The
deduction is available for loans made before or after enactment of this provision, but only
to the extent that the loan is within the first 60 months of repayment. The loan amount
eligible for the deduction is limited to post-secondary expenses for tuition, fees, books,
equipment, room, and board.
IRA Withdrawals
Taxpayers may withdraw funds from an IRA, without penalty, for the higher education
expenses of the taxpayer, spouse, child, or grandchild. The amount that can be
withdrawn without penalty is limited to net post-sccondary expenses for tuition, fees,
books, equipment, and room and board.
Employer-Provided Education Benefits
Extends Section 127 of the tax code for undergraduates for three years (for courses
beginning prior to June 1, 2000). This provision allows workers to exclude up to $5,250
of employer-provided education benefits from their taxable income.
2
AUG-28-97 THU 14:43
P.08
Community Service Loan Forgiveness
Excludes from taxable income loan amounts forgiven by non-profit, tax-exempt
charitable or educational institutions for borrowers who take community-service jobs
addressing unmet needs.
Expand benefits for pre-paid tuition plans
Allows State-sponsored pre-paid tuition plans--the earnings from which not taxed until
the time of withdrawal as a result of last year's tax bill--to include room and board
expenses for students who attend on at least a half-time basis. Withdrawals are eligible
for the HOPE Scholarship and Lifetime Learning tax credits.
Repeal Cap on Tax Exempt Bond Issuance by Colleges and Universities
Repeals the $150 million bond cap that affects private higher education institutions and
certain other charitable institutions. The repeal applies to tax-exempt bonds issued by
these institutions to finance new capital expenditures.
3
OF EDUCTION
UNITED STATES DEPARTMENT OF EDUCATION
PUBLIC AFFAIRS
ANTED STATES of AMERICA
Remarks by*
U.S. Secretary of Education
Richard W. Riley
Press Conference -- Higher Education Tax Proposals
Wednesday, June 11, 1997
Thank you all for coming.
In recent months, President Clinton and the majority in Congress have come together in
several ways to help the nation's college students and families better handle the costs of
college.
During last year's appropriations process, we secured the largest increase to the Pell Grant
program in two decades, and we created more College Work-Study jobs. More recently,
the budget agreement called for $35 billion over five years for the President's HOPE
Scholarship and a $10,000 tuition tax deduction.
However, we still have important work to do. I'm very pleased with the higher education
community's support for the President's proposals. There are three criteria that guided
President Clinton's education-related tax breaks as outlined in the budget agreement --
expanded access, fairness, and promotion of lifelong learning. Chairman Archer's
education proposals offered earlier this week don't just miss the mark -- they miss the
point.
Chairman Archer's alternative to the President's HOPE Scholarship sacrifices some of its
biggest advantages. It doesn't include the big motivational benefit offered by President
Clinton's plan -- a guarantee that the 13th and 14th years of education are just as accessible
as the previous 12. Additionally, the Archer plan provides only $22 billion in tax relief --
$13 billion less than the amount called for in the budget agreement -- for the President's
credit and deduction. On both counts, the Archer plan fails the access test.
Further, the Archer version of the HOPE Scholarship penalizes students who choose to
attend a more affordable institution during their first two years of college. A student
entering most four-year colleges would receive the full $1,500 credit, and there's nothing
wrong with that. But a student attending a community college would receive much less.
That fails the fairness test.
Finally, the Archer plan does away with the lifelong availability of tax relief as presented in
*
Secretary Riley may depart from prepared remarks.
600 INDEPENDENCE AVE.. S.W. WASHINGTON, D.C. 20202-0131
(202) 401-1576
Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
2
President Clinton's plan. You know, a few short years ago, we saw a wave of corporate
downsizing that forced millions of Americans to take their careers in new directions. For
some, that meant returning to school. By making these tax breaks available to students of
all ages, the President gives families a chance to navigate these changing times. The
Chairman's plan fails to promote education throughout people's lives.
As I said earlier, we have resolved our differences with Congress on several occasions for
the sake of America's students and families, and I hope that we can do so again. But we
must remain committed to expanding access, fairness, and promotion of lifelong learning.
I should note that from what I know about the plan proposed by Congressman Charles
Rangel, it offers a different look at these issues while moving forward on those three
criteria. It is a plan that we will be examining as these discussions move forward.
I look forward to continuing to work with members on both sides of the aisle in Congress
to reach an agreement that meets those criteria and works for America's families.
111
III
THE 1780
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
June 11, 1997
SECRETARY OF THE TREASURY
The Honorable Bill Archer
Chairman, Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515-4005
Dear Bill:
I have reviewed the Chairman's Mark you released earlier this week, providing the details of the
tax portion of the bipartisan budget agreement. The President is eager to sign legislation
implementing the agreement into law, but in its present form, the proposal you have put forth
does not meet the test of fairness to working families and has other serious problems. I have
included preliminary Treasury distribution tables for your package after this letter. Our major
concerns are listed below.
Your bill will reduce the value of the $500 child credit for millions of low income families by
requiring a family to take the child credit only after the earned income tax credit is taken against
their tax liability. A family with two children and $25,000 of income, for example, would
receive no tax relief from the child credit under your proposal. Under the President's plan, this
family would get $1,000, the same as a family that earned twice as much. We would favor a
refundable child credit that better targets low and middle income working families. The credit
should be indexed for inflation. We would also permit taxpayers to place their child credit into a
tax-favored savings account to finance their children's college education. In combination with
our tuition deduction, this proposal would allow families to save and pay for college tax-free.
The proposed legislation singles out six million families who pay for child care and gives them a
smaller tax cut.- Beginning in 2002, families who receive a tax credit for their child care
expenses would lose 50 cents for each dollar of their child credit. This provision unfairly
reduces tax relief for working parents who are struggling to maintain a decent standard of living
and to pay for child care. For example, a family with two working parents making $45,000 who
pay for child care for their two children would seemingly be eligible for a $1,000 child tax
credit. But under the proposed legislation, they would also lose $480 of their child tax credit,
beginning in 2002.
The education package falls nearly $13 billion short of the agreed goal of $35 billion in tax cuts
for education, which are consistent with the HOPE scholarship and tuition deduction proposals in
the President's FY98 Budget. Furthermore, as compared to the President's proposals, it directs
more benefits toward upper-income families while reducing the benefits to lower-income families.
It introduces serious administrative complications and is less effective at easing the burden of
college attendance for working families.
06/11/97
15:08
7
The HOPE credit would be cut to 50 percent of tuition expenses, halving the value of
education benefits for millions of students attending community colleges and other low-
cost institutions.
Unlike the broadly available tuition deduction in the President's package, the tuition
deduction in your proposal would be available only if education expenses are paid from
certain education savings plans. Hence, no help is given beyond the first two years of
higher education to low-income students and students who must borrow to pay tuition. In
addition, your proposal does much less to encourage lifelong learning, one of the central
objectives of the President's package.
Tax-free savings offered through new education investment accounts and the opportunities
for tax-deferred saving through private prepaid tuition plans are overly generous to upper
income families, since they have neither income limits nor contribution limits. This would
give high-income taxpayers an incentive to use these vehicles to save tax-free, even if they
never intend to use the savings for education expenses. In the early years, the benefits for
education will only be available to those who already have large reserves of cash to deposit
in these accounts, not to others who can contribute only modest amounts each year.
The American Dream IRAs are not sufficiently targeted. Contributions could be made to these
back-loaded IRAs without any income limits, which would surely result in a substantial shifting of
existing savings into tax-preferred investment vehicles by high-income taxpayers, rather than
creating new savings.
The proposal to index certain capital assets and lower the rate of tax on capital gains provides a
double benefit to taxpayers, substantially overcompensating them for the effects of inflation. The
package would disproportionately benefit the wealthy over lower- and middle-income wage
earners. The package also has an explosive revenue cost in years after 2007, possibly jeopardizing
all our important work to balance the budget. In addition, the indexing proposal is enormously
complex and difficult to administer. To quote the New York State Bar Association, indexing is
"fundamentally flawed" and would create problems that would "overwhelm taxpayers and the
IRS."
In addition, we are concerned about the proposal to reduce the corporate capital gains tax rate. We
would propose expanding the existing exclusion for long-term equity investments in smaller
businesses. The expansion of the capital gains incentive for small businesses will help more start-
ups get off the ground, and ensure that America continues to lead the world in high technology.
At a time when business conditions are strong and profits are at their highest share of GDP in two
decades, you have proposed to spend $34 billion over 10 years to eliminate the corporate
alternative minimum tax. This provision would return us to the days when some large and
profitable corporations could pay little or no tax.
Your plan contains other provisions that raise serious concerns. The safe-harbor for independent
contractor status would permit employers to avoid essential worker protections. At a time when
we are trying to expand health and pension coverage, this proposal could lead to widespread
shifting of employees to independent contractor status, resulting in loss of worker protections such
06/11/97
15:09
7
as pension and health coverage, and consequently wage and hour protections, unemployment
insurance benefits and compensation for work-related injuries.
Under your proposal, Indian tribes would be subject to the unrelated business income tax on all
income earned from commercial activities. Contrary to long-established U.S. policy, this tax fails
to respect the sovereignty of Indian tribes and their special status as domestic dependent nations.
This lack of respect for sovereignty is particularly apparent in the difference the proposal would
create between tribes and States. In addition, the proposal would be extremely difficult to
administer.
We are very disappointed that your proposal excluded a number of important initiatives for the
President's FY 1998 Budget that were included in the budget agreement. For example, the
Nation's mayors and urban and rural communities have been extremely supportive of the
President's brownfields provision, which provides a tax incentive for environmental cleanup and
encourages economic development in formerly contaminated areas. Your proposal excludes this
provision. And while tax relief is provided for the District of Columbia, no additional
Empowerment Zones or Enterprise Communities for the rest of the country are provided.
In addition, no provision is included to stimulate investments in Community Development
Financial Institutions to revitalize distressed neighborhoods around the country. No provision is
included for equitable tolling, which protects a taxpayer's rights when he or she is incapacitated, or
for restructuring our Nation's affordable housing portfolio.
Your bill also includes a provision to raise the debt ceiling. We believe that it should be included
in the other reconciliation bill.
In summary, we think this package disproportionately benefits the most well off in society at the
expense of working families. Given the tough choices that need to be made within this tax
package, we think it is unwise, for example, to eliminate the corporate AMT, while at the same
time denying tax relief provided by the child credit to millions of hard-working taxpayers with
children who receive the earned income tax credit. Moreover, the provisions in the package that
drive up costs beyond the ten year budget window, are those that most advantage high-income
taxpayers.
We look forward to working with the Congress to design a tax package that helps working
families pay for education, buy and sell homes, and raise their children. We are committed to
achieving a tax package that is fair to all Americans.
Sincerely,
5
Robert E. Rubin
Enclosures
edacc827 wpd
Page 1
President Clinton:
Providing Educational Opportunities for the New Century
"Looking ahead, the greatest step of all -- the high threshold of the future we now must cross -- and my
number one priority for the next four years is to ensure that all Americans have the best education in the
world."
--President Clinton, State of the Union, February 4, 1997
Expanding Access to Higher Education
Making College More Affordable. The President 45 Balanced Budget includes the largest investment
Agreevent
single
in higher education since the G.I. Bill in 1995 roughly $35 billion in tax euts to help families pay
for college. Congress enacted the President $1,500 HOPE Scholarship tuition tax credit, to make
the first two years of college universally available. Students beyond the first two years, or part-time
tuition and required fees through 2002, and $10,000 thereafter.
students seeking to improve or acquire job skills, can now receive la 20% tax credit for up to $5,000 of
Lifetime
learning
The largest Pell Grant increase in 20 years. The President's Balanced Budget includes the largest
increase in Pell Grants in two decades -- a funding boost of 25%. The maximum award will reach
$3,000, $700 more than in 1993 -- in the 1998 budget alone, an additional 348,000 students will
receive grants.
Reforming Student Loans. President Clinton cut student fees and interest rates for all borrowers,
expanded repayment options and improved service through the Direct Loan Program, which has
served more than 2.1 million student and parent borrowers.
Strengthening Our Public Schools
Expanding School Choice and Accountability in Public Education. The Clinton Administration
has dramatically increased funding for charter schools: one charter school was in existence when the
President took office -- this fall, there will be nearly 700 charter schools in operation.
Attracting and Preparing Tomorrow's Teachers. President Clinton has proposed an initiative
to attract nearly 35,000 talented people of all backgrounds into teaching at low-income urban and
rural schools across the nation, and to dramatically improve the quality of training and preparation
given to our future teachers.
Raised Standards for Over Ten Million Students. The Clinton Administration overhauled Title I,
which provides extra help with basic and advanced skills to more than 10 million disadvantaged
students in elementary and secondary schools.
Ensuring that Every Child Can Read
F Technology Challenge
Launched America Reads. The Balanced Budget will fund a child literacy initiative consistent with
the America Reads Challenge, the President's effort to make sure every child can read well and
independently by the end of third grade.
Leading a Crusade for National Standards
Goals 2000. The President signed Goals 2000, which helps states establish standards of excellence
for all children, and plan and implement steps to raise educational achievement.
Bob,
I have to leave
in 20 min. If
Draft of cover note for education packet
you have chages
before then, pls
Call me at 62734
Now that the new school year has begun, we encourage you to speak out about education If you
the key to unlocking the opportunities of the 21st century. The month of September is the best
have
time of the year for us to galvanize support for our important education initiatives.
after chages that,
As President Clinton made clear in his State of the Union address, our number one
is call
priority for the next four years is to ensure that Americans have the best education in the world.
Here are some examples of education initiatives where Democrats are making the difference.
Ruly
First, opening the doors of higher education. Thanks to the President's outstanding
shamir, Lewis's Ann
leadership during the difficult balanced budget negotiations this spring and summer, we
Democrats achieved a truly remarkable goal: For the first time ever, all children in America who
ofc
study hard will have the opportunity to go to college. Our balanced budget makes this possible
Thinks.
through $1,500 HOPE Scholarships, a Lifetime Learning Tax Credit, new Education IRAs, and
the largest increase in Pell Grants in two decades.
and M aeep on Gomag for a Inferdine,
Lovells
weiss
Second, supporting our public schools. For example, the President is providing the tools
for parents, teachers, and community groups to create public charter schools. Charter schools
help expand school choice for parents and unlike so-called voucher schemes, they strengthen
public school systems rather than draining them of resources. Also, the Administration will
continue to press Congress to address the growing problem of unsafe and overcrowded public
schools. The Administration is helping to recruit talented new public school teachers and reward
the existing teachers who are serving their students best. And the Administration is working
tirelessly to connect every public school classroom and library to the Internet by the year 2000.
Third, expanding early-childhood education. Because a child's learning begins long
before he or she goes to school, we are expanding Head Start to one million additional children
by 2002. We are also creating a nationwide child literacy initiative to ensure that every child can
read independently by the end of the 3rd grade.
have launched also the America Reads Challenge
Finally, promoting high education standards. We believe that every state should adopt
voluntary national standards and test their students in reading and math to make sure these
standards are met. High national standards are the best way we can be sure our children learn
what they need to succeed in the new economy.
The American people want to work together to provide all our children with the best
preparation for the opportunities of the 21st century. The American people are looking to
Democrats to lead the way.
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Page 2
Leading a Crusade for Voluntary National Standards and Tests. President Clinton has challenged
every state to adopt high national standards, and, by 1999, to test every 4th grade student in reading
and 8th grade student in math so that parents, students and teachers can tell if students are meeting
national standards. Fifteen of the nation's largest urban school districts, as well as six states and the
Department of Defense Schools have joined the President's effort.
THE AMERICA READS CHALLENGE
"We ought to commit ourselves as a country to say by the year 2000, 8 year-olds in America will be able to pick up an appropriate book and
say, "I read this all by myself"
President Clinton, September 12, 1996
HELPING ENSURE THAT EVERY AMERICAN CHILD CAN READ WELL AND INDEPENDENTLY. Research
shows that children who cannot read well and independently by the end of third grade are less likely to succeed in school
and more likely to drop out. While American students today generally read as well as ever, 40% of our fourth graders
scored below the basic level on the 1994 National Assessment of Educational Progress. According to studies, however,
well-designed tutoring programs result in student gains in reading. The America Reads Challenge sets forth the first
comprehensive, nationwide effort to create after-school, summer, and weekend tutoring in reading. Legislation proposed by
President Clintont links parents, teachers, AmeriCorps members, trained reading professionals, and volunteer tutors to
school, library and community literacy efforts. The proposal is a five-year, $2.75 billion commitment to local communities
and organizations, as well as national and regional efforts. It includes:
America's Reading Corps. The proposal would fund 25,000 reading specialists and coordinators, including
11,000 AmeriCorps members, to mobilize 1 million volunteer reading tutors.
A state-based education-service partnership would fund local school-community partnerships that need
reading specialists to train and supervise tutors, and AmeriCorps members and others to help recruit and
organize tutors.
Coordinating with the in-school reading program, tutors will provide individualized after-school, weekend,
and summer reading tutoring for approximately 3 million children in grades K-3 who need extra help.
Parents as First Teachers Challenge Grants. The legislation also recognizes that, as their children's first
teachers, parents can give their children the firm foundation they need to do well in school. The Parents as First
Teachers Challenge Grants would provide more than $300 million over five years to foster effective programs to
provide assistance for interested parents to help their children become successful readers by the end of 3rd grade.
THE PRESIDENT'S AMERICA READS CHALLENGE INCLUDES OTHER KEY COMPONENTS.
Federal Work Study Expansion. President Clinton has asked college presidents to allocate work-study slots to
college students to become America Reads tutors. The goal is to give 100,000 federal work study students the
opportunity to help children learn to read better. So far, more than 700 colleges have pledged students to tutor in
elementary schools.
Head Start Expansion. One million 3- and 4-year olds will be reached through the expansion of Head Start
programs, part of the President's balanced budget plan.
PRESIDENT CLINTON IS ISSUING THE AMERICA READS CHALLENGE TO ALL AMERICANS. The
America Reads Challenge builds on the work being done by classroom teachers, librarians and reading specialists by
drawing upon the spirit of community volunteers in tutoring and mentoring.
The Challenge is pursuing several essential strategies to help our children learn to read: creating more learning
opportunities to supplement classroom reading instruction; encouraging parent involvement to help children develop
readiness skills for reading beginning at birth, as well as involvement throughout the school years; and bringing best
teaching practices into classrooms.
This unprecedented initiative calls on all Americans -- schools, libraries, religious institutions, universities, students,
the media, community and national groups, business leaders and senior citizens -- to ensure that every American
child can read well and independently by the end of 3rd grade.
TO MOY
MAKING COLLEGE MORE AFFORDABLE
The Balanced Budget Agreement includes the largest single investment in higher education in 50
years. These tax credits and scholarships build on the Clinton Administration's commitment since
1993 to expand access to higher education for young people as well as for working adults.
Tax Cuts for Higher Education:
HOPE SCHOLARSHIPS FOR 5.8 MILLION STUDENTS. The $1,500 HOPE Scholarship tax
credit makes the first two years of college universally available. Families can reduce their taxes by
100% of the first $1,000 of tuition and fees paid (less any grants and scholarships), and 50% of the
next $1,000.
LIFETIME LEARNING TAX CREDITS FOR 7.1 MILLION STUDENTS. The need to learn
does not end with two or even four years of college. Many adults need to return to school to
upgrade their skills, or to get an advanced degree. The Lifetime Learning tax credit helps reduce the
financial burden of the third and fourth years of college and promote lifelong career advancement.
Taxpayers can reduce their taxes by 20% of tuition and fees (less and grants and scholarships) up to
$5,000. After the year 2002, the eligible amount of tuition and fees increases to $10,000.
INCENTIVES FOR SAVINGS. Taxpayers will be allowed to withdraw funds from an IRA,
without penalty, to pay their own higher education expenses or those of a child, grandchild, or
spouse. In addition, families may open Education IRAs for any child under 18. For each child, they
may add $500 per year, and the earnings will accumulate tax-free.
STUDENT LOAN INTEREST. Taxpayers including a parent -- in the first five years of repaying
a student loan will be able to deduct the interest payment from their taxes (up to $1,000 in 1998,
rising to $2,500 in 2001 and beyond).
Expansion and Improvement of Student Aid
LARGER PELL GRANTS FOR NEARLY 4 MILLION STUDENTS. The President's Budget
includes the largest increase in Pell Grant scholarships in 20 years. The maximum award will reach
$3,000, an increase of $700 since 1993.
CHEAPER AND EASIER STUDENT LOANS. President Clinton and the Congress in 1993 cut
student fees and interest rates for all borrowers, expanded the availability of flexible repayment
options, and improved service through the Direct Loan Program.
MOVING TOWARD 1 MILLION WORK-STUDY JOBS. With President Clinton's 1998
Budget, the work-study program will be 39% larger than in 1993. More than 700 colleges have
committed some of their work-study students to help elementary school children improve their
reading skills.
THE AMERICA READS CHALLENGE
"We ought to commit ourselves as a country to say by the year 2000, 8 year-olds in America will be able to pick up an appropriate book and
say, "I read this all by myself"
programs
President Clinton, September 12, 1996
HELPING
TODA PRESIDENT GLINTON WILL ANNOUNCE THAT HE IS SENDING LEGISLATION TO CONGRESS
TO HELP ENSURE THAT EVERY AMERICAN CHILD CAN READ WELL AND INDEPENDENTLY. The
America Reads Challenge All sets forth the first comprehensive, nationwide effort to create after-school, summer, and
weekend tutoring in reading K links parents, teachers, AmeriCorps members, trained reading professionals, and volunteer
tutors to school, library and community literacy efforts. The America Reads Challenge Act is a five-year, $2.75 billion
commitment to local communities and organizations, as well as national and regional efforts. It includes:
Legislation proposed by President Clinian would
propesal
America's Reading Corps. The Act would fund 25,000 reading specialists and coordinators, including 11,000
AmeriCorps members, to mobilize 1 million volunteer reading tutors.
A state-based education-service partnership would fund local school-community partnerships that need
reading specialists to train and supervise tutors, and AmeriCorps members and others to help recruit and
organize tutors.
Coordinating with the in-school reading program, tutors will provide individualized after-school, weekend,
and summer reading tutoring for approximately 3 million children in grades K-3 who need extra help.
Parents as First Teachers Challenge Grants. The legislation also recognizes that, as their children's first
teachers, parents can give their children the firm foundation they need to do well in school. The Parents as First
Teachers Challenge Grants would provide more than $300 million over five years to foster effective programs to
provide assistance for interested parents to help their children become successful readers by the end of 3rd grade.
THE PRESIDENT'S LEGISLATION ADDRESSES CHIL DREN'S READING NEEDS. Research shows that
children who cannot read well and independently by the end of third grade are less likely to succeed in school and more
likely to drop out. While American students today generally read as well as ever, 40% of our fourth graders scored below
the basic level on the 1994 National Assessment of Educational Progress. According to studies, however, well-designed
tutoring programs result in student gains in reading.
PRESIDENT CLINTON IS ISSUING THE AMERICA READS CHALLENGE TO ALL AMERICANS. The
America Reads Challenge builds on the work being done by classroom teachers, librarians and reading specialists by
drawing upon the spirit of community volunteers in tutoring and mentoring.
The Challenge is pursuing several essential strategies to help our children learn to read: creating more learning
opportunities to supplement classroom reading instruction; encouraging parent involvement to help children develop
readiness skills for reading beginning at birth, as well as involvement throughout the school years; and bringing best
teaching practices into classrooms.
This unprecedented initiative calls on all Americans -- schools, libraries, religious institutions, universities, students,
the media, community and national groups, business leaders and senior citizens to ensure that every American
child can read well and independently by the end of 3rd grade.
THE PRESIDENT'S AMERICA READS CHALLENGE INCLUDES OTHER KEY COMPONENTS.
Federal Work Study Expansion. President Clinton has asked college presidents to allocate half of all their new
work-study slots to college students to become America Reads tutors. The goal is to give 100,000 federal work
study students the opportunity to help children learn to read better. So far. boj colleges have pledged thousands of
students to tutor in elementary schools.
700
Service Summit Commitments As part of the President's Service Summitin Philadelphia, major tcoff orations
and have committed to recruit tens of thousands of additional tutors for the America Reads effort.
Head Start Expansion. One million 3- and 4-year olds will be reached through the expansion of Head Start
programs, alreadya part of the President's balanced budget plan.
the
THE AMERICA READS CHALLENGE: THE INITIATIVE
If students cannot read well by the end of third grade, their chances for success are
significantly diminished. In 1994, 40 percent of America's fourth graders failed to attain
the basic level of reading on the National Assessment of Educational Progress. Study
after study finds that sustained individualized attention and tutoring after school and over
the summer, when combined with parental involvement and quality school instruction,
can raise reading levels.
The America Reads Challenge asks every American to identify what role he or she can
play to help all of our children to read independently and well by the end of third grade.
Several strategies are essential for helping our children learn to read:
Create More After School, Weekend and Summer Learning Opportunities
The fundamental purpose of the America Reads Challenge is to enable parents and
educators to complement and expand successful literacy efforts to help many more
children increase their skills and achievement levels, and to provide children who need
additional help in reading with extended learning time.
The America Reads Challenge will build on nationwide efforts such as:
Read*Write*Now!: With 60 reading and literacy groups, the Department of
Education designed this summer program in 1994 to help fight the "summer
reading drop off." The program, expected to reach 1.5 million children this
summer, encourages children to read 30 minutes a day at least once or twice a
week with an older reading partner, get a library card and use it, and learn a new
vocabulary word a day.
Corporation for National Service: National service grant programs that engage
volunteer tutors in literacy efforts are working in hundreds of communities.
Federal Work Study (FWS): President Clinton has challenged all colleges and
universities to join The Honor Roll by pledging 50 percent of their Federal Work-
Study increase for tutoring children in reading. Nearly 500 have signed on so far.
America Reads Challenge Legislation: The Administration is proposing
legislation to fund the establishment or expansion of community partnerships to
help children with reading. This program will supplement classroom instruction
in reading with high-quality volunteer tutoring, primarily after school and during
the summer.
Strengthen Parent Involvement and Our Nation's Investment in the Early Childhood
Years, So That Our Children Develop Readiness Skills for Learning to Read by the
Time They Enter School
Parents and caregivers can engage in exercises to foster development of the necessary
reading skills in their child. Early childhood researchers, the Department of Education,
the Department of Health and Human Services, and the Corporation for National Service
developed a kit called Ready* Set* Read! that suggests ideas for parents and caregivers to
help their young children develop their language skills. The kit includes an activities
booklet, a calendar of activities, and a growth chart that identifies language skills many
children can perform.
A number of existing Federal resources and programs can be strengthened. For example:
Head Start Expansion: One million 3- and 4-year-olds will be reached through
the expansion of Head Start programs, already a part of President Clinton's
balanced budget.
Even Start Expansion: Additional investments are included in the President's
balanced budget plan to expand and strengthen family literacy efforts.
In addition, the America Reads Challenge Act would create Parents as First Teachers
grants to support programs that underscore the importance of parents' staying involved in
their children's lives as they make the transition into their school years.
Bring Best Practices Into the School and Classroom
Teacher Preparation: Working with exemplary teachers and successful local reading
programs, the Department of Education will identify examples of best practices to help
improve teacher development in reading instruction.
Principal Leadership: America Reads will participate in efforts with the Department of
Education and principals around the country to support efforts to expand principal
leadership training.
Strengthening of Title I: Additional investments are included in President Clinton's
balanced budget plan to expand efforts to strengthen reading instruction during the
regular school day.
Identification of Successful Reading Programs: As a part of this effort to bring best
practices into our schools, strong reading programs will be identified based on current
research and the findings will be disseminated. Three areas of particular focus will be
children in poverty served by Title I, children with disabilities served by the Individuals
with Disabilities Education Act, and children who speak English as a second language.
Promote Greater Public Awareness and Local Partnership Building
The America Reads Challenge will encourage states and communities to form and to
build on literacy partnerships among schools, libraries, youth-serving groups, businesses,
and other community organizations. America Reads will use all available resources to
raise awareness about what each of us can do to help our children learn to read.
Support Research and Evaluation
America Reads will continue to support research, evaluation, and dissemination in a
range of critical areas related to reading and early childhood development. Dissemination
of up-to-date research findings to a wide audience remains a priority.
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PUBSCH.1
Page 1
STRENGTHENING OUR PUBLIC SCHOOLS
We have to give every American access to the world's best schools, best teachers, best education.
--President Clinton, July 17, 1977
ATTRACTING AND REWARDING GOOD TEACHERS. President Clinton has proposed a
$350 million initiative to attract talented people of all backgrounds into teaching at low-income
schools across the nation, and to dramatically improve the quality of training and preparation
given to our future teachers. This new initiative will help bring nearly 35,000 outstanding new
teachers into high-poverty schools in urban and rural areas over the next five years. In addition, it
will upgrade the quality of teacher preparation at institutions of higher education that work in
partnership with local schools in inner city and poor rural areas. The President's initiative will help
recruit and prepare teachers nationwide to help our neediest students succeed in the 21st century.
The President's budget will also enable 100,000 teachers to obtain national certification as master
teachers from the National Board for Professional Teaching Standards. Every school will be able
to have at least one master teacher who can help lead improvements in the school and support
teacher development.
EXPANDING SCHOOL CHOICE AND ACCOUNTABILITY IN PUBLIC EDUCATION.
The Clinton Administration, together with Congress, is expanding start-up and planning funding
for charter schools. These schools are provided with real flexibility while being held accountable
for reaching high standards with all children. From a starting point of one school when President
Clinton took office, around 700 charter schools will be operating this fall -- well on the way to the
President's goal of 3000 charter schools by the start of the next century. As a result, parents are
being provided with options, public school accountability is increased, and improvement of other
public schools is stimulated and informed by the innovations of charter schools.
WORKING TO IMPROVE SCHOOL INFRASTRUCTURE. As America moves into the 21st
century, our schools should too. The President is committed to finding solutions, to help local
communities and states rebuild America's schools -- through both upgrading and new construction.
The need for this is clear: student population this fall is at an all-time high of 52.2 million and record
numbers of school buildings are in disrepair. The Administration will continue to push Congress to
help address the issue of unsafe and overcrowded schools. We cannot expect children to raise
themselves up in schools that are falling down.
CONNECTING EVERY CLASSROOM AND LIBRARY TO THE INTERNET. President
Clinton has challenged the nation's parents, teachers, government, community and business leaders to
work together to ensure that all children in America are technologically literate by the dawn of the 21st
century. The administration is making this possible through initiatives such as: Technology Literacy
Challenge Grants and Technology Innovation Grants, which support partnerships to spur investments
in education technology and develop creative new ways to use technology for learning. The President
also signed into law the Telecommunication Act of 1996 implementing the e-rate, an special rate that
PUBSCH.1
Page 2
ensures that all schools and libraries will have affordable access to advanced telecommunications. The
e-rate will provide telecommunications services for close to free for schools serving the lowest-income
students.
A SUMMARY OF THE EDUCATION TAX CUTS
IN THE 1997 BALANCED BUDGET PLAN
Many new tax benefits for adults who want to return to school and for parents
who are sending or planning to send their children to college will be available
due to the balanced budget signed into law in August, 1997. These changes are
the largest investment in higher education since the passage of the G.I. Bill in
1945.
These tax cuts essentially make the first two years of college universally
available, and they will give many more working Americans the financial means
to go back to school if they want to choose a new career or upgrade their skills.
When fully phased in, 12.9 million students are expected to benefit -- 5.8 million
under the HOPE Scholarship tax credit, and 7.1 million claiming the Lifetime
Learning tax credit.
Up to a $1,500 tax credit for students starting college
The HOPE Scholarship tax credit helps make the first two years of college universally
available. Students will receive a tax credit of 100% on the first $1,000 of tuition and
required fees and 50% on the second $1,000. This tax credit will be available for payments
after December 31, 1997 for college enrollment after that date. This credit is available for
tuition and required fees less grants, scholarships, and other tax-free educational assistance.
A high school senior going into his or her freshman year of college in September, 1998, for
example, could be eligible for as much as a $1,500 tax credit.
A married couple with an adjusted gross income of $60,000 and two children in
college at least half-time, one at a community college with a tuition of $2,000 and
the other a sophomore at a private college with $11,000 tuition, would have their
taxes cut by as much as $3,000.
This credit is phased out for joint filers between $80,000 and $100,000 of adjusted gross
income, and for single filers between $40,000 and $50,000. The credit can be claimed in two
taxable years for students who are in their first two years of college or vocational school and
who are enrolled on at least a half-time basis for any portion of the year.
The Lifetime Learning tax credit
This tax credit is targeted to adults who want to go back to school to upgrade their skills and
to college juniors, seniors, graduate and professional students, mid-career changers and those
who want to take a course or two. A family will receive a 20% tax credit for the first $5,000 of
tuition and required fees paid each year through 2002, and for the first $10,000 thereafter. The
Lifetime Learning tax credit is available for tuition and required fees less grants, scholarships,
and other tax-free educational assistance, just like the HOPE tax credit, for amounts paid on or
after July 1, 1998 for post-secondary enrollment beginning on or after July 1, 1998. The credit is
available on a per-taxpayer (family) basis, and is phased out at the same income levels as the HOPE
Scholarship tax credit throughout their lifetime. Families will be able to claim the Lifetime Learning
tax credit for some members of their family and the HOPE Scholarship tax credit for others who
qualify.
Returning to school full-time to become a teacher: A homemaker, whose family has an
adjusted gross income of $70,000, wants to attend a graduate teacher training program at a
public university after being out of college for 20 years ($3,500 tuition). Her family's
income taxes would be cut by as much as $700.
Automobile Mechanic: A married man, whose wife works part-time, and who has two
grown children and an adjusted gross income of $32,000, is going back to a local technical
college to take some computer classes with a tuition of $1,200. This family would have
their taxes cut by as much as $240.
Parents and grandparents can create education IRAs and make
penalty-free withdrawals from other IRAs
Beginning January 1, 1998, taxpayers may withdraw funds from an IRA, without penalty,
for the higher education expenses of the taxpayer, a spouse, a child, and even a grandchild.
For each child under age 18, families may also deposit $500 per year into an Education IRA
in the child's name. Earnings will accumulate tax-free and no taxes will be due upon
withdrawal for post-secondary expenses for tuition and required fees (less grants,
scholarships, and other tax-free educational assistance), books, equipment, and eligible room
and board if used before the age of 30.
A taxpayer's ability to contribute to an Education IRA is phased out when the taxpayer has
adjusted gross income between $150,000 and $160,000 for joint filers, and for single filers
between $95,000 and $110,000. There are a few restrictions. A taxpayer, for example, who
uses the tax-free distributions from an Education IRA may not, in the same year, benefit from
the HOPE Scholarship or Lifetime Learning Credit.
Expanded benefits for qualified State tuition plans
This provision allows qualified State-sponsored tuition plans -- the earnings from which are
not taxed until the time of withdrawal as a result of a law passed last year -- to include
savings for certain room and board expenses for students who attend on at least a half-time
basis. Withdrawals are eligible for the HOPE Scholarship tax credit and Lifetime Learning
tax credit.
Paying back student loans at less cost
For many college graduates, one of their first financial obligations is to pay off their student
loans, which average about $13,500. This provision will reduce the burden of this obligation
by allowing students or their families to take a tax deduction for interest paid in the first 60
months of repayment on student loans.
A senior graduates from college and finds a job paying $25,000 a year (an has no
other income). The student has a total student debt of $13,500 and is in the 15%
federal income tax bracket. The monthly payment for this student's loans is $166.
The total amounts of payments for the year is $1,992, over half of which is interest
--$1,080 --which can be deducted under the new law. The student's maximum tax
benefit will can be calculated by multiplying $1,080 by 15%: for a savings of $162
(for years after 1998).
The maximum deduction is $1,000 in 1998, $1,500 in 1999, $2,000 in 2000, and $2,500 in
2001 and beyond. It is phased out for joint filers with adjusted gross income between
$60,000 and $75,000, and single filers between $40,000 and $55,000. The deduction is also
available for all educational loans, such as student, parent, federal and nonfederal loans,
made before August of 1997 when the tax cuts became law but only to the extent that the
loan is within the first 60 months of repayment.
Going to school while you work
The tax relief bill extends Section 127 of the tax code for three years for undergraduate
education (for courses beginning prior to June 1, 2000). This provision allows workers to
exclude up to $5,250 of employer-provided education benefits from their income. This
provision will enable many Americans to pursue their goals of lifelong learning.
Community service loan forgiveness
This provision excludes from income student loan amounts forgiven by non-profit, tax-
exempt charitable or educational institutions for borrowers who take community-service jobs
that address unmet needs.
The balanced budget bills signed by President Clinton include many other
provisions that will help all of the young people in America to grow and learn
and help families navigate through these changing times. For example, the law
provides $24 billion to provide health insurance to as many as 5 million more
children. The tax cut bill includes a provision to encourage computer donations
to schools. The balanced budget agreement protects and advances President
Clinton's top domestic priorities, such as an expansion of Head Start, and an
increase in the maximum Pell grant for college to $3,000. All of these benefits
and tax cuts have one goal: to give parents the support they need to give their
children a first class education and hope for the future.
Sincerely,
Richard W. Riley
U.S. Secretary of Education
For additional information on meeting the costs of college
and lifelong learning for you, your children and
grandchildren please call: 1-800-USA-LEARN.
MAKING COLLEGE MORE AFFORDABLE
11/26/97
Pora - THUS.
KOPE
112612DL. txt
Subject: HOPE and Pell figures -Forwarded -Reply
The FY 1999-2002 cost of the HOPE credit is $20.5 billion. The C
ost of
the lifelong learning credit over the same period is $10.3 billio
n.
I've never seen the "tax savings for the student at the average
4-year
college is $5,000" claim before. I've forwarded the message to J
ulie C.
and Bruce to see if they can confirm it.
As suggested by Shirman, I will leave the Pell cost confirmation
to OMB
or the education department.
Page 1
~0038768. TXT
Page 1
Subject: HOPE and Pell figures -Forwarded -Reply
The FY 1999-2002 cost of the HOPE credit is $20.5 billion. The cost of
the lifelong learning credit over the same period is $10.3 billion.
I've never seen the "tax savings for the student at the average 4-year
college is $5,000" claim before. I've forwarded the message to Julie C.
and Bruce to see if they can confirm it.
As suggested by Shirman, I will leave the Pell cost confirmation to OMB
or the education department.
A28 THE CHRONICLE OF HIGHER EDUCATION
NOVEMBER 28, 1997
Ways &
Government & Politics
Means
John A. Gardner has written
his fair share of grant
applications, so the physics
professor at Oregon State
University was surprised in
September when the U.S.
The Politicking and Policy Making
Education Department rejected
his proposal to test software to
help visually impaired people
Behind a $40-Billion Windfall
read graphs and maps.
It wasn't the rejection that
surprised him so much as the reason:
How Clinton, Congress, and colleges battled to shape Hope scholarships
The type on the application was too
small and was not double-spaced, the
department said. Dr. Gardner
BY DOUGLAS LEDERMAN
hadn't noticed the flaws, because he
is blind.
The department returned the
application to him five months after
HE WHITE HOUSE
"We're'with you," he said. Leaders
be had submitted it, saying it did not
T
thought it had a deal.
of the American Council on
meet the "requirements for
consideration.' When he called to
For months, Clinton
Education added their support.
check further, he was told that no
Administration aides had
Officials of a few other groups,
application that was not in 12-point
been frustrated by colleges' tepid
however, including the American
type and double-spaced would be
support for the President's
Association of State Colleges
considered. When he asked if he
proposed tax breaks for tuition,
and Universities, offered no such
could correct the errors and resubmit
which promised to return tens of
endorsements. For them, there
the application, officials refused
billions of dollars to the pockets
was still no deal.
and suggested that he apply again
next year, be said.
of students and their families.
"This just makes me so mad,"
Mr. Clinton's advisers wanted
Dr. Gardner said in an interview.
foot soldiers for the looming
Few moments better capture
"They claim they didn't
legislative war over how to shape
the policies and the posturing
discriminate against me, because
the first major tax cut since 1981. So
behind the process that resulted
they do this to everybody. Except
they hatched a plan: Package the
in the most significant federal
that everyone who isn't blind can see
if there are double spaces."
President's proposals with benefits
higher-education legislation in
for low-income students, who
three decades: the Taxpayer Relief
Senator Ron Wyden, an Oregon
Democrat, wrote a letter to
were largely shunned by the Clinton
Act of 1997, which, beginning in
Education Secretary Richard W.
tax breaks, and win college
January, will deliver $40-billion in
Riley in which he called the incident
leaders over.
tax breaks to students and their
"a case of bureaucracy prevailing
On January 27, 1997, a damp,
families over five years.
over common sense."
"The merits of ideas should be
chilly evening in Washington, two
Interviews with more than
more important than their
dozen college lobbyists crowded
three dozen college officials,
into a conference room in the Old
Administration aides,
presentation," wrote Mr. Wyden.
In a statement last week, Mr. Riley
Executive Office Building. In
lawmakers, and others reveal many
said he was "troubled" by the way
streamed the Administration team:
President Clinton used a 1996 speech at
strands of the story of how the
the application had been handled,
the Secretary of Education, the
Princeton U. to call for tax breaks to make two
tax bill took shape: the conflicting
and admitted that the department
Deputy Secretary of the Treasury,
years of college "universal to all Americans."
tactics that groups like the state-
had not informed the professor of the
the director of the National
college association and the
problems "in a timely manner. A
new grants process begins in the
Economic Council, and a gaggle of other aides.
American Council on Education used to try to get what
spring, he added, "and we look
They explained that the next day, when Mr. Clinton
they wanted; the relevance, or irrelevance, of academe's
forward to reading Professor
previewed the higher-education part of his planned 1998
leaders in the rarefied political atmosphere in which the
Gardner's application."
budget at a press conference, he would bring good tidings.
deal-making took place; the ability of one Congressman to
Among the proposals: A $300 increase in the maximum Pell
threaten long-held tax breaks for graduate students and
Grant for needy students; a plan to make the grants
faculty members; and the contentious, complicated
Because of the Prudential
available to hundreds of thousands of financially independent
relationship between the Clinton Administration and
Insurance Company's legal
troubles, hundreds of college
students; and a 50-per-cent cut in the fees that borrowers
college leaders.
students in Florida will get a
pay on student loans.
More than anything else, however, it is a tale of how
piece of the Rock.
Oh, and there was one more feature: As if it were an
politics shapes-and subverts-education policy.
State officials announced this
afterthought, the Education Secretary, Richard W. Riley,
To supporters of the Clinton plan, the story is about how
month that they would finance a new
mentioned that the Administration had altered its proposed
a shrewd Democratic team built support for an enormous
Ethics in Business Scholarship
$1,500 tax credit for tuition so that it would not be refunded to
infusion of federal funds to higher education, despite the
Program with part of the $15-million
students from families too poor to pay income taxes.
country's budget-cutting mood and intense opposition from
penalty extracted from Prudential
for misleading customers into buying
During his presidential campaign, Mr. Clinton had
Republicans.
more-expensive policies.
described his "Hope Scholarship" tax credit as a way to
To others, it is about how election-year politics led the
The state plans to match $10-
expand access to college for all. The talk was far different
Administration to abandon the students most in need of
million from the Prudential
on this day. "This is a middle-class tax break, first and
federal aid-and how college officials, blinded by dollar
settlement with private donations,
foremost," said the President's economic adviser, Gene B.
signs, went along for the ride.
using the money to establish
endowments that will give annual
Sperling. Low-income students, he said, would be helped by
$2,500 scholarships to 575 students at
the bigger Pell Grant and other elements of the budget
An Appeal
Florida's public universities. To
package.
The President wants to use the tax bill to help education,
to the Middle Class
qualify, students must enroll in
courses in business ethics.
while the Republicans in Congress want to cut capital gains for
The Hope Scholarship, a central plank on which
In addition, state officials have
the rich, Mr. Sperling argued to the uncertain gathering. If
President Clinton based his successful re-election campaign,
earmarked half of a $6-million
you don't support us, he warned, they will shape the bill, and
has its roots in his political nadir: the Congressional
penalty, which they plan to levy
against the John Hancock Mutual
they find someone else who wants the billions of dollars
elections of 1994.
Life Insurance Company, to
intended for students and their families.
A few weeks after Republicans had won control of
finance similar grants to students at
When the pitch was over, the room fell silent. Then
Congress on a platform of balancing the budget and cutting
private and community colleges.
David L. Warren, president of the National Association of
taxes, President Clinton introduced his "Middle-Class Bill
Independent Colleges and Universities, rose to his feet.
of Rights." It called for a balanced federal budget, a tax credit
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for every child, and a $10,000-a-year tax deduction for the
a high-profile speech at Princeton University's
cost of postsecondary education.
commencement on June 4, 1996.
Liberals attacked the plan as a betrayal, and Republicans
From early May until just hours before the speech, aides
called it a desperate attempt by a Democratic President to
from Education and Treasury and the Office of Management
steal from their playbook. College officials criticized the
and Budget worked feverishly to hone the details of the tax-
tuition deduction because it would give bigger subsidies to
credit proposal. They worked quietly, to shield the plan from
people with high incomes than to those in lower tax
the Dole campaign and the news media. "We were not to
brackets. The Middle-Class Bill of Rights went nowhere.
discuss it with anybody," says Maureen McLaughlin, Deputy
Administration aides were disappointed by colleges' lack
Assistant Secretary of Education for policy and planning.
of support. But over the next few months, the two groups
"Anybody" included officials of Washington's higher-
teamed up against Republican efforts to slash federal
education associations, whose advice the Clinton
student aid. President Clinton twice turned G.O.P. plans to cut
Administration often seeks on policies that affect colleges.
financial aid to his political advantage. In May 1995,
They knew nothing about the Hope Scholarship until the
Republican lawmakers proposed ending the interest payments
morning of June 4, when Secretary Riley met with them
that the government makes on student loans for qualified
and told them what the President would announce in his
borrowers while they are in college. Then, in the fall, they
speech that afternoon.
introduced a plan to balance the budget in seven years, a
measure that would have cut student aid significantly.
Little Assistance
A clash of wills over the budget plan caused the
government to shut down for several days in late 1995.
for Low-Income Students
Congressional Republicans absorbed most of the resulting
At Princeton, Mr. Clinton added to his proposed $10,000
public anger, and the President, viewed as education's savior,
deduction, suggesting a credit that would let taxpayers
scored big political points. He would remember the lesson.
subtract up to $1,500 a year from their federal tax bills for
the costs of the first two years of college. The plan, he said,
Big Numbers
would help "make the 13th and 14th years of education as
universal to all Americans as the first 12 are today."
in Opinion Polls
College leaders cheered the President's continuing
RICHARD BLOOM. SABA
As the White House began preparing its fiscal-1997
support for education, but many doubted his tactics. Using
Gene B. Sperling, a key
budget plan that fall, aides to Mr. Clinton knew they wanted to
the tax code would help middle- and upper-income
White House aide, told
do something to expand access to higher education. A
students recoup college costs, they argued, but would offer
colleges that if they
consensus emerged that the only way to do this would be
little to Americans who could not afford college at all.
didn't back the President's
th
the tax code. Given the drive to balance the
That was especially true, they said, because Mr.
ys Marshall S. Smith, the Deputy Education
Clinton's plan would cut the value of a student's tax credit by
tax plan, Republicans would use
S
proposing big increases in spending on Pell
the amount of other federal financial aid he or she received,
the tax bill to help the wealthy.
Grants or other aid "wasn't in the cards."
and require students to sustain a B average to keep the credit
In one of a series of meetings between top Education
for a second year. Low-income students, on average, have
Department officials and White House aides, Dr. Smith
lower grades than wealthier students.
mentioned to Dick Morris, the President's political
Even though a version of the Hope Scholarships had
consultant at the time, that the vast majority of undergraduate
been under study for more than a year, many college officials
students were in their first two years of college. That fact,
suspected that the proposal had materialized at the last
Mr. Morris says, along with polls showing the public's high
minute: "In an election year, one should expect that
respect for the job training provided by community
everything that is read, heard, and said is aimed at good
colleges, helped him realize that "for the same amount of
politics rather than good policy," Edward M. Elmendorf,
money we were putting into the college deduction, we
vice-president for government relations at the state-college
could make the first two years of college free for the vast
association, said at the time.
majority of kids in two-year colleges."
In the weeks after Hope's unveiling, the President talked
Officials of the Education and Treasury Departments
constantly about the tax credit. Apart from Mr. Elmendorf's
and other agencies began crafting proposals. In November
early jabs, though, higher-education officials on the whole
1995; aides traded memos suggesting that the 1997 budget
said little about it. Most of them shared his group's concerns
plan include a $1,600-a-year tax credit for freshmen and
about the Clinton proposals and were glad that someone
sophomores. The proposal racked up big numbers in White
was airing them. But they did not want to undercut the
House public-opinion polls, Mr. Morris says, and many
President in campaign season, or to risk blowing a possible
Administration aides liked it.
$40-billion infusion for higher education. "We couldn't
Not all of them, though. David A. Longanecker,
publicly come out and say, 'We're real worried about this,"
Assistant Secretary for postsecondary education,
because that would have shot them in the back," says Terry
acknowledges that he believed that direct grants would
W. Hartle, senior vice-president for government and public
give much more help to the neediest students. Top economic
affairs at the American Council on Education.
advisers in the White House concurred.
The college groups walked a "fine line," Mr. Hartle
Another group, led by George Stephanopoulos, a senior
says, between expressing support for the Administration's
BRUCE KATZ FOR THE CHRONICLE
adviser to the President, liked the tax credit but found the
goals and "simultaneously trying to wrestle them into
Edward M. Elmendorf
timing terrible. Their view, says Mr. Sperling, was that in
making some changes we thought were crucial."
the midst of a fight over shutting down the government and
What he sees as savvy politics looked like a sellout to
of the American Association
balancing the budget, "it would be ill-advised if we came
Lawrence E. Gladieux, executive director for policy analysis
of State Colleges and Universities
out with a new proposal that costs a lot of money."
at the College Board. "Most of the people representing
was an early and consistent critic
"George's view carried the day," Mr. Sperling says. The
higher ed seemed to figure, "Look, here's a lot of money
of the President's proposal.
tax credit was not included in the budget plan that Mr. Clinton
being put on the table. Let's not say much now-after the
offered in March 1996.
election, we can try to redirect it toward something we want
a had legs, though. As the spring progressed,
more.' It was a tacit conspiracy to look the other way."
the Education Department, among others, worked
Mr. Gladieux says his two main problems with the plan
n iterations of the tax credit. Meanwhile, the
were that it would not do what Mr. Clinton said it would-help
Presidential election campaign was heating up-and not in
people go to college who otherwise wouldn't have-and
Mr. Clinton's favor. Word was growing of the 15-per-cent,
that it might encourage colleges to raise their tuitions.
across-the-board tax cut that the Republican candidate, Bob
After a chance encounter on a street corner near their
Dole, was preparing to introduce, and the Whitewater
Washington offices, Mr. Gladieux and Robert D. Reischauer,
investigation was back in the newspapers.
an economist at the Brookings Institution who had
Mr. Morris and other advisers thought that Mr. Clinton
previously headed the Congressional Budget Office under the
needed to make a splash. The place to do it, they decided, was
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Education Department officials called Donald W. Stewart,
Democratic majority, decided to co-write a critique of the
president of the College Board, to complain about Mr. Gladi-
Hope credit for The Washington Post. The September 4
eux's critiques. Similar calls were made to other groups
opinion piece, which would be cited often in attacks on the
over the months that followed.
plan, said: "While tuition tax relief may be wildly popular
At the "center of the tree" of the Administration's
with voters and leave Republicans speechless, it won't
lobbying campaign, as he describes it, was Barry Munitz,
achieve the President's worthy objectives for education,
chancellor of the California State University System and
won't help those most in need, and will create more problems
chairman of the Board of Directors of the American Council
than it solves."
on Education, higher education's main umbrella group. To
the Administration, he had the added allure of being the
Enticements
person to whom the presidents of the 23 California State
campuses-members of AASCU all-reported. If the state-
to Win Over Critics
college group's lobbyists would not toe the line, White
Voters seemed to disagree. Judging from surveys, the
House aides figured, let's go around them.
Hope credit-and Mr. Clinton's general support for
The campaign's first payoff came in late February 1997,
education-helped him win re-election. Critics of the tax
during the council's annual meeting, in Washington. Mr.
credit, who had hoped that the President might then ditch the
Clinton was set to appear, and Dr. Munitz wanted to
plan, got a jolt when Mr. Clinton, in his first major post-
deliver the endorsement that the President badly wanted.
election speech, declared enactment of the credit to be among
Dr. Munitz and Mr. Hartle, the council's senior vice-
his top three priorities for a second term.
president, spent much of a weekend holed up in a hotel room
To prove they were serious about Hope, his aides
trying to come up with a resolution on which White House
RICHARD BLOOM, BABA
Leon Panetta, the President's
hustled to get the tax credit into legislative form and
aides and members of the council's board could agree. Dr.
intensified their efforts to sell it to college leaders.
Munitz says he told board members that the higher-
chief of staff, was frustrated
It didn't go well.
education groups should "put aside their parochial
that education lobbyists were not
"We started getting an awful lot of, "This is nice,
differences" to rally behind the Administration's tax plan.
rallying around the plan.
but
Dr. Longanecker says. The criticisms echoed
"Academics are much more in love with distinctions
those of Mr. Gladieux: that the credit offered little to low-
than with finding common ground. I told them, 'If we don't
income students, and that it might inflate tuition and grades
demonstrate this time that we know how to set aside this
alike.
love with what we don't agree on, we're going to lose the
The response was frustrating to Administration aides.
whole package.
"The White House was living under this cloud of having
On February 24, the President and a team of aides met
proposed something they thought was their centerpiece in
privately with Dr. Munitz, the council's president, Stanley O.
terms of education benefits, but was controversial in the
Ikenberry, and others. Mr. Clinton told the college officials
education community itself," says Leon Panetta, Mr.
that the Administration would work with them to ease their
Clinton's chief of staff at the time.
concerns about the tax breaks. That afternoon, Dr. Munitz
The President's advisers tried to assure college leaders
presented an ebullient President with a resolution that
that if they were patient, their qualms would be resolved. The
generally endorsed Mr. Clinton's plan. The same day, the
Administration sent signals, for instance, that the B-
American Association of Community Colleges delivered an
average requirement would eventually vanish.
endorsement of its own. As the playing field shifted to
What to do about low-income students was a thornier
Congress, Administration officials could say, with a straight
matter: The tax code, by its nature, offers little assistance to
face, that they had higher education's support for their
poor people, and Treasury Department officials worried
tuition tax breaks-with or without support from the
that making the tax credit refundable to those who do not earn
recalcitrant state-college association.
enough to pay income tax might encourage people to
pretend to be students.
In Congress,
In White House discussions, some aides also wondered
why low-income students needed the tax çredit when they
Attacks and Complaints
were already getting Pell Grants. The counter-arguments
From then through mid-April, Congressional committees
were that federal support for the Pell program had ebbed; and
held a set of hearings on the education tax breaks. The
that a 1992 change in federal law had denied eligibility for
proceedings were remarkably similar: Administration
the grants to many students who were financially independent
officials explained the tax breaks, and economists and
of their parents. Reversing that change was the top priority
lawmakers from both parties ripped them apart.
LOS ANGELES TIMES
Barry Munitz, chancellor
of the state-college association, the most vocal foe of Hope
Republicans portrayed the program as too costly and
of the California State U.
among higher-education groups.
cumbersome, and Democrats said the tax credits would
In January 1997, the Administration refined its strategy:
help the wealthy and ignore the poor.
System, helped round up college
Make the tax credit non-refundable to those whose incomes
In their own testimony, college lobbyists continued to
support for the White House
are too low to be taxed, thus easing the Treasury
take different tacks: The education council offered general
position.
Department's concerns, but at the same time help low-income
support, with reservations, while the state-college
students by proposing a $300 increase in the maximum Pell
association welcomed Mr. Clinton's support for education
Grant and a fix of the law on independent students. The
and then blistered his proposals.
changes would provide $1.7-billion more a year for Pell
The real action, however, was occurring in closed-door
Grants, increasing spending on the program to $35-billion over
meetings, at which Republican Congressional leaders and
five years-about the same as the cost of the Hope tax
White House officials were negotiating the framework for a
credit and deduction.
balanced budget.
With high expectations, White House aides presented
They completed their work-sort of-in early May. On
the package at the late-January meeting in the Old Executive
May 2, Mr. Clinton announced that a deal had been struck to
Office Building. Yet instead of embracing it, one college
set aside $35-billion, of a total of $135-billion in tax relief
lobbyist says, "AASCU pissed all over the deal."
over five years, for his $1,500 tax credit and $10,000
The state-college association applauded the
deduction; to raise the maximum Pell Grant by $300, to
Administration for reaching out to low-income students with
$3,000; and to make the grants available to 350,000
the Pell Grants plan. But it wrote to its members that the
independent students.
White House had moved "in the wrong direction" by making
Almost immediately, however, Republicans disavowed
the credit non-refundable.
the deal. Members of the Senate and House of
From that point on, the Administration essentially gave
Representatives tax-writing committees-left out of the
up on the group-a leading voice for public higher
negotiating process-said they were not bound by it.
education-and, through an intensive lobbying campaign,
As the parties staked out new bargaining positions,
focused on winning support elsewhere.
the Administration had the upper hand. Mr. Clinton's
The campaign was aimed primarily at getting supporters
popularity was high, and surveys showed that Americans
to speak up, but Administration aides sometimes tried to
favored his tax cuts, tailored narrowly to help education
clamp down on critics. In late January, for instance,
and the middle class, over the "Republican" tax cuts for
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capital gains and estates, which were seen as favoring the
publicly supported, and to put it on their side of the
wealthy.
ledger."
On May 18, after two weeks of painstaking negotiation,
Most college lobbyists saw desperation in the move.
details of a revised agreement were worked out. It would
"The lack of support from the Senate Democrats brought
provide "roughly $35-billion" in tax relief for
them to a very gutsy place," says one lobbyist. "You're
postsecondary education, "consistent with the objectives" of
down and feeling attacked. In response, you unveil an even
Mr. Clinton's proposed tax credit and deduction. But at the
bolder proposal. I thought they were out of their minds."
insistence of G.O.P. lawmakers like Bill Archer, chairman of
the House Ways and Means Committee, the language was
Surprising Threats
carefully worded to give Republicans room to propose other
to Cherished Tax Breaks
tax breaks that would also help people pay for college.
"Under our Constitution," a prickly Mr. Archer said
Officials of the Administration and of colleges alike had
then, "tax bills originate in the House, not the White House."
expected Mr. Archer, the Ways and Means chairman, to
Throughout May 1997, as the House and Senate tax-
skimp on college tax breaks, and he did just that in the bill
writing committees prepared their tax plans, the Clinton
he unveiled on June 9. His plan contained about $31-billion in
Administration turned up its pressure on colleges.
tax breaks for education, which he said met the "roughly
In sometimes heated meetings with college lobbyists,
$35-billion" standard assured by the budget deal.
Education Department officials urged the groups to have their
His plan omitted Mr. Clinton's $10,000 deduction,
member colleges flood Capitol Hill with expressions of
instead proposing deductions intended to encourage families
support for the Administration's proposals.
to save for college. It included a version of the President's
College lobbyists were reluctant to do so. Besides having
tax credit, although modified to be worth 50 per cent of the
first $3,000 that a student spent on college, rather than 100
RICHARD
BLOOM.
SABA
mixed feelings about the Hope plan, they also passionately
supported some other tax breaks favored by lawmakers,
per cent of the first $1,500. Mr. Archer, convinced by
Representative Bill Archer
including deductions for the interest paid on student loans and
economists' views that the influx of federal tax funds would
infuriated graduate students
for the value of educational aid provided by employers.
spur colleges to raise tuitions, felt that forcing students to
and faculty members
"Our strategy was to try to support both sides, because
match every dollar they got from the credit with a dollar of
with his push to end tax breaks
we liked some of what each had to offer," says one college
their own would dissuade colleges from increasing fees.
lobbyist. "That wasn't enough for the Administration.
If college officials were disappointed by what was
on which they rely.
They thought our job was to help them, and their mantra was:
missing from the Archer bill, they were dismayed by what was
'It's $35-billion for Hope, and if you want anything else, it
in it: taxes on the tuition breaks that colleges provide to
should be on top of that.' They were often frustrated that we
graduate students and the children of employees, and on the
weren't out there in our cheerleader outfits:"
pension assets of Teachers Insurance and Annuity
Association-College Retirement Equities Fund, higher
Hoping for Help
education's main pension company.
Aides to the chairman say he sought to revoke TIAA'S tax
n the Senate
exemption because the pension fund had become a full-
Capitol Hill, Administration aides had essentially
fledged insurance business competing with taxable entities.
written off Mr. Archer and the Ways and Means Committee.
Others accused Mr. Archer of having baser motives,
They had higher hopes for the Senate Finance Committee,
arguing that he acted at the behest of VALIC, a pension
given the bipartisan approach of its G.O.P. chairman, William
company that competes with TIAA and is based in his
V. Roth of Delaware. The White House seemed to
district in Texas. Its parent company, American General
underestimate, however, the extent to which the Senate
Group, contributes heavily to the G.O.P. and gave Mr.
panel's Democrats disdained the tax credit and deduction,
Archer $1,000 toward his 1996 re-election campaign.
and how much they resented having been locked out of the
Hours after Mr. Archer announced his bill, TIAA-CREF
negotiations over the outlines of the balanced-budget deal.
executives zoomed into Washington to begin a lobbying
In early June, the Senate panel's Democrats stitched
campaign that, over the next two months, would involve
together their own package of tax proposals for education. It
more than 40 employees and consultants.
included deductions for loan interest and employer-paid
From mid-June to late July, the Senate Finance
tuition, a plan to lift the cap on the value of capital-
Committee received more than 1,000 letters, faxes, and e-
improvement bonds that a private college could have
mails about the pension fund-" than on any other
outstanding at any time, and proposals aimed at helping
single issue" in the tax bill, a Senate Democratic aide says.
families save for college. It also contained a scaled-back
The only other issue that came close was the proposed
version of the Hope tax credit, and it omitted the President's
tax on tuition waivers for graduate students and research
$10,000 deduction entirely. The price tag was $32-billion.
assistants. College officials were shocked that Mr. Archer
The White House promptly summoned the committee's
had taken aim at that benefit. They assumed that the aides
nine Democrats to a meeting with Vice-President Gore, who
who wrote the bill's language had nicked graduate students
told them that Mr. Clinton's plan was the "Democratic"
by mistake, in what they saw as a misguided attempt to rein in
tax proposal, and that the Senate Democrats were to go along.
benefits for the children of faculty members.
"The push back by the members was, 'We're elected
Graduate students, on the other hand, felt that Mr.
RICHARD BLOOM, SABA
Senators, and we think these things represent a better policy,
Archer had gone after them on purpose. They noted that his
Senator William V. Roth thought
and cost less money,' says a Senate Democratic aide.
bill proposed extending-for undergraduate work, but not
his version of the tax bill had
Mr. Clinton's advisers knew that they needed to
for graduate study-the tax break that allows employees to
deduct tuition aid paid by their employers. They also knew
to include some form of the tax
embrace some of the other tax ideas, but feared that giving too
much ground now could embolden Congressional leaders
that some Republican lawmakers were still angry about the
breaks the President wanted.
to ignore the $1,500 credit and $10,000 deduction
vitriolic fight that graduate students had waged in 1995 to
entirely.
protect their interest payments on student loans.
In a series of calls to reporters in early June,
An aide to Mr. Archer denied at the time that "anybody
Administration aides said they were altering their own
in Congress is gunning" for graduate students. G.O.P. aides
proposals to appease critics, dropping the B-average
also made clear that the primary targets were the children
equirement and agreeing not to subtract a student's federal
of college employees, who, they said, did not deserve a break
ncial aid from his or her tax credit.
on the high tuition that other students were forced to pay.
or the first time, they also expressed support for the
"Tuition costs are rising like crazy, and who sets the
in-interest deduction, the lifting of the bond cap, and other
tuition price? People who work at universities," Kenneth J.
priorities of both Republicans and Democrats in Congress.
Kies, chief of staff of the Joint Committee on Taxation,
Their backing came with a caveat, however: They would
said in June. "And who are the only people who don't pay
support those measures only if the money for them came
tuition? People who work at universities."
from outside the $35-billion that they argued was already
Still, aides to Mr. Archer denied that graduate students
reserved for the Hope credit and the deduction. As one
had been accidental victims. "Most people pay for their own
Administration official explains, "It made sense to put the
education," said one staff member. "If you're one of the
Republicans on the hot seat to include the items they had
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amendment to make the credit refundable. However, they
lucky few who gets to be a graduate teaching assistant, the
were unable to come up with the $6-billion needed to finance
kid sitting next to you might feel like it's unfair."
such a change, and on the final vote on the bill, the weary
Graduate students insisted that taxing the tuition waivers
Senators shouted a resounding "No" to the idea.
of teaching assistants would force many of them out of school.
Though it lacked TIAA-CREF's big bucks, the National
Last-Minute Tweaks
Association of Graduate-Professional Students unleashed its
own e-mail and telephone assault on Congressional offices.
by the Administration
College leaders, for their part, may have reacted
Three days after the Senate vote, as negotiations over
lukewarmly to Administration pleas that they lobby for the
the tax bill between the House and the Senate, and between
Hope proposals, but they rallied when the White House
Congress and the White House, were set to begin, the
asked them to attack Mr. Archer's bill.
Administration tweaked its education tax breaks yet again.
At a press conference on the morning of June 11, the day
In a nod to G.O.P. concerns that a dollar-for-dollar credit
that the Ways and Means panel took up the Archer bill, the
would inflate tuitions, the White'House said its credit would
heads of three major college associations joined Treasury
apply to 100 per cent of the first $1,000 a student spent on
Secretary Robert E. Rubin and Mr. Riley, the Education
college, and 50 per cent of the next $1,000.
Secretary, at a press conference to criticize the measure.
And in a concession to Congressional Democrats, the
The department solicited statements condemning Mr.
White House dumped its widely unpopular $10,000 deduction
Archer's bill from higher-education groups. Even the
in favor of a proposal by Representative Charles B. Rangel,
American Association of State Colleges and Universities
of New York, to give students after their second year of
provided one, although its leaders were not asked to join the
college a tax credit, aimed at encouraging "lifelong
other officials on the dais; Mr. Elmendorf, the group's top
learning," worth 20 per cent of up to $10,000 in college costs.
RICHARD BLOOM. SABA
lobbyist, stood alone in the back of the room, handing out a
The Administration plan also formally incorporated
Representative Charles B. Rangel
statement outlining the association's position.
Republican proposals to allow students to deduct loan interest
persuaded the Administration
Compared with the bill passed by the Ways and Means
and employer-paid tuition. That lifted the total cost of the
to replace its tax deduction
panel on June 12, college officials and Administration aides far
Administration's education-related tax cuts to $42-billion.
for older students with a tax credit.
preferred the Senate version, released by Mr. Roth, of the
The chief areas of disagreement between House and
Finance Committee, five days later. It contained more money
Senate negotiators on education tax breaks were the House's
for education tax breaks, including a set of proposals aimed
proposed taxes on tuition waivers and TIAA, and the
at encouraging saving for college; proposed making
Senate's desire to make the deduction for employer-paid
permanent the tax deduction on employer-paid tuition, for
tuition permanent and to extend it to graduate education.
graduate and undergraduate students alike; and omitted the
Mr. Archer compromised first on the tax on graduate
proposed taxes on TIAA and tuition waivers. Like the
assistants. His aides even shifted their rhetoric to say they had
House bill, the Senate plan ignored the $10,000 deduction.
never intended to tax graduate-student tuition waivers in
The Senate bill sought a compromise on Mr. Clinton's
the first place. House Republicans then offered to drop the
Hope Scholarship, though there was "very little support" for
proposed tax on tuition waivers for college employees if the
it on the Finance Committee, aides say. "Senator Roth
tax on TIAA remained-a deal that Senators accepted.
thought it would be unrealistic not to do something" with the
Mr. Archer was adamant, however, about not letting
President's proposal, one Republican aide says, because
graduate students deduct the value of employer-paid tuition, a
Mr. Clinton was sure to veto any bill without it.
Senate aide says. A major motivation, the aide and others
The Senators shared Mr. Archer's concern about tuition
say, was that one of Mr. Archer's staff members had gone to
inflation but recognized that Mr. Clinton wanted to help
George Mason University's law school and had been
community-college students. So they modified the House
amazed at how many of her classmates were not paying their
version of the tax credit, to give two-year students a credit
own way. The aide had paid her tuition in full, because
worth 75 per cent of their first $2,000 in college costs.
Congress does not pay for its employees' schooling. "The
Congressman didn't think it was fair that people who have
An Idealistic Mission
to work to pay for their grad school don't get a tax break if
to Capitol Hill
their employer does not provide educational assistance," a
House Republican aide said.
Throughout this period, a band of college lobbyists was
Mr. Archer won that fight, and graduate students lost.
canvassing Capitol Hill on what looked like a fool's mission.
The group, made up of Barmak Nassirian, of the state-
In the End,
college association; Ivan Frishberg, of the U.S. Public
RICHARD BLOOM, SABA
Senator John Chafee sponsored
Interest Research Group; and Erica Adelsheimer, of the
Using 'Brute Force'
an unsuccessful amendment
U.S. Student Association, among others, spent May and June
Over the last weekend of July, White House negotiators
trying to persuade Senators to make the Hope tax credit
and Republican Congressional leaders met to hash out the few
that would have made the new
refundable to low-income students.
remaining areas of disagreement over the tax bill. Although
tax breaks available to the
They were working against all odds: The Administration
Administration officials objected to the tax on TIAA and the
neediest students.
had abandoned the idea in January; most House and Senate
omission of graduate students from the deduction on
Republicans were dead-set against it; and the major higher-
employer-paid tuition, they focused on insuring the survival of
education groups thought that pushing the idea might put the
the two tax breaks for tuition: the Hope credit and the
entire set of college tax breaks at risk by angering both the
lifelong-learning credit. They succeeded, and the final tax plan
Administration and Republican leaders.
contained a total of $40-billion in tax breaks for college
Proponents of refundability were not dissuaded.
students and their families.
Education Trust, which works on behalf of low-income
"The Administration got what it wanted by brute force,"
students, amassed data showing that a non-refundable
says a Senate Republican aide.
credit would leave up to 40 per cent of the students in some
Now, college officials are preparing for the Hope
states in the cold. Those figures succeeded in helping the
Scholarship to take effect in January. Already they are
lobbyists sell the idea of a refundable credit to a surprisingly
fielding questions from students and their families hoping
large group of Senators-as many as 50, they contend.
to benefit from the new tax credit.
Some, like the liberal Democrat Paul Wellstone of Minnesota,
Most educators agree that the tax breaks are not what
were predictable. But they also swayed Republicans like
they would have chosen if they'd had a real say in the matter.
John Chafee of Rhode Island and Olympia Snowe of Maine.
Some, like the officers of the state-college association,
"There were a lot of people who didn't want to have the
still believe that academe's leaders forsook the interests of too
criticism made later, when the smoke cleared and people
many students in their quest to rake in $40-billion.
realized who got the tax credit, that this was just a middle-
That's a minority view, however.
class giveaway," says one Senate Republican staff member.
"If getting $40-billion to help people buy the product you
In late June, as the Senate prepared to vote on the Roth
make is selling out," says Mr. Hartle, of the American
tax plan, Mr. Chafee, with two Democrats, Mr. Wellstone
Council on Education, "I hope I have the opportunity to do
and New Mexico's Jeff Bingaman, agreed to sponsor an
it again."
P123
OFF OF POLICY DEVELOPMENT
DPS9 OPO 235 OEOB
EXEC OFF OF PRESIDENT
VASHINGTON DC 20502
THE CHRONICLE
of Higher Education.
November 28, 1997
$3.25
Volume XLIV, Number 14
ISSN 0009-5982
Quote,
SPECIAL REPORT: A $40-BILLION WINDFALL
Unquote
How Clinton Won College Tax Breaks: A28
News Summary: Page A5
'What happens in the world now
is far more unlikely and
interesting than what a novelist
can invent."
A faculty member who teaches
nonfiction writing
at Bennington College: A12
"I'm really not interested
in cultural politics. I'm interested
in eliminating cultural politics."
The new editor of "The American
Scholar": A15
There is a lot wrong with higher
education; I even wrote a
book about it. But the one thing
that colleges can't be accused of is
gouging the public."
A member of the National
Commission on the Cost of Higher
Education who was an adviser
to President Reagan: A33
There hasn't been much high-level
scholarship on foundations,
even the biggest and most visible,
to say nothing of all the rest."
The director of the Institute
for Non-Profit Organization at
the University of San Francisco: A37
Often I've wondered whether the
men in my classes feel
intimidated by the volume of poetry
produced by their female peers
on the subject of their abuse at the
hands of men."
An associate professor of English
at Southern Illinois University: A56
The openness of the conversations
Shells
and debates preserved on tape in
the Kennedy, Johnson, and
Nixon Presidential libraries makes it
GEORGETOWN U.
CHRONICLE PHOTOGRAPH BY JOHN BRAULDING
ANNE FADIMAN. THE INCOMING EDITOR
BRICA LANSNER BLACK STAR. FOR THE CHRONICLE
imperative that scholars be able
to use them to the fullest.'
A NEW 'AMERICAN SCHOLAR'
CRUCIFIXES IN THE CLASSROOM
The authors of "The Kennedy Tapes:
Editor to Seek Younger Readers: A15
Issue Divides Georgetown Students: A43
Inside the White House During
the Cuban Missile Crisis": B4
SECTION 1
PAGES A1-56
Athletics
A46
A
MURDER
A
-
WHITERN
TOWN
&
STRUCOLE
TME
The Faculty
A12-21
Bour
1
A50-55
THE
NTO
Gazette
Government & Politics
A28-36
STORÁ
Information Technology
A23-27
HIN
International
A47-49
Money & Management
A37-42
AIR
Students
A43-46
SECTION 2
PAGES B1-88
Opinion, Letters, & Arts
B1-9
UNGER
rakauer
Notes From Academe
B2
Bulletin Board
B10-87
The Chronicle on the Internet:
ACADEME DISCOVERS 'CREATIVE NONFICTION
http://chronicle.com
Programs Are Lucrative, but Do They Promote Good Writing?: A12
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Home
UPDATED
MEMORANDUM
TO:
Interested Parties
FROM:
Matthew W. Hamill
DATE:
November 12, 1997
RE:
Reporting Responsibilities in the Taxpayer Relief Act of 1997
Background
On August 5, 1997, President Clinton signed the Taxpayer Relief Act of 1997 into law (P.L.
105-34). The Act included a number of tax provisions beneficial to college students and families.
Since enactment, staff of the Department of Treasury, Internal Revenue Service, Office of
Management and Budget, and Department of Education have been working with the higher
education community to develop interim guidance for colleges and for student and families so that
these tax provisions may be implemented.
This memo outlines issues that colleges and universities, working with Treasury and IRS
representatives, may have to face during the implementation of these various tax provisions. Due to
the complexity of many of these issues, Treasury and IRS are likely to issue guidance on these
matters in an evolutionary way. Colleges and universities, and taxpayers, should expect that the
process of developing these rules may take several years. All references in this memo are to the
Internal Revenue Code of 1986, as amended, unless otherwise noted.
HOPE Scholarship and Lifetime Learning Tax Credit
The HOPE Scholarship and Lifetime Learning tax credits created by the Act allow taxpayers
to claim a credit for certain tuition and required fees paid to attend a postsecondary education
institution. (See Appendix 1 for detailed description of these tax provisions.)
The HOPE and Lifetime Learning tax credits require (under new code section 6050S)
colleges and universities to collect and report certain information to students (and certain other
individuals designated by a student) and to the Internal Revenue Service. Specifically, section
6050S requires institutions to collect and report the following information:
1) the name, address, and Taxpayer Identification Number (TIN) (generally the Social
Security number) of the student;
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2) the name, address and TIN of any individual certified by the student as the taxpayer who
will claim the student as a dependent for the tax year;
3) the aggregate amount of payments for qualified tuition and related expenses received for
each student;
4) the aggregate amount of reimbursements or refunds paid to each student, and;
5) such other information as the Secretary of Treasury may determine.
The Treasury Department has already announced that only certain reporting responsibilities
are likely to be implemented for 1998, the first year these tax credits take effect. For this first year,
Treasury and IRS representatives are considering plans to require colleges and universities to report
the following information:
1) the name, address and TIN of each student who enrolls at the institution;
2) the name, address and Employer Identification Number (EIN) of the educational
institution making the report, as well as the name and phone number of an individual on campus to
contact with any questions relating to the return;
3) whether or not the student was enrolled on at least a half-time basis during any academic
period beginning in the calendar year (using current Department of Education rules for determining
the definition of half-time);
Treasury is currently considering whether and how to obtain even the most rudimentary information
about the academic status of the student. For example, they are contemplating whether to ask
colleges and universities to report whether or not the student was enrolled exclusively in graduate
level courses. If this question was answered yes, the IRS would be able to determine that the student
was ineligible for the HOPE tax credit. Treasury will NOT require colleges and universities to
collect and report the name, address and Social Security number of the parent or other individual that
the student certified was going to claim them as a dependent on their tax return until 1999 at the
earliest. Treasury and IRS staff will be continuing their efforts to develop rules for the reporting of
whether or not a student has completed their first two years of postsecondary education. Those rules,
and associated reporting requirements, will not take effect in calendar year 1998.
The information reporting will take place on a specially designed form similar to the current IRS
Form 1098, which is used to report home mortgage interest. (See Appendix 2 for sample copy of
Form 1098.)
The following questions and answers address some of the implementation issues that have arisen
since the Act was signed into law.
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Q1.
Will I have to report on every student that enrolls for a class on campus?
A1.
Generally, yes. Treasury and IRS staff are examining possible protocols to waive the data
collection and reporting responsibilities for certain classes of students. However, it is
unlikely that wholesale exceptions will be provided, or that students will be able to simply
waive these requirements. The information report may be needed by students or their parents
even if they are not eligible to claim one of these tax credits; for example, to determine
whether they are eligible to withdrawn funds from a regular IRA without incurring a penalty,
or from a new Education IRA, or if they receive a distribution from a state prepaid tuition
plan.
Q2.
The Federal Educational Rights and Privacy Act (FERPA) appears to prohibit educational
institutions from reporting this type of data without a student's consent. How will this
statutory requirement be handled?
A2.
Treasury and IRS staff are researching the interactions between FERPA and the reporting
responsibilities of new code section 6050S. If required, students will sign a waiver of
FERPA when they sign and file an IRS-designed form with the educational institution,
providing such information as their name and Social Security number. Preliminary analysis
suggests that FERPA does not apply to this type of information, but a formal opinion has not
been released. It is useful to remember that FERPA does not create a private right of action
for students to make a claim against a college or university. Sole enforcement authority
under FERPA is with the U.S. Department of Education.
Q3.
Will colleges and universities be responsible for verifying any data submitted by students?
A3.
No.
Q4.
Will colleges and universities have to determine whether each course they offer qualifies for
these tax credits?
A4.
No, that determination will be made by the individual taxpayer.
Q5.
Will colleges and universities have to report whether or not a student has been convicted of a
drug-related felony?
A5.
No.
Q6.
How would institutions handle the following situation: a student makes a tuition payment in
December for the Spring semester. The college provides an information return in January
that includes the December payment. After the information return is filed, the student
withdraws from classes, and receives either a full or partial refund of their December
payment.
A6.
The refund of the December tuition payment would be reported the following year, and the
student/taxpayer would make the necessary adjustments on their tax return.
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Q7
We have a contract with a company to process our tuition payment plan. Students make
monthly payments to this company, and we receive the lump sum according to the schedule
we have arranged with the company. For purposes of these tax credits, when has the student
actually paid the tuition?
A7.
Treasury and IRS staff are studying this matter, and have not reached any conclusions yet. A
determination on this matter may rest on the precise financial and legal relationship between
the student, the college, and the third party receiving payments, whether the third party is
acting as an agent of the college or of the student, and the refund policies that the plan
provides.
Q8.
Under the HOPE Scholarship tax credit, only payments made on or after January 1, 1998,
for classes beginning on or after January 1, 1998, are eligible for the tax credit. How will
students and families treat payments made in December 1997 for classes in 1998?
A8.
Payments made before January 1, 1998 are not eligible for the HOPE tax credit, and will not
be reported on the information return that a college will prepare in January, 1999. However,
students and parents making payments in December may not understand that their payment is
ineligible for the new tax credit. As a result, institutions may want to consider advising
students and parents of their payment options, and briefly summarize the potential tax
implications of these options. In the absence of such notice, students and parents may be
surprised, and angered, by the information return supplied by the college long after the
payment is made. Many students will make payments in calendar year 1998, such as those
for summer classes, or for the fall semester, which will allow them to claim the maximum
HOPE tax credit, even if they make their payment for the spring semester in December of
1997. Students paying $2,000 out of pocket, or borrowing $2,000 during calender year 1998
will qualify for a maximum HOPE tax credit (assuming they meet the income eligibility
rules).
Q9.
How is an institution supposed to capture this information from students who register by
telephone, or in electronic form?
A9.
Institutions will likely need to develop a procedure to allow students to submit the IRS form
to the institution so that a proper information return can be prepared.
Q10. How is an institution supposed to determine whether a student has completed "the first two
years of postsecondary education"?
A10. The Treasury Department will need to issue regulations interpreting what that phrase means
before an institution could be required to provide that information. Based on statements
made by Treasury and IRS staff, it is unlikely that this requirement will be implemented in
1998, since the requirement raises numerous issues.
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Q11. Will either the HOPE or Lifetime Learning tax credit be considered "untaxed income "for
purposes of the Free Application for Federal Student Aid (FAFSA), thereby changing a
student's eligibility for financial aid?
A11. Legislation has been approved by Congress that would exclude these tax credits from the
calculations to determine eligibility for federal financial aid, so these credits will not be
considered "untaxed income" on the FAFSA, and thus will not impact a student's eligibility
for federal financial aid.
Q12. Treasury and IRS staff have indicated that, in order to claim either the HOPE or Lifetime
Learning tax credit, a taxpayer may have to file the long form (1040). Wouldn't this filing
requirement mean that taxpayers who have been able to file a 1040EZ or 1040A would lose
their eligibility for simplified needs analysis?
A12. The U.S. Department of Education is currently studying this to determine whether any
changes might be required during reauthorization of the Higher Education Act.
Q13. Will students have an opportunity to submit revised information to a college or university for
purposes of preparing an information return?
A13. Treasury and IRS staff are considering whether, and under what circumstances, students
should be allowed to submit revised information to a college or university.
Q14. Will the IRS penalize colleges that fail to meet these new reporting responsibilities?
A14. Under section 6050S, the IRS may not impose any penalties until regulations have been
issued. In addition, the law allows any penalties to be waived if the failure was due to a
reasonable cause. Treasury and IRS staff have indicated that a good faith effort to comply
with the reporting requirements by colleges and universities will likely suggest that penalties
are not in order.
Q15. What if a student withdraws from a class after the refund period has passed? They will have
paid the tuition, but not have completed the course. Are they still eligible for these tax
credits?
A15. Yes. The credits are for tuition paid, and the IRS will not seek to determine whether the
student completed the course. If the institution does refund any tuition paid, that refund will
need to be reported on the next information return, reducing the amount that would otherwise
be eligible under the HOPE and Lifetime Learning tax credits.
Q16. We charge a comprehensive fee, which includes tuition, room and board, and other fees. We
don't itemize these expenses. How will students know what expenses are eligible for these
tax credits?
A16. Institutions that charge a comprehensive fee may be required to break this fee down into
categories that would assist students and taxpayers prepare their tax returns. Treasury staff is
considering what requirements might be necessary to facilitate the information reporting by
colleges and universities that charge a comprehensive fee.
1
American Enterprise Institute for Public Policy Research
AEI
Hope
August 1997
Financing College Tuition
President Clinton's proposed tax credits and
education of the father and mother and
deductions to increase college enrollment
whether the student is from a broken home.
have now been signed into law. The presi-
These factors, when adverse, lead to poor
dent's plan is based on two general proposi-
educational performance of students long
tions: a college education is increasingly
before the age of graduation from high
valuable in today's society and the cost of
school. Poor early performance can effec-
tuition is a major constraint on college enroll-
tively rule out the option of going to college.
ment among youth from lower-income fami-
If the aim is to increase college enrollment
lies. The Clinton administration's policy
among lower-income youth, more can be
and its premises raise important questions. Is
achieved by addressing those problems than
inability to pay college tuition and expenses
by providing income supplements to help
the main cause of low enrollment rates among
pay college tuition.
lower-income youth? Would additional finan-
A good measure of readiness for college
cial support, through the tax system or other
is the Armed Forces Qualification Test.
means, be likely to increase enrollment rates
When college enrollment rates are consid-
appreciably? Would lower-income youth
ered in light of AFQT results, family income
benefit more from extending their schooling
becomes almost irrelevant; students with
to the college level or from better education
high AFQTs typically go to college, and those
at the elementary and secondary level?
with low AFQTs do not. Of course, there is
At an AEI seminar on May 15, five scholars
a correlation between income and AFQT
discussed their research into these issues, the
scores, but the point is that a low-income
implications of their findings for the adminis-
student with a high AFQT is likely to go to
tration's plan, and other aspects of education
college while a high-income student with a
policy.
low AFQT is not.
Furthermore, average tuition at two-year
Stephen V. Cameron, Columbia
community colleges is quite low, averaging
University, and James J. Heckman,
$1,074 per year. This is not a serious con-
University of Chicago
straint on attending college, almost regard-
less of family income. For lower-income
College enrollment patterns are related
students, the cost is close to zero when Pell
to family income, with higher enrollment
grants are taken into account.
rates among those in the upper half of the
In short, a large portion of the gap in
income distribution. But that does not tell
college enrollment between higher- and
the whole story.
lower-income students is a result of what
Beneath the surface fact of low family
happens early in their lives. Those early
income lies a set of family characteristics
experiences matter more than the ability to
even more closely related to college enroll-
pay tuition, though that is of some impor-
ment, characteristics such as the level of
tance. Therefore, tuition policy alone will
1150 Seventeenth Street, N.W., Washington, D.C. 20036 202.862.5800 Fax 202.862.7178 http://www.aei.org
2
not significantly increase college enrollment in
charges. The proposal would introduce a new
the target population.
subsidy of $1,500 available to the broad mass of
As for the president's tax credits and deduc-
middle-income people, not just to low-income
tions for college, nearly 90 percent of the subsi-
students (as is the case with Pell grants).
dies will go to people who would attend college
The proposal would provide welcome tax
anyway. Middle-income families will benefit
relief for families struggling to pay tuition bills
much more than lower-income families because
and minor additional assistance to low-income
families with the lowest incomes pay no income
youth. But it does nothing to solve the structural
taxes in any case.
weaknesses in our current system for financing
college education.
Thomas Kane, Harvard University
Eric Hanushek, University of Rochester
The benefits of a college education, measured in
wage differentials, have increased dramatically. A
The emphasis of recent discussion in Washington
huge response to that development has occurred
about education, including the president's college
in the form of higher college enrollment-34 per-
education proposals, has been on higher educa-
cent of people eighteen to twenty-four years old
tion despite the fact that our higher education
are now enrolled, compared with about 25 per-
system is working well. It is public elementary
cent in 1980.
and secondary education that is not working.
Average tuition costs have risen by 80 per-
This raises a serious question about our priorities
cent in real terms since 1980, but tuition levels
in investing in education.
still average about only $3,000 per year at four-
There has been a steady increase in resources
year public institutions. Much of the increase
devoted to education, though the federal govern-
in tuition at public institutions has occurred
ment is not primarily responsible for it. In elemen-
not because of a rise in costs but because of a
tary and secondary education, per pupil spending
reduction, per student, of state appropriations
has risen in real terms by 3.5 percent per year for
to the colleges. Tuition increases for private col-
100 years-from $170 per student in 1990 dollars
leges have been greater than for public institu-
to $4,800. It nearly tripled from 1960 to 1990.
tions, even allowing for growth in student aid.
Other measures have improved as well. Class sizes
Public resources devoted to higher education
are smaller, and the percentage of teachers with
are likely to be stretched thin over the next sev-
masters' degrees has doubled, for instance.
eral decades for demographic reasons. The size
Performance, however, is another story. In
of college-age population cohorts has been
international comparisons of standardized test
shrinking since 1980, which has partly offset the
results, American elementary and secondary
rising rate of enrollment among those of college
schools do not perform well. The United States
age, but this is about to change. There will be a
is almost always below the median for any group
12-14 percent increase in the college-age cohort
of countries taking the tests. Over a long period,
in the next ten years and an increase of more
we have substituted quantity of schooling for
than 20 percent in the next twenty years.
quality. But now many countries are catching up
Most Americans would be surprised to realize
on the quantity side, as measured by the percent-
that, if the $1,500 tax credit championed by
age of their students that completes a high school
President Clinton is added to subsidies already
education.
being provided (including Pell grants), the effect
Average scores in the United States on the
will be to reduce the progressivity of our system
National Assessment of Educational Progress
for subsidizing higher education. The proposed
science tests, for example, were no better in 1994
tax deduction, for instance, is worth most to those
than they had been in 1970, despite an increase
in high tax brackets.
of about 75 percent in spending per pupil. In
A problem with the proposal is the incentive
higher education, however, the story is different.
it will create for colleges to increase their tuition
While there are no accurate measures of quality,
3
U.S. industry is paying a lot more for college edu-
their choices because they have to move their
cation than in the past, and foreign students—
residence if they wish to take advantage of a bet-
though they would not come to the United States
ter school. In addition, competition in elementary
to attend high school-flock to American colleges.
and secondary schools has been decreasing There
As for policy, the real problem is in our ele-
are 15,000 school districts in America today com-
mentary and high schools, not in higher educa-
pared with 85,000 in 1950. Furthermore, 65 per-
tion. But none of the administration proposals
cent of school financing now comes from the states
addresses the key issue of incentives to improve
rather than from local governments: the need to
the performance of these schools. Improvement
satisfy local voters has diminished. Finally, private
in schools below the college level depends on
competition in elementary and secondary educa-
improvement in their incentive structures, not on
tion is declining, largely because of the shrinkage
spending more money. In various ways, including
of the Catholic school sector.
testing and standards, the federal government
If competition is the first explanation for the
could take the lead in attacking that problem.
much greater success of the higher education
The president's proposals amount to a transfer
system, the second is student incentives. In col-
program to the current winners of the system.
lege, unlike in high school, students spend some
But targeting resources to the broad middle class
of their own money. That typically makes them
of people is not serious or good educational poli-
take school more seriously than they did before.
cy. It does not deal with the large problems of
They begin to ask whether they are getting out
higher education.
of college what they are paying for, and that
changes their behavior. A Pell grant of a few
Caroline Minter Hoxby,
hundred dollars means something to university
Harvard University
students, whereas high school students-who
probably have around $7,500 a year spent on
The fundamental question raised by the president's
them on average-do not make good use of their
proposals is whether we ought to focus on higher
schooling. The evidence suggests that education
education when the biggest problem lies elsewhere.
does not work as well when people think of it
If the aim is to benefit disadvantaged students, it is
as an entitlement rather than an investment in
important to note that, among students from fami-
themselves.
lies with incomes below the median, those who do
Because of these two factors-competition
manage to go to college spend, on average, 40 per-
and student incentives-American higher educa-
cent of their first year doing remedial work.
tion is performing well and attracting students
Why has American higher education per-
from all over the world. We should be cautious,
formed so much better than our system of public
therefore, about policies that attempt to make
elementary and secondary schools? The first dif-
higher education an entitlement instead of an
ference is in market structure. Higher education
investment. That is a potential problem with
is competitive, while the public school system is
President Clinton's proposed tax credits for
not. The typical American college now faces
higher education. The proposal is accompanied
competition from about eighty-five colleges, up
by rhetoric about making the thirteenth and
from thirty colleges in 1950. By contrast, a typi-
fourteenth years of education universal, with no
cal metropolitan school system has only four
requirement that the student make a strong
school districts, and parents are constrained in
investment in schooling.
# 7954
Hepp
5. The Wall Street Journal
09/26/97 Page C1
Your Money Matters: Weekend Report
Saving for College Gets More Complex, But '97 Law
Offers Intriguing Choices
By Jonathan Clements
Staff Reporter of The Wall Street Journal
Child's play, it isn't.
The 1997 tax law makes saving for college a lot more complicated. But with the complexity also come some intriguing investment
opportunities.
Here are three suggestions from experts on how college savers can take advantage of the new tax law:
Make the most of the education IRA.
Starting in 1998, you can put $500 a year into a new education individual retirement account for any child under age 18, providing
you are single with adjusted gross income of $95,000 and less or filing jointly with income of $150,000 and below. Eligibility phases out
above these income thresholds.
"Even if the parents aren't eligible to contribute, the grandparents may be," notes Minneapolis financial planner Ross Levin.
Some people sneer at these tax-sheltered savings accounts because of the low contribution cap. But after socking away $500 a year
for, say, 15 years with an annual return of 10%, your kid's education IRA would be worth some $15,900, which you could then withdraw
tax-free to pay college expenses.
That's a nice chunk of change. But the accounts don't make sense for everyone. In particular, there are three drawbacks.
First, in any year that you fund an education IRA for a kid, neither you nor anybody else can put money into a prepaid tuition plan for
the same child. Under the 1997 tax law, prepaid-tuition plans have been expanded, SO now they can be used to pay for room and board,
as well as tuition. But Mr. Levin says he would still favor the education IRA over prepaid tuition.
Second, if you expect financial aid, you may want to pass on the education IRA, because these accounts will probably crimp your aid
eligibility. "I wouldn't put any money into an education IRA until the middle of next year, when we should know how the Department of
Education will assess these accounts for financial-aid purposes," says Kalman Chany, author of "Paying for College Without Going Broke."
Finally, once your child is in college, you can't claim the new Hope Scholarship or Lifetime Learning credit in any year you withdraw
money tax-free from an education IRA. These credits are fully available to joint filers with adjusted gross income of $80,000 and less.
The Hope Scholarship can be used in your child's first two years of college and is worth a maximum $1,500 in annual tax savings. The
Lifetime Learning credit, which can be used in subsequent years, is worth as much as $1,000 a year through 2002 and $2,000 a year
thereafter. If you qualify, "the credits will be more valuable than the education IRA," Mr. Chany reckons.
Cash in on lower capital-gains rates.
Experts have long warned against investing in a child's name. A kid's savings count against a family's aid eligibility far more heavily
than money held in the parents' names. Moreover, children usually get control of their custodial accounts at age 18 or 21, depending on
state law.
Despite these problems, plunking money into a custodial account for a child suddenly looks much more attractive, thanks to the cut
in the capital-gains tax rate. For instance, if your children are in the 15% income-tax bracket and they hold an investment for more than
18 months, any capital gain is taxed at 10%.
But if you really want to skimp on taxes, possibly the most intriguing opportunity lies in the rock-bottom capital-gains rate on assets
owned five years or more. If you are in the 28% income-tax bracket or above, the five-year capital-gains rate of 18% doesn't kick in until
2006 for investments held since 2001. But for those in the 15% bracket, the new five-year rate makes an earlier debut. Starting in 2001,
those in the 15% bracket can sell investments held for at least five years and pay taxes at just 8%.
How can you take advantage of this? If you invest in a child's name and the kid is under age 14, the first $650 of investment earnings
is tax-free and the next $650 is taxed at a maximum 15%. Above $1,300, all gains are taxed at the parents' rate.
But the real tax break comes once your youngsters turn 14. Your children can then earn far more than $1,300 and still be in the 15%
income-tax bracket. Consider hanging onto your children's stocks and mutual funds until 2001. If, at that point, your children are at least
age 14 and have held their investments for five years, you can sell the securities and pay taxes at 8%.
What if you want to keep control of the money? Mr. Levin suggests holding investments in your own name until your children turn
14. At that juncture, if your children seem responsible and you are confident you won't be eligible for financial aid, you and your spouse
can each gift as much as $10,000 of mutual funds or stocks to each of your children every year and have them sell the investments at their
8% or 10% capital-gains tax rate.
"An 8% tax rate is pretty darn attractive," says David Foster, a financial planner in Cincinnati. "That seems to me like a slam-dunk."
The 1997 tax law also makes home sales far less taxing. For instance, if you file jointly and your gain from selling your home is
$500,000 or less, you now avoid all capital-gains taxes. That opens up the possibility of tapping your home's value to pay for college.
"You could trade down and take equity out of your home tax-free," Mr. Levin says. "That especially works for older parents," who
The White House
National Economic Council
To:
Karl Scholz
Phone:
Fax:
From:
Bob Shireman
Phone: (202) 456-2803 Fax: (202) 456-2223
Pages including cover sheet:
4
Comments:
Do you Gave any analysis
of this. Or any spase of COST?
CABLE: UAW DETROIT
Bob - Weshould respondt to
Polidarity House
8000 EAST JEFFERSON AVE
DETROIT. MICHIGAN 48214
JP. Kaplan
PHONE (313) 926-5000
UAW
INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA-UAW
STEPHEN P. YOKICH, PRESIDENT
ROY O. WYSE, SECRETARY-TREASURER
VICE-PRESIDENTS: CAROLYN FORREST
JACK LASKOWSKI
ERNEST LOFTON
RICHARD SHOEMAKER
October 29, 1997
Honorable William J. Clinton
Sperligmint
President of the United States
The White House
1600 Pennsylvania Ave., N.W.
Washington, D. C. 20500
are
this?
Dear President Clinton:
KIARN
I.
During your tenure in office you have repeatedly championed proposals to enhance
educational opportunities for Americans. In particular, you led the fight for the HOPE
college and other tax credits to enable more individuals to attend college. You also
have consistently supported the extension of Section 127 of the Internal Revenue
Code, which encourages employers to provide tuition assistance benefits to their
workers by making these benefits exempt from taxation. And you have also fought for
many other pro-education initiatives.
Mr. President, the UAW now calls on you to take the lead in fighting for another
important pro-education initiative. Specifically, we urge you to support legislation to
exempt from taxation post-secondary tuition assistance benefits provided by
employers for the dependent children of active, retired and deceased workers.
During the last round of collective bargaining negotiations between the UAW and the
Big Three automakers, the UAW broke new ground by negotiating for the first time
contract provisions requiring each of the companies to provide tuition assistance
benefits for the dependent children of workers. These new tuition assistance programs
require the companies to provide the dependent children of active, retired and
deceased workers with up to $1,000 of tuition assistance per year, which can be used
to cover tuition costs and fees associated with attending post-secondary institutions.
Although these new tuition assistance programs are relatively new, they have already
been a tremendous success. In the first year since the programs were instituted
(September, 1996 to August, 1997), 29,737 dependent children of Big Three workers
have received tuition assistance totaling $27.9 million. These tuition assistance
benefits have played an important role in helping the children of Big Three workers
obtain post-secondary education. The majority of these tuition assistance benefits
have been used to cover the costs of attending 4 year colleges. But a significant
opeiu494
PRINTED IN USA
number of the benefits have also been used for community colleges and vocational
education.
Mr. President, you have been very sensitive to the fact that the soaring costs of college
education are making it increasingly difficult for many families to send their children to
college. The HOPE scholarship and other tax credits which you championed will
provide critically important assistance to families to help them meet some of these
increased costs. But the UAW submits that this does not solve the entire problem. In
particular, the HOPE scholarship and lifetime learning tax credits do not come close to
covering all of the tuition costs associated with attending most four year college
programs. Thus, we believe there is still a need to find ways to provide working
families with additional assistance in paying for the enormous costs associated with
obtaining a college education for their children.
The UAW believes that one important way to provide this type of additional assistance
would be to encourage the growth and development of employer-provided tuition
assistance plans for the dependent children of workers. There are a number of
significant advantages to this approach.
By providing a relatively small tax expenditure to exempt these tuition
assistance benefits from taxation, the federal government can leverage
much larger private sector support for the costs of college education.
Thus, this approach is much more cost effective than direct governmental
grants or tax credits.
This would be similar to the approach used by the federal government to
encourage private companies to provide health care and pension benefits
to their employees. The federal government has long recognized the
social and economic importance of employer sponsored health and
pension plans, and has encouraged their growth by refusing to force
individuals to pay taxes on health benefits and pension contributions. For
similar reasons, the same principle should now be extended to employer-
provided post-secondary education benefits for the dependent children of
workers.
Exempting from taxation post-secondary tuition assistance benefits for the
dependent children of workers would not create a large revenue loss for
the federal government. This type of tax exemption would dovetail, to
some extent, with the existing HOPE scholarship and lifetime learning tax
credits.
We believe this proposal could attract bipartisan support in Congress.
Representatives Sander Levin (D-Mich.) and Phil English (R-Pa.) have
already introduced legislation (H.R.1382) to exempt from taxation post-
secondary tuition assistance benefits for the dependent children of
workers. The tax exemption for tuition assistance benefits for workers
themselves (Section 127) has always enjoyed broad, bipartisan support.
Many Republicans might support a similar exemption for post-secondary
tuition assistance benefits for the dependent children of workers precisely
because this represents an effort to encourage private sector involvement
in addressing the problem of making college affordable for working
families.
For all of the foregoing reasons, the UAW strongly urges you to support proposals to
exempt from taxation post-secondary tuition assistance benefits provided by employers
for the dependent children of active, retired and deceased workers. In particular, we
call on you to include this initiative in the budget plan which the Administration
will submit to Congress for fiscal year 1999.
The UAW stands ready to work with your Administration to make this initiative become
a reality, and to take another important step towards the objective which you have
championed - namely, making college education affordable for all Americans.
With best wishes.
Sincerely,
Stephen P.Gokich
Stephen P. Yokich
President, UAW
SPY:ar:car
opeiu494
C3040
CC Hon. Alexis Herman
Hon. Richard Riley
Hon. Sander Levin
Hon. Phil English
Erskine Bowles
John Hilley
John Podesta
John Sweeney
George Becker
R. Thomas Buffenbarger
Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a publication.
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of digitization. To see the full publication please search online or
visit the Clinton Presidential Library's Research Room.
ANUFACTURERS ALLIANCE
Policy Review
1525 Wilson Boulevard, Suite 900, Arlington, VA 22209
703/841-9000
FAX 703/841-9514
PR-141
October 1997
Hope +
+
TAX SUBSIDIES FOR HIGHER EDUCATION
The Taxpayer Relief Act of 1997: Economic
Efficiency vs. Political Opportunity
MANUFACTURERS
MAPI
MANUFACTURERS ALLIANCE for Productivity and Innovation (MAPI) promotes the technological and economic progress of the
United States through studies and seminars on changing economic, legal, and regulatory conditions affecting industry.
HOPE
and
other
Tax
HAPE
CTS
20. Business Week
November 10, 1997
THE TAXMAN HELPETH LITTLE
Like many new parents, Mark Heaphy already is plotting a way to send his 1-year-old son to college -a proposition that could
cost $60,000 a year by the time his boy enrolls. To get the ball rolling, the 25-year-old tax accountant is considering opening a new
Education IRA next year. "I figure I'd better start saving," he says.
The Education IRA is one of several new provisions in the sweeping 1997 tax bill that aims to help parents pay for college. Also
included are another new individual retirement account, tax credits, and modified tax rules for children's earnings (table). But these
incentives are confusing, so you'll have to read the fine print carefully to take full advantage of them.
IN FLUX. Congress already is fighting over details of a few provisions, and some laws passed this year are likely to change before
a baby born in 1997 enters college. Also, it's unclear how schools will view the new investments and tax credits as they calculate
financial aid. Currently, schools do not consider parents' IRAs when awarding scholarships or loans. But financial planners fret that
if you have a large sum of money socked away in an Education IRA, that may count against you. "We don't know how institutions
are going to deal with this yet," admits Lawrence Gladieux, executive director for policy at The College Board, a nonprofit that
represents academic institutions.
The plan's main tuition-savings vehicle is the Education IRA. It allows parents with joint incomes of up to $150,000 ($95,000
for singles) to put away $500 per child until the dependent is 18. The money can then can be withdrawn tax-free for college. If you
exceed the income cap, another qualifying family member or friend can open an account for you. And if your eldest decides to teach
skiing instead of enrolling in Harvard University, you can transfer the money to a sibling's account. One catch: The funds must be
used by the time the child is 30, or you face a 10% penalty.
Many financial advisers see problems, though. For one, if you invest $500 a year for 18 years, with an annual return of 9%, you'll
end up with $25,000 -hardly enough to pay for college. Republicans tried to increase the limit to $2,500 a year and allow money
to be used for elementary and secondary schools. Although they didn't succeed this year, they vow to continue pressing for the
changes. Something that might help their case is that mutual-fund companies may not offer the accounts. "They'd be very expensive
to administer for such low contributions," says Steven Norwitz, a vice-president at T. Rowe Price Associates in Baltimore. That
means your money could be parked in a bank, earning 5% a year.
If you meet the criteria, you might want to open a new Roth IRA. It allows each parent to set aside $2,000 annually, which can
be withdrawn without penalty after five years for education, among other things. For example, if a couple invested $4,000 a year
over 10 years, they'd have $40,000 in principal to spend. You wouldn't want to take out the earnings before age 59 1/2, because
otherwise they'd be taxed as ordinary income. Again, the income phase-out is $150,000 for joint filers. Most children wouldn't qualify
themselves because they don't have earned income.
A few tax credits -the Hope Scholarship and the Lifetime Learning Credit -are thrown in, too. But you won't be eligible unless
you make less than $80,000 for joint filers. A high-income family could use the credits, but only if the parents do not declare the child
as a dependent on their tax returns. In that case, the child could claim the credits.
The tax bill included another, less obvious, education incentive: a capital-gains-rate cut that affects children's assets. This could
benefit even families not likely to qualify for the new IRAs or tax credits. For assets held at least 18 months, the capital-gains rate
drops from 15% to 10% for those in the 15% income bracket, which includes most children. Taxpayers in higher brackets pay 20%.
And in 2001, children can sell assets they have held at least five years and pay at an 8% rate.
To utilize this change for college planning, you might consider setting aside money in your child's name under the Uniform Gifts
to Minors Act (UGMA). Once the child turns 14, UGMA-account assets are taxed at the child's rate. So the idea is to transfer assets
-a maximum of $20,000 per couple a year tax-free is allowed -into your child's account at least five years before college, then
withdraw the money at the lower capital-gains rate for tuition.
True, these provisions won't finance four years at a fancy private school. But given the enormous cost of going to college, they
sure can help.
Mary Beth Regan
College Affordability: Tuition Tax Credits VS. Saving Incentives
http://www.house.gov/jec/fiscal/tx-grwtb/college/college.htm
FOR
Download in PDF format
joint Formotric
JOINT ECONOMIC COMMITTEE STUDY
States Consult
JIM SAXTON, CHAIRMAN
OCTOBER 1997
College Affordability: Tuition Tax Credits
VS. Saving Incentives
Executive Summary
Education is an important means of investing in human capital. Accordingly, the government has
played an active role in financing higher education in order to provide universal access to college.
Despite government efforts to improve college affordability, federal aid programs have fallen short of
their expectations.
Tuition continues to rise. The price of higher education has nearly doubled over the
past 15 years and continues to rise. The average annual cost of attending private and
public institutions in 1995 was $17,000 and $6,000, respectively, when room and
board were included.
College affordability is declining. Despite a 65 percent increase in government
funding over the past 10 years, college affordability is declining. As the cost of the
student loan programs continues to grow, more funding is being shifted toward loans
for middle- and upper-income families, leaving less money to finance grants and
other need-based programs for the poor. As a result, grants as a percentage of all
federal aid have fallen by 36 percent, and educational opportunities for the poor have
declined. The channeling of funds toward student loans does not necessarily reflect
an increase in the well being of middle- and upper-income families since tuition
increased by approximately 45 percent over the past 10 years, offsetting much of the
benefits of the increased funding. Overall, the federal aid system is heavily dependent
on student debt, even for the most disadvantaged families
The participation gap between low- and high-income students is widening. The
prospect of incurring large debts has discouraged many low-income students from
attending college altogether. As a result, the participation gap between low- and
high-income students has increased by 22 percent since 1980.
These trends have occurred for several reasons.
Colleges have little incentive to control costs and tuition. By increasing the
availability of federal aid, the government increases the stream of revenue available
to colleges, thus encouraging them to raise costs and justify tuition hikes. Colleges
thus largely absorb increased funding.
The market for higher education is distorted. The structure of federal aid allows
private institutions to price discriminate so that colleges can extract the maximum
amount of revenue from each student and raise their prices above the competitive
level.
Middlemen receive much of the benefit from federal subsidies. In 1992, 6 million
students received some form of federal aid costing taxpayers $11 billion. Of this
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students received some form of federal aid costing taxpayers $11 billion. Of this
amount, $6 billion represented the cost of subsidizing financial institutions and
B
wall?
student loan defaults. Thus students do not receive the full economic benefit of
federal aid and taxpayers finance a wasteful system.
Families would benefit from alternative federal aid policies that provide more benefits to more
students at a lower cost. The Balanced Budget Act of 1997 provides several tax benefits to expand
educational opportunities. Two of the largest are tuition tax credits, called HOPE Scholarships, and
expanded benefits for Individual Retirement Accounts (IRAs).
HOPE Scholarship
The use of tuition tax credits is similar to past government policies that have merely increased the
amount of aid available to families without addressing the underlying problems of the federal aid system
that cause tuition to rise in the first place. As a result, tuition tax credits may well contribute to the
problems of the federal aid system instead of improving college affordability.
There is broad agreement that the HOPE Scholarship will lead many institutions to
raise their prices in order to absorb the additional stream of revenue.
Since the HOPE Scholarship is designed to primarily benefit middle- and
high-income families, it will not provide new educational opportunities for children
in the poorest families.
In the short run, the HOPE Scholarship will allow some families to send their
children to more expensive schools and it may reduce the amount of financial aid for
which many families qualify. In the long run, the benefits will accrue to institutions
of higher education rather than to students.
Claiming the HOPE Scholarship may subject many middle-income families to the
alternative minimum tax (AMT), which was designed to only affect upper-income
taxpayers. Thus families with incomes as low as $41,350 may not receive the full
benefit of the credit, even in the short run.
-chel
Expanded IRAs
The Balanced Budget Act of 1997 provides several education saving incentives through the
expansion of traditional IRAs and the creation of education saving accounts similar to IRAs. Saving
incentives can improve college affordability for families across the income spectrum.
Expanded IRAs provide families with appropriate opportunities and incentives to
save for their children's higher educational expenses, thereby reducing their reliance
on student loans. As families become financially independent, the cost and size of the
student loan programs will be reduced since demand for student loans will fall.
yeah,
Government savings can be diverted to grants and other need-based programs for the
right
poor.
Expanded IRAs can control tuition inflation by restoring competition to the market
for higher education. Colleges and universities will have an incentive to control costs
and improve productivity since they will be more reliant on private financial assets
than on federal subsidies.
Families that use their own financial assets to pay for higher education will be
motivated to make more responsible decisions regarding where their children go to
school and what programs they enter, thus maximizing their children's educational
return.
Although the newly enacted IRA provisions provide important benefits for higher education, a more
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Although the newly enacted IRA provisions provide important benefits for higher education, a more
aggressive expansion of IRAs would provide greater benefits to families. If the maximum annual
deductible contribution is raised and penalty-free withdrawals are allowed for more family expenses,
IRAs can become an important saving vehicle for middle-income families. Aside from the tax benefits
provided to families, expanded IRAs can also promote economic growth by potentially raising the
national saving rate.
Representative Jim Saxton (R-NJ), Chairman
Joint Economic Committee
College Affordability: Tuition Tax Credits
VS. Saving Incentives
In the 1960s, Nobel Laureate Gary Becker introduced the concept of human capital-the widely
accepted notion that human qualities such as skills, knowledge, and the ability to think critically are
important sources of economic growth. Education is a primary means of invest-ment in human capital.
Education helps individuals develop abilities and skills that increase their future productivity, thereby
providing new opportunities for economic growth. It is also the primary vehicle by which cultural
values are conveyed from one generation to the next.
Because education is so important to individuals and to the economy, the government has played an
active role in financing higher education so that all individuals can have an opportunity to attend
college. Initially, federal aid was limited to the most disadvantaged students, but over time, aid was
extended to most students regardless of financial need or academic merit. Despite the government's
efforts to improve college affordability, it is now clear that federal aid programs have fallen short of
their expectations: tuition continues to rise, more students graduate with larger debts, government costs
have grown dramatically, and affordability for the neediest students has declined.
This paper reviews the shortcomings of the federal aid system and examines the most effective
policies to expand educational opportunities. In particular, it considers the use of tuition tax credits and
expanded Individual Retirement Accounts (IRAs), two of the largest educational provisions contained in
the Balanced Budget Act of 1997.
The evidence presented in the paper suggests that tuition tax credits may well contribute to the
problems of the federal aid system. In contrast, expanded IRAs can provide long-term solutions to
college affordability by providing families with appropriate incentives and oppor-tunities to save for
their children's education. The use of IRA savings for college education will encourage schools to
control costs, lower tuition, and improve quality since they will have to compete for private financial
assets rather than rely on federal subsidies. The expansion of IRAs can also generate additional benefits
for families and can promote economic growth by raising the national saving rate.
The first section of this paper describes the role of the federal government in higher education and
recent trends in college affordability. Section two considers some of the funda-mental shortcomings of
the federal aid system that have caused these trends. Section three compares the use of tuition tax credits
and expanded IRAs in light of the problems discussed throughout the paper. The paper concludes by
discussing additional economic benefits of IRAs.
I. The Role of the Federal Government
Background1
Historically, the federal government played a very small role in higher education. It did not regulate
B3
the activities of post-secondary institutions nor did it provide them with federal funds. However, the
Higher Education Act (HEA) of 1965 established a commitment by the federal government to equalize
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what about MARABA. Land GAAD ?)
Higher Education Act (HEA) of 1965 established a commitment by the federal government to equalize
opportunities in higher education. Title IV of HEA created grants and campus-based programs for
disadvantaged students and their families. Title IV also helped middle-income students through the
creation of federally guaranteed, but minimally subsidized, private loans. The guaranteed loan program
was supposed to be smaller and much less costly than federal grants.
During the 1970s, various legislation expanded the provisions of Title IV. The needs test for
guaranteed loans was eliminated, making federal aid widely available to students across the income
spectrum. Federal aid was also extended to non-traditional students such as part-time students, students
attending for-profit trade schools, and students without high school diplomas or equivalency.
The growth of the student loan programs during the 1970s created mounting costs for the
government as more middle- and upper-income families took advantage of the generous terms offered
by subsidized loans. Between 1970 and 1980, the cost of guaranteed student loans increased by 180
percent after adjusting for inflation, from $3.9 billion to $10.9 billion annually. Realizing that these
growing costs were unsustainable, efforts were made in the 1980s to reduce the size of the student aid
programs by focusing federal support on the neediest families. Although the needs test for subsidized
loans was reinstated, other cost-reducing efforts were derailed in Congress and federal support remained
steady throughout most of the 1980s.
Legislation in the early 1990s continued to expand the availability of student loans so that nearly
anyone wanting to attend college could take out a loan for the full amount. As students began
graduating with larger debts and default rates began rising, new provisions were enacted to facilitate
loan repayment. In 1995, student aid from the federal government totaled $37 billion, an amount equal
to 74 percent of all student aid funding.³
Trends in College Affordability
Many education analysts believe that past legislation has not made college more affordable, it has
simply made it easier to take out loans, thus increasing families' reliance on loans and increasing
pressure on the Treasury. Dr. Michael Mumper of the State University of New York notes that the
federal aid programs have made a significant contribution to higher education over the years, but they
have also produced some discouraging results: Since the early 1980s, the net price⁴ of a college
education has increased rapidly, the participation gap between upper- and lower-income students has
expanded, and the focus of government subsidies has shifted from the most needy students to middle-
and upper-income students. As a consequence, the goal of universal access to higher education is further
away in the mid-1990s than it has been in more than a decade.
Rising Tuition
The price of higher education has nearly doubled over the past 15 years and continues to rise. After
adjusting for inflation, average undergraduate tuition at private institutions increased from $6,200 per
year in 1980 to $11,800 per year in 1995; and average tuition at public institutions rose from
approximately $1,100 per year to about $2,100 per year over the same time period. When the price for
room and board is included, the average annual cost of attending private and public institutions in 1995
was $17,000 and $6,000 respectively.⁶
Shift in Federal Subsidies
As the cost of the student loan programs has increased, a larger percentage of government funding
has been channeled toward loans for middle- and upper-income families, leaving less money to finance
grants and other need-based programs for low-income families. Thus contrary to the original goals of
the HEA, federal subsidies are now targeting middle- and upper- income students instead of
disadvantaged students. Figure 1 and the accompanying table show that student loan programs are
consuming an increasingly larger portion of federal funds at the expense of grants and work-study
programs for the poor. Over the past decade, student loans as a percentage of all federal aid have
increased by 27 percent while the share of grants has fallen by 36 percent.
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Tab
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Click here to see Figure 1.
Click here to see Table 1.
Declining Affordability
Despite a 65 percent increase in government funding for student aid programs over the past 10 years,
college has become less affordable for the most disadvantaged students. The combination of less
government funding and higher tuition has greatly reduced the value of need-based programs. For
example, the Pell Grant, which is the largest federal grant program for the poor, has declined
considerably in value over the past decade.
Figure 2 shows that the value of the Pell Grant as a share of attendance costs has declined by 37
percent for public institutions and by 42 percent for private institutions. The Balanced Budget Act of
1997 includes funding to increase the value of the maximum Pell Grant from $2,700 to $3,000, but this
increase will still leave Pell Grants grossly undervalued. As a result, many low-income families have
found it necessary to take out loans for college. The prospect of incurring large debts has discouraged
many low-income students from attending college altogether, thereby lowering the partici-pation rates
for low-income students relative to high-income students as shown in Table 2. In addition, the increase
in student loan funding over the past 10 years does not necessarily reflect an increase in the well being
of middle- and upper-income families since tuition increased by approxi-mately 45 percent over the
same time period.
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Click here to see Figure 2.
Click here to see Table 2.
In brief, the federal aid programs, which were intended to equalize opportunities in higher education,
have actually created a larger disparity over the past decade. Government inter-vention has transformed
the system into one heavily dependent on student debt, even for the most disadvantaged students. In
addition, federal subsidies now target middle- and upper-income students contrary to the original
intentions of the HEA.
This transformation has mainly occurred because the structure of the federal aid system is inherently
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flawed and could be improved upon to provide greater benefits to students. Federal financing of higher
education does not provide colleges with appropriate incentives to restrain spending and therefore
encourages tuition hikes. The inefficient structure of student loan programs has broken down the
marketplace for higher education by eroding price competition among schools and artificially inflating
student demand. As a result, tuition continues to rise, college affordability continues to decline, and
taxpayers continue to pay more for less valuable programs.
II. Problems with the Federal Aid System
Federal Aid and Tuition Inflation
The steep increase in tuition is largely attributable to a growth in college costs during the 1980s.
College administrators contend that changing demographics in higher education since 1980 have
necessitated an increase in costs in order to provide a high quality education to a more diverse student
body. They argue that government appropriations to higher education did not keep pace with rising
expenditures. As shown in Figure 3, government funding per full-time equivalent (FTE) student grew in
pace with inflation between 1975 and 1993, but college spending per FTE student rose by 38 percent.
College leaders argue that the government's failure to increase funding when costs were rising
necessitated an increase in tuition to make up the shortfall.
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Click here to see Figure 3.
However, many education experts believe that the fundamental problem in higher education is not a
deficiency of government funding, but uncontrolled spending by colleges and universities. 7 They argue
that, even though some of the increased spending may have been necessary due to the labor-intensive
nature of higher education, a large part was unnecessary and extravagant. Much of the spending was
merely an attempt by colleges to keep enrollment high in order to attract more state funding and did
nothing to improve the quality of education. Thomas Sowell of the Hoover Institution at Stanford
University notes that colleges and universities have expanded their bureaucracies, overseas facilities,
and programs beyond what was needed to meet demand or improve educational quality. 8
The evidence suggests that the structure of the federal aid system has contributed to the problem of
uncontrolled costs and associated tuition hikes. Institutions generally base their spending decisions for
the following year on the amount of revenue they project to earn in that year. The more money they
expect to earn from various sources, the more spending they decide to undertake. The wide availability
of federal aid thus encourages increased spending and subsequent tuition hikes.
Dr. Sowell provides the following example to illustrate this point: College X can charge $8,000 per
student for tuition and cover its costs. The average family can afford $9,000 for tuition (based on a
federal formula). If College X sets tuition at $8,000, it will receive no federal funding in the form of
student aid. On the other hand, if College X sets tuition at $12,000, not only will it extract the additional
$1,000 from the family, but it will also receive $3,000 of federal funds from each student. Thus, the
school increases spending and justifies a tuition increase on the basis of rising costs. Classrooms remain
full because the wide availability of student loans artificially inflates demand at any tuition price. This
logic especially applies to private institutions because public institutions rely heavily on state funds and
often face political pressure to hold down tuition.
Thus, the inherent problem with the federal aid system is that colleges and universities have little
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incentive to contain costs, boost productivity, or lower tuition. By increasing the availability of student
aid and by making it easier to take out student loans, the government increases the stream of revenue
available to institutions of higher education. Schools respond by increasing their expenditures and
raising tuition to absorb the growing stream of revenues.
Past government efforts to improve college affordability have not addressed this problem. Instead of
finding ways to fight tuition inflation, the government has simply made more federal funds available to
more students so they can afford the higher tuition. Thus the benefits of additional federal subsidies are
largely absorbed by schools, not students. An effective federal aid system must provide colleges with
incentives to restrain costs and boost productivity so tuition can be kept from rising in the first place.
Such incentives are grossly lacking from the current system.
Federal Aid and the Market for Higher Education
In general, industries which benefit from government subsidies are able to raise prices above their
competitive levels. The same holds true in higher education-federal subsidies allow private colleges
and universities to charge artificially high prices, thereby distorting the market for higher education and
eroding price competition among schools. Dr. Sowell notes that "like monopolistic price discriminators
in the commercial world, private colleges and universities set an unrealistically high list price and offer
varying discounts. In academia, the list price is called tuition and the discount is called 'financial aid'. "9
Institutions use a federal formula to determine the amount each family can reasonably pay for
tuition. Then, by setting tuition at an artificially high level, institutions can charge each family the
maximum amount it can afford and offer varying financial aid packages to supplement the remainder of
the bill. In this way, universities and colleges can earn the greatest amount of revenue from each
student. This practice of maximizing revenue by offering different customers different prices is referred
to as "price discrimination." Perfect price discrimination is very difficult to practice in the business
sector for at least two reasons. First, the product sold must be nontransferable or else customers who pay
a low price can resell the product and steal high price customers away from the business. Second, to
effectively price discriminate, companies need to know a good deal of information about each
customer's willingness to pay for the product. In higher education, these two obstacles are largely
overcome. Financial aid packages cannot be transferred among students and information about a
family's financial resources is easily accessible from financial aid applications.
In sum, the wide availability of financial aid makes it easier for private colleges and universities to
inflate their prices above the competitive level. In turn, easy access to financial aid also inflates the
demand for higher education at any level of tuition. As a result, the entire market for higher education is
inefficiently distorted.
Federal Family Education Loan (FFEL) Program
Guaranteed student loans, which are collectively known as the FFEL program, have provided
important educational opportunities for millions of students. However, their structure is extremely
inefficient so that a large portion of their economic benefit does not accrue to students. John Hood of
the John Locke Foundation notes that in 1992, six million students received some form of federal aid at
a cost of $11 billion to taxpayers. Of that $11 billion, $6 billion represented costs of subsidizing banks
and paying for defaults 10 Thus, over half of the benefit of federal subsidies did not go to students, but
to middlemen. A different structure of providing financial resources could provide more assistance to
more students in a more cost-effective manner.
The government subsidizes student loans to compensate lenders for the high risk associated with
these loans, thus shifting the risk from private financial institutions to taxpayers. Under the FFEL
program, the government pays the interest on student loans while a student is in school. The loans are
then insured against default and guaranteed by the federal government. If a student defaults on a loan,
the debt is turned over to a guarantee agency that fully compensates the lender. The guarantee agency,
in turn, attempts to collect the overdue balance, but can be fully reimbursed by the government during
its collection effort. The guarantee agency is entitled to a 100 percent reimbursement from the
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government and 30 percent of any funds it manages to recover. In 1991, guarantee agencies collected
$200 million, or 13 percent of their total revenue, in this manner. 11 That same year, nearly one-fourth of
all borrowers defaulted on their loans, costing taxpayers $3.6 billion. 12
It is clear that guaranteed loans create perverse incentives for lending institutions and guarantee
agencies. John Hood notes that "in virtually every instance, it pays for lenders and guaranty agencies to
let students default-the former are fully reimbursed and save collection costs, while the latter are fully
reimbursed and may even get back more than 100 percent of the value of the loan. 13 Consequently, a
large percentage of federal expenditures is not transferred to students, but to middlemen who continue
to profit handsomely at the expense of taxpayers who subsidize student loan defaults.
This system is extremely costly to students who do not receive the full economic benefit of
government spending and to taxpayers who subsidize the profits of banks and guarantee agencies.
Low-income students are disproportionately burdened because-more money is diverted from need-based
programs to finance the growing costs of the FFEL. In 1993, Congress enacted a direct lending program
aimed at eliminating subsidies to middlemen. Direct lending allows the federal government to lend
money directly to institutions that in turn distribute the money to students. Currently, the FFEL and
direct lending program operate side by side, but it is too soon to judge the success of the new program.
III. Tax Benefits for Higher Education
Tuition Tax Credits
The cornerstone of the newly enacted education initiatives is a tuition tax credit called the HOPE
Scholarship. The HOPE Scholarship provides families with a non-refundable tax credit of up to $1,500
against income tax liability for the first two years of post-secondary education. According to the U.S.
Department of Treasury, the HOPE Scholarship will cost $35 billion over five years and $94 billion
over 10 years. In addition, taxpayers will be allowed to claim a Lifetime Learning tax credit worth up to
$1,000 for post-secondary education beyond the first two years.
The use of tuition tax credits to help families pay for college is similar to past government policies
which have merely increased funding to pay for tuition without addressing the under-lying problems of
why tuition rises in the first place. As a result, the HOPE Scholarship may well contribute to the
problems of the federal aid system instead of providing long-term solutions.
Rising Tuition
There is broad agreement that tuition tax credits would lead many post-secondary institutions to raise
their prices. The effect would be most pronounced in public two-year institutions where average yearly
tuition is $1,245. Since eligible families can claim up to $1,500 against their tax liability, the first
$1,500 of education is essentially free. In other words, families are indifferent between paying $1,245 or
$1,500--demand for a two-year college education is the same at either price. Thus, any public institution
which charged less than $1,500 could increase its tuition without losing students or government funds. 14
The availability of the tax credit will also affect tuition at private and public four-year institutions.
Schools will realize that the tax credit increases a family's financial resources by $1,500. This will be
taken into account when schools calculate a family's expected contri-bution. Once again, tuition will be
set high enough to absorb the additional stream of revenues.
Affordability
The HOPE Scholarship is designed to primarily benefit middle- and upper-income families since the
credit is not available to financially disadvantaged families with no income tax liability. As a result, the
HOPE Scholarship probably will not encourage the enrollment of students who otherwise would not go
to college. It is believed that the HOPE Scholarship will have two effects in the short run. First, it will
allow students who are already bound for college to attend more expensive schools. Second, by
increasing a family's after-tax income, it will reduce the amount of student loans for which families
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qualify 15 In the long run, tuition tax credits will mainly generate large windfalls for institutions of
higher education so that the benefit of this subsidy program will accrue to schools rather than to
students.
In addition, the interaction between the HOPE Scholarship (and other newly enacted tax credits) and
the alternative minimum tax (AMT) may substantially reduce the value of the credit for many
middle-income families. 16 The AMT was designed to ensure that wealthy taxpayers, who shelter their
incomes from taxation, pay a minimum amount of tax. The AMT requires that taxpayers first calculate
their tax liability with all of their deductions and exemptions, then recalculate it using a complicated
AMT formula. The individual must pay the greater of the two tax liabilities. Since the newly enacted tax
credits, including the HOPE Scholarship, can reduce tax liability by a substantial amount, claiming the
credits may subject many middle-income families to the AMT, thereby reducing the value of the tax
credits. For instance, The Washington Post provides the following example: A family earning $64, 100
per year with two children in college would normally pay $6,743 in taxes if filing jointly. If the family
claims the HOPE credit for one child ($1,500) and the Lifetime Learning credit ($1,000) for the other,
their tax liability would be reduced to $4,243. However, under the AMT calculation, the family's tax
liability is $4,966. Since the AMT is the greater of the two amounts, the family must pay the AMT, thus
reducing the value of the HOPE Scholarship by $723. According to the minority staff of the House
Ways and Means Committee, this interaction may affect a substantial number of middle-income
taxpayers with incomes as low as $41,350. Thus, because the tax credits were not designed to offset the
AMT, many middle-income families will be subjected to this upper-income tax. As a result, many
middle-income families will not receive the full benefit of the HOPE Scholarship, even in the short run.
In sum, tuition tax credits are similar to past government policies which simply provide more aid
instead of providing colleges with incentives to control costs and tuition inflation. In fact, the
Administration does not believe that cost containment is a reasonable objective. At a Brookings
Institution conference on higher education, David Longanecker of the Department of Education (DOE)
"made it clear that the Clinton Administration does not see tuition growth and cost containment as a
federal responsibility. "17 Instead, it is an issue for states and trustees. Thus, the Administration feels that
college affordability is a federal responsibility, but the root of the problem is not.
Expansion of IRAs
The current financial aid system may discourage parents from saving for education because a
family's savings can reduce a student's eligibility for grants and scholarships. Families whose financial
assistance is reduced based on their level of savings thus face an implicit tax. As a result, many parents
save too little for their children's education.
The Balanced Budget Act of 1997 includes several incentives aimed at increasing private saving for
education. The new law gradually doubles the income limits for which tax deductible contributions to
IRAs are phased out, making IRA saving plans available to more middle-income families. In addition,
penalty-free withdrawals will be allowed to pay for higher educational expenses. Parents will also be
able to contribute $500 per child, per year to separate education IRAs. Contributions to education IRAs
will be nondeductible, but distributions will not be subject to taxation. 18 These new IRA rules will
allow families to accumulate tax-free savings for educational expenditures, thus encouraging families to
save for their children's education.
Enhanced saving incentives can help improve college affordability. Dr. Mumper states that " there
is powerful theoretical and anecdotal evidence that a soundly designed and broadly accessible program
to encourage college savings can be a useful part of a comprehensive government effort to improve
college affordability. "19 By reducing families' reliance on student loans and allowing them the
opportunity to finance educational expenses from their own financial resources, expanded IRAs can
restore price competition to the marketplace for higher education and reduce government costs.
Government savings can then be diverted to federal grants to help equalize opportunities for financially
disadvantaged students.
Maximizing Educational Return
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Expanded IRAs will provide families with opportunities to reduce their tax liabilities and accumulate
enough savings to pay for a substantial amount, if not all, of their children's education. Families who use
their own financial assets to pay for higher education, rather than borrowed federal funds, will be
encouraged to make more responsible decisions regarding where their children go to school and what
programs they enter. John Hood points out that no mechanism exists today to make sure children are
attending schools with a good money's worth and entering programs that will likely land them a job
after they graduate 20 Thus unwise decisions are made which are costly to students and taxpayers.
For instance, DOE reported that 200,000 students enroll in beauty school each year despite an
oversupply of one million cosmetologists nationally. Many beauty school students drop out or cannot
find jobs when they graduate, thus failing to repay $100 million worth of loans each year.
Consequently, taxpayers spend about $31,000 in student aid for every cosmetology license that is issued
in the United States. 21
Subsidizing the Poor
The most commonly cited criticism against expanded IRAs for education is that low-income families
would not be able to participate since they do not have enough financial resources to save, and they do
not have any income tax liability from which contributions can be deducted. However, expanded IRAs
can reduce the cost of the federal aid programs by making middle- and upper-income families less
reliant on student loans. This in turn would allow federal funds to target low-income families through
more valuable grants and work-study programs as originally intended by the HEA. Thus middle- and
high-income students can benefit because they will be able to graduate with less debt; low-income
students will benefit because federal subsidies can be redirected to need-based programs.
Cost Containment and Tuition
With families more reliant on personal financial assets, the government can reduce the size of the
student loan programs by awarding student loans on the basis of financial need or academic merit. This
could create three desirable effects. First, the reduction in the availability of "easy money" would deflate
the artificially high demand for post-secondary education that now exists. If families rely on their own
financial resources for the bulk of educational expenses, then demand should fall in line with what the
free market would dictate.
Second, reduced reliance on financial aid would undermine a school's ability to price discriminate
since financial aid could not easily supplement a family's expected contribution. As mentioned earlier,
private schools can easily raise tuition because tuition hikes are met with more financial aid. If financial
aid is limited, then schools would truly have to compete for private assets, giving them incentives to
provide a high quality education at a low cost.
Third, linking financial aid to academic merit would motivate children to work harder during high
school. Tuition tax credits, on the other hand, make two years of higher education a universal right for
all students, thereby reducing students' incentives to do well in high school.
Expanded IRAs will provide families with appropriate incentives and opportunities to accumulate
enough private savings to afford their children's education. As families become financially independent,
they will grow less reliant on student loans, thus reducing the cost and size of the federal aid system.
Government savings can be partially used to restore the value of need-based programs for low-income
students. The reduction in federal subsidies would restore competitive pressures to the marketplace for
higher education, giving institutions an incentive to control costs, improve productivity, and contain
tuition. Thus expanded IRAs can help improve college affordability.
IV. Economic Benefits Of Iras
Benefits for Taxpayers
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In addition to the benefits provided for education, expanded IRA incentives can generate other
benefits for American families as well. In general, IRAs provide three important tax benefits. First,
front-loaded IRAs allow taxpayers to deduct IRA contributions from income, thereby lowering income
tax liability for the year in which the contribution is made. Second, IRAs allow families to defer their
taxes to a time when their marginal tax rate may be lower. Families can deduct their contributions when
they fall within a high tax bracket and withdraw the funds at a time when they fall within a lower tax
bracket. Third, income earned in the account (inside build up) is not taxed.
In addition, IRA investments can yield higher returns than tax-free investments. Normally, tax-free
investments, such as municipal bonds, yield lower rates of return than investments that are subject to
taxation. Consequently, a family will not necessarily increase its after-tax rate of return by investing in
tax-free investments. However, savings in IRAs can be invested in a wide range of assets including
otherwise taxable assets with higher yields. Thus the family receives the tax benefit offered by the IRA
and the higher yield offered by a taxable investment. As a result, the family can earn a higher rate of
return on an IRA investment than what could be earned from a tax-free non-IRA investment.
The new tax legislation has made important progress in the expansion of IRAs by making IRAs
available to more middle-income families and by providing saving incentives for higher education.
However, it falls short in three respects. First, the contribution limit of $2,000 per year is too low to
provide families with appropriate opportunities to amass a significant amount of savings. The maximum
contribution must be raised to provide families with incentives to substantially increase their personal
savings.
Second, studies have shown that many individuals do not participate in IRAs because of the
restrictions on IRA distributions. Distributions from retirement IRAs are subject to a penalty if
withdrawn before the age of 59(. Penalty-free withdrawals should be allowed for a variety of purposes
to encourage families to participate in IRA saving.
Third, the new law creates several different types of IRAs for different purposes, thus complicating
the tax code. Families who want to take advantage of IRA benefits will have to determine which IRA
saving plan is best for them and many may have to seek professional assistance. The added complication
may discourage some families from participating in IRA saving altogether.
If the contribution limit were raised above $2,000 and penalty-free withdrawals were allowed for a
wider variety of expenses, then traditional retirement IRAs can potentially become an important saving
vehicle for middle-income families. Such expansions would allow families to accumulate a significant
amount of savings to finance retirement, educational expenses, and other important expenses a family
might incur. Thus taxpayers could become financially independent and less reliant on the federal safety
net. In addition, since individuals are generally the best investors of their own money, expanded IRAs
can allow families to increase their incomes beyond what the government can provide for them through
bloated, inefficient federal programs.
Benefits for the Economy
Expansion of IRA benefits can promote economic growth through its impact on saving and
investment. Investment is important to the economy because it increases the domestic stock of capital,
thereby promoting economic growth and productivity improvements. A larger, more productive
economy generates new jobs, higher wages, and better living standards.
Investors have two sources of funds available to them: national saving (the sum of private and
government savings) and foreign saving. If national saving falls short of investment demand, investors
can borrow funds from foreign sources. Thus the availability of foreign funds allows investment to
increase even if national saving is low. However, reliance on foreign saving can create three undesirable
effects. First, the profits from the investment flow overseas. Second, the debt must be repaid with
interest so that the net wealth inherited by future generations is lower than it otherwise would be. Third,
when investment demand exceeds national saving, there is upward pressure on interest rates. Thus, a
high national saving rate is desirable because it reduces investors' reliance on foreign money.
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However, many economists argue that the national saving rate in the United States is too low
because the tax code discourages private saving and encourages consumption. For instance, savings are
subject to several levels of taxation, but consumption of certain products is rewarded through tax credits
and deductions. The expansion of IRAs clearly helps reduce this bias by providing taxpayers with
incentives to save. Expansion of IRAs thus promotes economic growth by increasing saving and
investment.
There are some analysts who dispute the economic benefits of IRAs. According to these analysts,
IRAs do not attract new saving, they merely encourage taxpayers to shift their existing savings into IRA
investments. To the extent that net saving does not increase, the effects of IRAs on the economy are
limited.
The empirical studies on IRA saving effects have produced mixed results. However, many notable
studies conclude that IRAs do in fact represent new saving. Some of the most distinguished studies have
been conducted over the past several years by James Poterba of M.I.T., Steven Venti of Dartmouth
College, and David Wise of Harvard University.
Poterba, Venti, and Wise (PVW) point out that the key obstacle to determining the saving effect of
IRAs is saver heterogeneity. In other words, some people save and others do not--those who are inclined
to saving tend to save more in all forms. For example, families with IRAs have more conventional
savings than families without IRAs. Controlling for heterogeneity is extremely important in determining
whether IRA contributions increase net saving. PVW use several different methods to control for
heterogeneity which they believe sufficiently address the problems presented by this issue. They
conclude that "the weight of the evidence, based on many non-parametric approaches provides strong
support for the view that contributions to both IRA and plans represent largely new saving We
believe the evidence is strong in all cases"22
They note that several other studies using different methods have arrived at different conclusions.
The most commonly cited study indicating that IRAs have no saving effect was conducted by Gale and
Scholz (GS) in 1994. PVW reviewed the analysis used in this 1994 study and found that "their
conclusions are inconsistent with the raw data and their formal model does not provide reliable
information on the extent of substitution "23 In specific, to estimate their model, GS deleted a large
number of observations from their sample data. Although there is nothing wrong with deleting
observations from the data, PVW show that the estimates in the GS study are extremely sensitive to
exactly which observations are deleted and "the deletions that were made essentially determine the
conclusions that GS report. "24 In addition, PVW point out that other limitations of the methodology
used by GS seriously undermine the reliability of the GS study.
The PVW study provides compelling evidence that IRA contributions do in fact represent an increase
in new saving. Consequently, their expansion should generate important benefits for the economy.
V. Conclusion
Although the federal aid system has helped millions of students over the years, it has also contributed
to some discouraging trends: tuition is rising, federal subsidies are shifting away from low-income
students, and the value of need-based programs for the poor is declining.
These trends have occurred because the federal aid system is inherently flawed and could be
improved upon to provide greater benefits to students. Federal financing of higher education does not
provide colleges with incentives to restrain costs, and therefore encourages tuition hikes. The inefficient
structure of student loans has broken down the marketplace for higher education by eroding price
competition among schools and artificially inflating student demand. Past legislation to improve college
affordability has simply increased the funding available to students instead of addressing the
fundamental problems of cost containment and tuition inflation. As a result, increased federal subsidies
have not necessarily improved the well being of student loan recipients. Students would benefit from
alternative policies that expand educational opportunities in a more efficient and cost-effective manner.
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The HOPE Scholarship recently enacted into law will not improve college affordability because it
fails to address the core problems of the federal aid system. Instead, tuition tax credits will only create
windfalls for colleges that adjust their tuition upward to absorb the additional revenue.
A more effective solution may be the expansion of IRAs which provide families with incentives to
increase their savings for education. By reducing families' reliance on student loans and allowing them
the opportunity to finance educational expenses from their own financial resources, expanded IRAs can
restore price competition to the marketplace for higher education and provide colleges with incentives to
reduce costs, contain tuition, and improve quality. Furthermore, reduced reliance on student loans can
lower government costs, allowing the savings to be diverted to federal grants for the poor. Although the
IRA expansion provisions contained in the new law are limited, there is evidence to suggest that more
aggressive expansion could provide more significant benefits for families and the economy.
Shahira Knight
Economist
Endnotes
1 Michael Mumper, Removing College Price Barriers (New York: State University of New York Press, 1996).
2 The College Board, Trends in Student Aid: 1986 to 1996, September 1996, Table B.
3 Ibid.
4 The difference between tuition and educational funds which do not have to be repaid such as scholarships or
grants. This represents the amount the family must finance on its own.
5 Op. Cit., Removing College Price Barriers, p. 215.
6 U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics 1996
(Washington, DC: Government Printing Office, 1996), Table 309.
7 Thomas Sowell, Inside American Education (New York: The Free Press, A Division of Macmillan, Inc.,
1993), pp. 113-121.
⁸Ibid.
9 Ibid., p. 120.
10 John Hood, "How to Hold Down College Tuition Costs," Consumers' Research, October 1993.
11 Thomas Toch, "Defaulting the Future," U.S. News & World Report: Science and Society, June 21, 1993.
12 Op. Cit., John Hood, "How to Hold Down College Tuition Costs."
13 Ibid.
14 Joint Committee on Taxation, "Analysis of Proposed Tax and Saving Incentives for Higher Education,"
April 15, 1997.
15 Jane Bryant Quinn, "New Tax Credits May Bring Cuts in Student Aid," The Washington Post (Business),
August 31, 1997.
16 Albert B. Crenshaw, "Now You See It, Now You Don't: Tax Law to Make Benefits Disappear, "The
Washington Post (Business), September 17, 1997.
17 Lawrence Gladieux and Arthur Hauptman, The College Aid Quandary (Washington, DC: The Brookings
Institution, 1995), p. 62.
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10/15/97 15:57:46
College Affordability: Tuition Tax Credits VS. Saving Incentives
http://www.house.gov/jec/fiscal/tx-grwth/college/college.htm
18 Retirement IRAs are front-loaded; meaning that taxpayers can exclude IRA contributions from income
when calculating their income tax liability. However, distributions from the IRA are subject to taxation. In
contrast, education IRAs will be back-loaded; meaning that contributions are not tax deductible, but
distributions are not subject to taxation. In general, the two types of IRAs are equivalent unless the taxpayer
moves into a different tax bracket between the time the contribution is made and the time the distribution is
withdrawn.
19 Op. Cit., Removing College Price Barriers, p. 186.
20 Op. Cit., How to Hold Down College Tuition Costs.
21 Op. Cit., Defaulting the Future.
22 James Poterba, Steven Venti, and David Wise, "Personal Retirement Saving Programs and Asset
Accumulation: Reconciling the Evidence," National Bureau of Economic Research, May 1996, p. 94.
23 Ibid.
24 Ibid.
JEC
Return Home
14 of 14
10/15/97 15:57:46
GIF image 500x374 pixels
http://www.house.gov/jec/fiscal/tx-grwth/college/tig-l.g
Figure 1
Composition of Federal Aid Awarded to Post-secondary Students
Grants
Loans
Work Study
Specially Directed
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
Source: The College Board, Trends in Student Aid: 1986to 1996, Table 2.
Note: Specially directed aid is federal aid awarded to veterans and military personnel.
1 of 1
10/15/97 15:58:05
GIF image 475x441 pixels
http://www.house.gov/jec/fiscal/tx-grwth/college/tbl-1.gi.
Table 1
Composition of Federal Aid Awarded to
Post-Secondary Students
Academic
Work
Specially
Year
Grants
Loans
Study
Directed
1985-86
25%
60%
4%
10%
1986-87
25%
62%
4%
10%
1987-88
23%
66%
3%
8%
1988-89
25%
64%
3%
8%
1989-90
26%
63%
3%
8%
1990-91
26%
64%
3%
7%
1991-92
27%
63%
3%
8%
1992-93
27%
62%
3%
8%
1993-94
20%
70%
2%
7%
1994-95
18%
73%
2%
7%
1995-96
16%
76%
2%
6%
Source: The College Board, Trends in Student Aid 1986 to 1996, Table 2
Note: Specially directed aid is federal aid awarded to veterans and military
personnel.
l of 1
10/15/97 15:58:38
GIF image 500x374 pixels
http://www.house.gov/jec/tiscal/tx-grwth/college/fig-2.gi.
Figure 2
Maximum Pell Grant as a Share of Cost of Attendance
60%
50%
40%
Public Institutions
30%
20%
10%
Private Institutions
0%
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
Source: Digest of Education Statistics 1936, Table 309 and Trends in Student Aid: 1988-1996, Table 7.
Note: Cost of attendance includes tuition, fees, and on-campus room and board.
1 of 1
10/15/97 15:59:00
GIF image 453x477 pixels
http://www.house.gov/jec/fiscal/tx-grwth/college/tbl-2.gi
Table 2
Percent of Recent High School Graduates
Enrolled in College by Family Income
October
Low
Medium
High
1980
32.5
42.7
65.2
1981
33.6
49.3
67.6
1982
32.8
41.7
71.7
1983
34.6
45.4
70.2
1984
34.5
48.4
74.0
1985
40.2
50.7
74.5
1986
33.9
48.4
71.4
1987
36.9
49.9
74.0
1988
42.5
54.7
72.8
1989
48.1
55.4
70.9
1990
46.7
54.5
76.5
1991
39.5
58.4
78.2
1992
40.9
56.9
80.9
Source: L. Gladieux end A Hauptman, The College A id Quandry, Table 5
Note: Lowincome Is defined as the bottom 20 percent of all family incomes,
high incom e as the top 20 percent of all family incom es, and middle income
as the 60 percent in between.
1 of 1
10/15/97 15:59:27
GlF.image 500x374 pixels
http://www.house.gov/jec/fiscal/tx-grwth/colege/tig-3.gi
Figure 3
Government Support to Higher Education VS. College Expenditures
(Per Student, 1975-76 = 1)
Real Expenditures
Per Student
1.25
Real Government
Support Per Student
0.75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
Source: Department of Education, Digest of Education Statistics, Tables 196, 324, 332.
Note: Real government support per student does not include federally supported student aid
received thr ough students.
1 of 1
10/15/97 16:00:07
HUG-25 yr 10:24 PROM:PRESIDENTIAL LETTERS 2024565426
10:2024502223
PHGE 01
The white House
office of Presidential Letters and Messages
facsimile from: Leanne Johnson
phone: 202-456-5512
fax: 202-456-5426
To:
Bob Shereman
No. of pages (including cover):
he
Date:
8.25.97
Phone:
Fax:
62223
Comments:
FOR EMITS /APPROVAL
HUG-25
yr
10:25
PRUM:PRESIDENTIAL
2024565426
PHGE 00
3
LOYOLA
UNIVERSITY
Water Tower Campus
GLORIAM
820 North Michigan Avenue
CHICAGO
Chicago. Illinois 60611
Telephone: (312) 6400
waror
Fax: (312)915 6414
DEI:
Office of the President
August 11, 1997
The Honorable William J. Clinton
The President of the United States
Executive Office of the President
1600 Pennsylvania Avenue N.W.
Washington. D.C. 20500
Dear President Clinton:
Your signature on the Taxpayer Relief Act of 1997 was a shining moment for the students of
our nation. This Act affirms the United States' tradition of broad access to higher education.
Loyola University Chicago, a Jesuit Catholic institution, has long been committed to making
education accessible to all economic strata of our society.
The Hope Tax Credit and your other education initiatives, in particular, will make higher
education available to many more students and families. I am particularly pleased about the
adjustment made in these programs to reach a greater number of lower income families. I
believe measures like these are crucially important.
The preservation of the tax-free treatment of tuition remission benefits, under section 117 of
the Internal Revenue Code, allows Loyola to continue a long tradition of providing this
benefit to all our staff. Recently, a secretary with over ten years at Loyola completed her
Masters of Business Administration and was promoted to a professional position in our
Finance Department. This woman began her undergraduate education at the same time she
began working at Loyola, and we are thrilled to be a part of her success. This is one of many
such stories, and, thanks to the passage of the Taxpayer Relief Act, there will be many more.
The repeal of the $150 million bond cap is also helpful to Loyola University Chicago. In
order to provide the best environment for learning and research, we need to continually assess
our facilities and oftentimes extensive renovation or new construction is required. Repeal of
the bond cap gives us critical flexibility in designing financing to meet the always changing
technological and physical demands of our educational community.
Thank you for your vigorous support of accessible higher education, and for your support of
Loyola University Chicago.
Sincerely,
John J. Pident, S.J.
President
vital provided in outstanding our an future area Heartfelt that
JJP:jj
is
as
a
country.
AUG 19 .997
HUG-25 yr 10:25 FRUM:PRESIDENTIAL LETTERS 2024565426
10:2024562223
PHGE 05
Thank you for your warm letter. I deeply appreciate your support.
Thanks too for sharing the secretary's story with me.
I was proud to sign the "Taxpayer Relief Act of 1997." I have long
believed that the tax system should better encourage investment in
college education and job training, and this legislation does that.
I am grateful for the bipartisan support that this measure received in
the Congress, and I was pleased to sign it into law.
Thanks again for writing.
Robert M. Shireman
09/29/97 07:59:58 AM
Record Type: Record
To:
Sonyia Matthews/OPD/EOP
CC:
Subject: FYI -- Treasury/IRS's meeting on the implementation of new tax credit programs
HOPE binder
Forwarded by Robert M. Shireman/OPD/EOP on 09/29/97 07:59 AM
S. A. Noe
09/28/97 02:58:35 PM
Record Type: Record
To:
Barry White/OMB/EOP, Wayne Upshaw/OMB/EOP, Robert M. Shireman/OPD/EOP
CC:
Subject: FYI -- Treasury/IRS's meeting on the implementation of new tax credit programs
Last Thursday (September 25), Treasury/IRS met with the higher education community groups to
discuss the implementation of new tax credit programs. ED and OMB were also invited to the
meeting. From OMB, Alex Hunt at OIRA attended the meeting. Below is his summary of that
meeting.
On October 1, Treasury/IRS will brief OMB of their work and plan for the implementation of the tax
credit programs (including issuing regulations). (For that briefing, ED and Bob are invited to that
meeting.)
Forwarded by S. A. Noe/OMB/EOP on 09/28/97 02:49 PM
Alexander T. Hunt
09/26/97 04:55:53 PM
Record Type:
Record
To:
Daniel J. Chenok/OMB/EOP, Daniel I. Werfel/OMB/EOP, S. A. Noe/OMB/EOP
CC:
Jefferson B. Hill/OMB/EOP, Kathleen M. Turco/OMB/EOP
Subject: Meeting with higher ed groups
Yesterday, Treasury hosted a meeting with the higher ed community to discuss implementation of
the HOPE and Lifetime Learning Credits. Specifically, Treasury was seeking reaction to new
requirements that colleges and universities report information on student enrollment and tuition
payments beginning January 1, 1998, when the HOPE becomes effective.
In discussing implementation, Treasury emphasized that
it is focusing on the first year of reporting (presumably, more information will be required in
future years);
it is commited to working with schools to refine and improve the reporting requirements
(Treasury, IRS, and ED plan to hold a small number of regional meetings);
schools will not be required immediately to provide all data that IRS would like to have, just
what is essential for compliance and what the schools are able to provide; and,
as long as schools make a "good faith effort" to report information, IRS would not impose
penalties for the 1998 tax year, even if the regulations were finalized next year.
New Reporting Requirements
Treasury proposed to collect the following information from schools, which would have the option
of using paper or magnetic media. Much of this info would first have to be collected from students,
and schools would be required to provide copies of the reports to students.
Name, address, and TIN of either the student or the taxpayer(s) the student certifies is claiming
the student as a dependent. Most schools do not collect TINs of all students and/or their
parents, just those receiving financial aid. There appeared to be consensus at the meeting that
it would be a good idea for IRS to develop a form (paper or electronic) that schools could use to
collect this information. This information collection is required by statute.
Name, address, and Employer Identification Number (EIN) of school, and phone number of a
contact person. Except for the EIN, schools are required by statute to report this info.
Enrollment status. To be eligible for the HOPE, students must be at least half-time for any
academic period begining in 1998. Schools know the enrollment status of their students, but
many people were concerned that half-time status would be difficult to determine for students
enrolled part-time in two schools (seperately that are not half-time, combined, they are). Also,
since about a million students transfer in their first year, it is important to decide at what point
during an academic period enrollment is determined. This information is not required by statute.
Amount of post-secondary education. Students are eligible for the HOPE only in the first two
years of college, so IRS wants schools to determine and report whether a student has either
completed two years before 1998 or enrolled in either of the first two years of college during
1998. As with enrollment status, schools may not be able to easily obtain this information
(e.g., what about AP credit?). This information is not required by statute.
Gross amount of tuition paid by students from all sources other than tuition remission. This info
is necessary to determine the amount that students pay out-of-pocket for qualified tuition and
fees, beginning January 1, 1998. The problem here is that account statements vary from
school to school and they don't always disaggregate qualified payments from payments for
non-qualified expenses, such as room and board. Also, schools can't be expected to know if
students receive financial assistance directly that should be deducted from the credit (Treasury
acknowledged this problem). This information is not required by statute.
Other Issues
Technical correction to Taxpayer Relief Act. Treasury is working with Congress on a possible
correction concerning, I believe, the definition of a trade or business that reimburses students
for qualified expenses. I am not sure what the problem is, but I think the current language
somehow hurts schools.
Student loan interest deduction. Many schools are also lenders and are thus affected by this
new deduction, which is limited to the first 60 months of repayment. There is concern that it
will be very difficult for lenders to keep track of the months because, for example, months of
deferrals and forbearances are not counted.
Things for OMB to Consider
What is the feasibility of allowing a third-party agent (e.g., student loan clearinghouse) to collect
the required information from students on behalf of schools and report it to IRS?
Does IRS need all the information it can get on all students claiming the credits, or can it
adequately ensure compliance through random audits?
Some smaller schools may simply lack the IT systems necessary to collect, maintain, and report
the required information.
We should see some burden estimates that reflect the fact that many schools will have to invest
in new or up-grade existing IT systems.
SBREFA and Unfunded Mandates may come into play. With approximately 7,000 affected
institutions (private and public), it takes an average outlay of only about $14,000 to get to
$100 million.
If Treasury requires information collections not authorized by statute, will IRS have to issue
interim final regs this year?
SEP- 2-97 TUE 10:38
FAX # 456-2215
1
9/20
Subj;
Service Message
Date
11:12:31 EDT
From
[email protected]
to: Bob Sahuren
To:
[email protected]
Report on your message to: /R=A1/U=schireman_r/@mr.eop.gov
I sent thes I this
Reason: Unable to transfer; message formatting problem (1)
Diagnostic: Unrecognized recipient name (0)
then E- mail
Supplementary-information: ALL-IN-1 EMS_SVM_EXPFAIL
Extension-id: 1
but I an mot
Arrival-date: Sat, 30 Aug 1997 11:12:23 EDT
it was sent, the
--Boundary (ID b7UwOzflji792nCAlgXju6Q)
MIME-version: 1.0
Content-type: MESSAGE/RFC822
so pare & well try
Date: Sat, 30 Aug 1997 11:11:41 EDT
Fat.
From: [email protected]
Subject: direct loans
To: [email protected]
Byth Department way,
MIME-version: Content-type: Message-id: <[email protected]> MULTIPART/MIXED; 1.0 BOUNDARY="Boundary (ID Uzu4RB4FIS0vTWoC1b6YeQ) the reported a backlog
Posting-date: Sat, 30 Aug 1997 11:12:20 EDT
importance: normal
of 70,000. That
K400-MTS-identifier: [02211103807991/291004@EOPMRX]
A1-type: MAIL
doable to the There
number seems
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Content-type: TEXT/REPORT
to this problem to
must be more
-Boundary (ID Uzu4RB4FIS0vTWoC1b6YeQ)
cause the stoppage-
Content-type: TEXT/PLAIN; CHARSET=US-ASCII
Bob- thanks for calling me back. I am very distreessed about what is
happening with direct loans so I decided to send you this email so you will
read this mail,
After you
have some of the background which might be useful. As you know, direct loans
vas the most significant improvement in sfa for decades. It has the potential
of saving federal dollars improved service to students, move towards the
elimination of the guaranty agenciesand dramatically reduce the default
ate.I really am furious, not distressed, because when the decision was made
call helpful. if I can be
.
put the direct loan back into sfa, no one ever asked me what the vision
and plans were for the future. As matter of fact, they did not want to EVEN
leo Kample
HEAR ANYTHING EXCEPT TO MAKE SURE IT WAS BACK INTO THE SFa morass.
I
want to provide the background and then
offer suggestions for your consideration. The reason I think this is the
better route is the department has no intention to hear from me and now they
being defensive, particularly because of my strong feelings that they
should recruit someone who has the background and experience in running a
arge complex computer operation.
By the way,
CCO
to the press, Secretary Rubin made the statement that the IRS
shou
un by a computer executive and not a competent tax lawyer and is,
air
has, recruited such an executive. This is a direct parallel to
We need a computer executive, not a competent student
inananciadministrator.
The distressing aspect of all of this is that the Administrations most
significant improvement in sfa is going down the drain. Practically no new
Bunday August 31. 1097 America Online: LEO KORN Page: 1
SEP- 2-97 TUE 10:39
P.02
2
schools are joining, over 250 schools which were interested have declined and
now
ost important part of direct loans-the repayment options and
tion is now in trouble.. What other disasters have to come about
before one will face up the fact that the program is in trouble and serious
dramatic chanres are essential. In privet industry, the President of the
corporation would be terminated for a lot less than what is happening in
direct loans
Enough preaching since I have said all of this before. Finally, the
background.
W#hen I left direct loans we were doing 15000 consolidations per month. The
ransaction was completed in 60 days. We use to receive weekly reports showing
production and backlog. We met with the contractor weeky to monitor the
progress.
The consolidation system was too complicated and we had plans to
simplify the system AND ICREASE THE PRODUCTION. We also had plans to revise
he serviceing since with the repayment options and consolidation, we saw a
clear path to dramatically reduce the default rate.My vision was to
demonstrate that the default rate for student loans -because of direct loans
would be lower than the credit card default rate. No one even had the
coutesy, let alone the smarts, to even ask me what we were plann Ing.
I have two suggestions for your consideration.
1- the education community has no confidence that the department can run
direct loans. The press is full of disaster stories, rumours are all over
he place ,the banks are celebrating and Mr Hoekstra Is having a field day.
n, the department has. to to face up to the facts and announce
that
are recruiting for a computer executive to run direct loans. The
secretary needs to take the same position that Secretay Rubin took. The
department has great eople but it is now time to bring in people with
different backgrounds since the progranm has now reached the size and
complexity- thanks to the great people in the department.
Bunday August 31, 1097 America Online: LEO KORN Page: 1
SEP- 2-97 TUE 10:40
P.03
Tile everyone is trying to figure out what to do with EDS,ask the
revious contractor to process consolidations until the EDS mess is cleaned
3-Put together a goup at the white house level to simplify and improve
repayment system and consolidation. By doing it at the white house
evel, you willregain some credibity plus OMB has some peoiple who could
nake a significant contribution to this effort. You must take steps to
egain the ceredibility of this program or it will become history and the
dministrATION will suffer. Also, smprove the loon servicing system
anks and guaranty agencies will thrive while the students and the
Bob- if there is anything I can do, please call. I do not want any
compensation from the federal governmentand my only interst is to be helpful.
Please feel free to to share this long memo with Gene, Barry, or anyone
else.
I already feel better now that I prepared this email since, as you
now, t am the eternal optimist. Keep in touch. Perhaps, when I am in
vashington next, we can go to lunch so I can tell you how nice it is to be
back in the private sector. Say hello to Gene and my other freinds.
leo.
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ype: MESSAGE/RFC822
Date: Sat, 30 Aug 1997 11:12:23 EDT
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Bundey August 31, 1997 America Online: LEO KORN Page: 1
SEP-02 yr 12:16 FRUM:PRESIDENTIAL LETTERS 2024565426
10:20245b2223
PHGE 01
The white House
HOPE
office of Presidential Letters and Messages
post-passage
facsimile from: Leanne Johnson
phone: 202-456-5512
fax: 202-456-5426
To:
Bob Shereman
No. of pages (including cover):
2
Date:
8.2.97
Phone:
Fax:
62223
Comments:
Any response necessary?
SEP-02 yr 12:16 FRUM:PRESIDENTIAL LETTERS 2024565426
1U:202456cc23
PHGE 0C
232768
HARVARD UNIVERSITY
OFFICE OF THE PRESIDENT
MASSACHUSETTS HALL
CAMBRIDGE, MASSACHUSETTS 02138
(617) 495-1502
August 21, 1997
The President
The White House
Washington, DC 20500
Dear Mr. President:
I am writing to thank you for your commitment to expanding the federal
role in assuring access to higher education. The sheer size and breadth of the
education tax incentives contained in the Tax Payer Relief Act are remarkable
achievements that will go far toward encouraging millions of Americans to invest
in themselves and their country through higher education.
Your leadership made an enormous difference, and I am very grateful.
Sincerely yours,
Neil Rubastine
Neil L. Rudenstine
970825
SUNTUM_M@A1
08/15/97 01:39:00 PM
Record Type: Record
To:
See the distribution list at the bottom of this message
CC:
Subject: EMBARGOED 1997/08/16 RADIO ADRESS BY THE PRESIDENT
THE WHITE HOUSE
Office of the Press Secretary
Embargoed for Release
Until 10:06 A.M.
Saturday, August 16, 1997
RADIO ADDRESS BY THE PRESIDENT
TO THE NATION
THE PRESIDENT: Good morning. As families across
America start to prepare for the new school year, I'd like to talk
about how students and parents can make the most of the historic
higher education opportunities in our new balanced budget.
The balanced budget I signed into law last week meets
the nation's obligation to offer opportunity to every American who's
willing to work for it. It opens the doors to college to a new
generation, with the largest investment in higher education since the
G.I. Bill 50 years ago. We have achieved a truly remarkable goal.
For the first time ever, all children in America who study hard will
have the opportunity to go on to college. Let me tell you just a few
of the ways our budget will make that possible.
First, the budget offers HOPE Scholarships - -- a tax
credit of up to $1,500, as much as the average community college
tuition, that will help to make the first two years of college as
universal as four years of high school are today.
Second, the budget creates a new Lifetime Learning
Credit targeted at college juniors and seniors, graduate students and
adults who want to enhance their skills. Under this initiative, for
example, a homemaker who wants to return to school full time to
become a teacher can get a 20 percent tax credit on the first $5,000
of her tuition bill. By the year 2003 that credit will grow even
larger, applying to up to $10,000 in tuition and fees.
Third, beginning this January, parents and grandparents
can withdraw money from their Individual Retirement Accounts, without
any penalty, to pay for higher education expenses. They can also
open up brand new education IRAs which will allow them to invest $500
per child every year to build up money, tax-free, for college.
Fourth, our budget agreement provides the largest
increase in Pell Grants in two decades, and gives about 350,000 more
students the scholarships they deserve. These new initiatives will
greatly expand educational opportunity for American families. But
there is another crucial part of the college equation, and that is
responsibility -- the responsibility of every student and every
parent to prepare for the future.
As Hillary and I have learned, parents can't wait to
plan for college until their children are in their junior or senior
years of high school. In fact, education experts say it's essential
that parents sit down with their kids as early as the 6th grade to
start charting a course toward college. In the crucial middle school
years, parents must encourage their children to take challenging
classes. Research shows, for example, that students who take algebra
and geometry by the end of the 9th grade are much more likely to go
on to college than those who don't.
In the new economy of the 21st century, what our
children earn will depend more than ever on what they can learn.
Almost 90 percent of the new jobs being created today require more
than a high school level of literacy and math skills. Yet, more than
half of the people entering the workforce are not prepared with these
skills. So we still have a lot of work to do. Throughout the fall,
my administration will work very hard to make sure that parents and
students learn how to take advantage of the new higher education
opportunities they now have.
As a first step, Education Secretary Dick Riley and his
staff have prepared an extremely useful guide for parents of children
in middle school, junior high and high school. It's called, "Getting
Ready for College Early." You an get a free copy by calling the
Department of Education at 1-800-USA-LEARN, 1-800-USA-LEARN.
From the day I took office I have been working on a
simple idea: when my child is my age I want our country to be a
place where every person who works hard has a chance to live out his
or her God-given abilities and dreams. With the education
opportunities contained in our historic balanced budget, we have
taken a large step toward that goal.
Thank you for listening.
END
Message Sent To:
HGPE
THE WASHINGTON POST
yourMoney
4/7/97
rets
JANE BRYANT QUINN
0 Scams
Budget Law Complicates Education Decisions
Last of two articles
There's a new education individual retirement account
Ii budget law wrote some new rules for financing
(which has nothing to do with retirement). If you qualify,
higher education. The choices, for borrowing and
you can invest up to $500 a year for each of your children
shving, are going to complicate decision-making.
under 18.
But the new rules will save money for a majority of
You can't take tax deductions on your contribution. but
studer 15 and parents. Here's what's starting on Jan. 1:
the earnings are entirely tax free if used for higher
The TLX deduction on loans for higher education.
education.
You qualify for the maximum deduction on the interest
Singles qualify for it full contribution with adjusted gross
you pay if you are single with adjusted gross income of less
incomes as high as $95,000. When you earn more. the
than $40.000 or married with income of less than $60.000.
allowable contribution shrinks. phasing out at 110,000.
As in anes rise. the deduction declines. phasing out at
Marrieds get a full contribution with incomes as high as
OU know.
$55.0 U for singles and $75.000 for marrieds. After 2002,
the income levels will be adjusted for inflation.
$150,000, phasing out at $160,000.
16 maximum deduction is $1,000 for 1998. $1,500 for
This isn't big money. Still. any tax-free account is better
on giving out
199 $2,000 for 2000 and $2,500 for 2001 and each year
than a taxable one. If the child doesn't use all the money,
ildren. If
the after.
you can transfer it to another one of your children. If the
omputer.
Next year, that roughly equals the interest on a $12,000
beneficiary reaches 30 without using the money, it must
Stafford student loan: by 2001, the deduction will cover a
be withdrawn by the beneficiary, and taxed.
loa in the $30.000 range, says Benjamin Tobias of Tobias
The new law also lets you take money from a regular
not give a
Fir ncial Advisors in Plantation. Fla.
IRA for education expenses without paying the usual 10
needed.
fou can take the deduction only for interest paid during
percent tax penalty if you are under 59½
the first Live years in which payments are required. If you
What's your best savings strategy now?
1111 WASHINGTON
rted repayments in 1996. the write-off ends with your
Education IRAs are worth establishing only if you start
A0 tax return.
when your child is very young, says financial planner
company to place
You get the write-off even if you don't itemize
Warren Mackensen of Hampton. N.H.
but never give out
reductions. That will be a big help to new graduates who
In the year you use the IRA money. you can't also use
uber if you didn't
normally take the standard deduction.
Interest is deductible on loans taken for your OWD
the new education tax credits-the Hope Scholarship
it sounds authentic
which you regularly
ducation. that of your spouse or of a dependent. Note:
Credit or Lifetime Learning Credit. If your education IRA
You can't deduct interest on loans given by relatives.
is small. these credits will be worth more.
people you know.
What's your best borrowing strategy going to be? Take
It's not yet known whether mutual fund companies will
the cheapest loans you can get. For most students, that
even offer low-fee education IRAs, because they're SO
me SO sophisticat-
ible to tell who is
would be subsidized Staffords (now at 8.25 percent) if you
small, Benjamin Tobias says.
So avoid flashy
qualify for student aid. Some states and colleges lend at
Neither you nor anyone else can contribute to an
Stafford rates or even below.
the telephone or
education IRA and a state prepaid tuition plan for the same
Next. turn to unsubsidized Staffords and Plus loans for
child in the same year. If you're sure your child can benefit
th someone who
parents-ask about them at the college financial-aid office.
from the tuition plan. it's the better choice because you can
I the phone. With
Once you've borrowed the maximum deductible
put in more money.
g SO well, lots of
education loan. borrow against your home equity. Interest
offer you phony
is deductible on home equity loans as large as $100,000.
Anyone. regardless of income. can put up to $2,000 of
! Divorcing parents might want to rearrange their
after-tax money into a regular IRA. let it accumulate
ties. It takes a
t through legiti-
separation agreement. If one parent claims the child as a
tax-deferred. then use it for college. paying income taxes
tax dependent and the other borrows money for college,
on the gains as they withdrawn.
a novice, would
real estate deal,
as often happens in divorce settlements, neither of them
The same withdrawal rules apply to the new Roth IRAs
will get the deduction.
or IRAs funded with pretax dollars. But they re best left as
npany or trozen
nent? (Seriously.
Tax-favored savings accounts.
retirement accounts.
one IV offer
s.)
0 exe
self
your lune. Just
BASIS POINTS
PHOTOCOPY
n the other end is
from your hard-
PRESERVATION
at hr
0 one ever knows where the
traders sold bonds on the rumor The
TREASURY
FRIDAY WEEK YEAR
start but. at the end
AGO
AG
Pauline_Abernathy@ ed.gov
08/25/97 10:01:00 PM
Record Type:
Record
To:
Michael Cohen, Robert M. Shireman, William R. Kincaid
CC:
Subject: Implementation of new tax provisions
With enactment of the tax cuts for higher education, many people
are asking questions about their implementation (e.g. how people
can file for them, when, using what form, what documentation, how
they interact with other financial aid, etc.).
The Department has begun working with Treasury on these issues,
and two people in OPE are leading our work on implementation of
the higher education tax cuts: Dan Madzelan in Maureen
McLaughlin's office and Brian Kerrigan in Betsy Hicks' office.
Feel free to call them if you have any questions or suggestions
on tax implementation. It is very important to ask one of them
to review any written document on the tax cuts -- now that the
tax cuts are law, the Treasury Dept. and IRS are concerned that
any written materials be consistent with their plans, policies,
and procedures. Treasury is working with us to ensure that the
tax cuts are implemented in ways that address the needs of the
education community, and we need to be sensitive to their
concerns as well.
The two Treasury tax analysts working on the education tax cuts
asked me to share their names and numbers with you; they are
Clarissa Potter (622-0999) and Catherine Livingston (622-1343).
Of course, Maureen and I are still happy to try to answer any
questions on the tax cuts as well! -- Pauline
TALKING POINTS: RELEASE OF DISTRIBUTIONAL TABLES
August 22, 1997
The Treasury Department is today releasing distributional tables for the major provisions of the
Taxpayer Relief Act of 1997. Accompanying these tables are similar, previously released tables for
the major provisions of the tax bills that passed the House and Senate, as well as for the President's
June 30 tax proposals. (There are eight tables in all, two for each of the four packages.)
The distributional tables show that:
48.3 percent of the benefits of the major provisions of the Taxpayer Relief Act go to the
middle 60 percent of families in the income distribution. This is between the 66.9 percent
of the President's June 30 tax package and 32.1 and 34.2 percent in the bills that passed the
House and Senate, respectively.
In the first five years of the tax bill, 81.2 percent of the total gross tax cuts go to the
HOPE tax credit, the Lifelong Learning credit, the child credit and saving provisions --
all tax reductions that primarily benefit middle-class taxpayers. Even in 2007, the last year in
the ten-year budget window, 65.1 percent of the gross tax cuts go to these middle-class
provisions.
The Taxpayer Relief Act gives larger percentage tax cuts to middle-income families
than to upper-income families. For example, the second lowest quintile will get a 5.4
percent cut in their tax payments, while the highest quintile will get a 2.8 percent tax cut. So,
unlike the House and Senate plans, which would have given the largest percentage cuts to
families in the top 20 percent of the income distribution, the budget follows the President's
plan and gives larger percentage tax cuts to middle-income families than to the highest
income families.
It is important to remember that these tax provisions were a critical component of the compromise
that produced the bipartisan balanced budget agreement.
This is the first balanced budget in a generation, building on the success of President
Clinton's 1993 economic plan which helped to reduce the federal deficit from $290 billion in
1992 to an expected $37 billion this year.
The largest increase in higher education funding since the G.I. Bill of 1945, including
higher education tax cuts and the largest Pell Grant increase in two decades
The largest investment in health care for children $24 billion -- since the passage of
Medicaid in 1965
The balanced budget protects our nation's most vulnerable people. The budget includes
$12 billion to restore both disability and health benefits to legal immigrants who are
currently receiving benefits or become disabled in the future.
13 million children from families with incomes below $30,000 will receive the $500 child
tax credit, thanks to the President's insistence that these hard-working families be eligible.
ALICE SHUFFIELD
5/15
Bob -
Here is our
draft SAP on
H.R. 1385,
which goes to the
House Ploor
tomorrow morning
Potus 4/29 letter
also attached.
Look ok by you?
flics
DRAFT NOT FOR RELEASE
May 15, 1997
(House)
H.R. 1385 - Employment, Training, and Literacy Enhancement Act of 1997
(Rep. McKeon (R) CA and 6 others)
The Administration is pleased that H.R. 1385, as reported by the House Committee on Education
and the Workforce, incorporates many of the principles articulated in the President's G.I. Bill for
America's Workers. These principles, which are central to reforming Federal job training
programs, support the common goal of building an integrated workforce development system.
The new system embodied in H.R. 1385, based on a firm foundation of individual opportunity,
empowerment, and improved performance information, represents a good first step toward
improved accountability to taxpayers.
Although the Administration supports House passage of H.R. 1385, it does not agree with every
provision of the bill, such as those affecting adult education and vocational rehabilitation.
Therefore, the Administration looks forward to working in the Senate to address these concerns
and to enact legislation that best meets mutually shared objectives.
Pay-As-You-Go Scoring
H.R. 1385 would affect direct spending; therefore, it is subject to the pay-as-you-go requirement
of the Omnibus Budget Reconciliation Act of 1990. OMB estimates that the pay-as-you-go effect
would be zero.
(Do Not Distribute Outside Executive Office of the President)
This draft position was developed by LRD (Connie Bowers) in consultation with HR (Barry
White/Larry Matlack/Maureen Walsh/Kathy Stack/Aromie Noe). The Departments of Labor
(Morin), Education (Hansen), Justice (Jones), HHS (Montgomery) and the Interior (Simmons),
the Office of Personnel Management (Wolf), Social Security Administration (Warner), Office of
Government Ethics (Ley), and OIRA (Oleinick) agree with this position. This draft statement was
also sent to the following agencies, which did not comment: the Department of Housing and
Urban Development, the National Commission on Disability, and the National Institute for
Literacy.
BACKGROUND
Administration Position To Date. On April 30th, the President sent a letter to the House
Committee on Education and the Workforce for consideration at the Committee's markup of
H.R. 1385. That letter commended the bipartisan effort to craft legislation that would achieve
many of the objectives shared by the Administration and Congress. It stated that "while we do
not agree on every provision of the bill, especially those affecting adult education and vocational
2
rehabilitation, this legislation advances our common goal of building an integrated workforce
development system consistent with most of the principles I articulated in my G.I. Bill for
America's Workers." The President's letter noted that the bill is a "good first step" toward
making the job training system more accountable.
In the 104th Congress, the Senate and House passed different versions of workforce development
legislation, but the conference bill failed to reach a floor vote. H.R. 1385 does not contain some
of the controversial features that stymied the legislation last year (i.e., it does not affect in-school
vocational education programs and it would not repeal the School-to-Work Opportunities Act).
SUMMARY OF H.R. 1385
Block Grants
H.R. 1385 would consolidate existing Federal employment, training, and literacy programs into
three block grants to States and localities for: (1) adult employment and training for
disadvantaged adults and dislocated workers who are chronically unemployed or who have lost
their jobs as a result of economic shifts or corporate downsizing; (2) disadvantaged youth,
including high school dropouts; and (3) adult education and family literacy to assist low-income
people to obtain skills necessary to become employed (e.g., those trying to make the transition
from public assistance to the workforce).
While the grant programs for disadvantaged youth under the Job Training Partnership Act would
be consolidated into the State block grants, Federal administration of the Job Corps would be
maintained. That program provides residential vocational education and training for
disadvantaged youth aged 16-24.
Federal Role
The Secretary of Labor would oversee the employment and training programs and the Secretary
of Education would oversee the adult education and literacy programs. The Secretaries would:
(1) allocate funds, by formula, to States; (2) receive and review State plans; (3) carry out
authorized national activities (including research, program assessment and evaluation, and
demonstrations); (4) issue regulations; and (5) carry out duties with respect to State
accountability. With regard to State accountability, the Secretaries would: (1) negotiate
expected levels of performance with the States identifying challenging levels of performance for
"core indicators"; (2) promulgate uniform definitions for each core indicator; and (3) award
performance incentive grants.
State Role
To receive block grant funds, States would be required to develop a single, three-year State plan
for the three block grants, along with other programs authorized under the Wagner-Peyser Act.
The State plan would be developed through a collaborative process in each State, with the
3
Governor convening relevant public and private sector groups. This would replace the current
JTPA requirements that designated State Councils be established in each State. The State plan
would be submitted to the Secretaries for review and must be approved consistent with the
provisions of the Act. State responsibilities would include: (1) identification of goals and
benchmarks; (2) designation of local workforce development areas and criteria for appointment of
local boards; and (3) development of criteria for the Statewide full-service employment and
training delivery system.
The bill was amended in Committee to require State legislatures to appropriate the block grant
funds. The bill fails to provide presumptive authority to State educational agencies for the
administration of adult education and family literacy funds.
Local Role
The bill would require the establishment of local business-led workforce development boards,
replacing currently authorized Private Industry Councils (PICs) established under JTPA. These
boards would: (1) develop local plans; (2) select and certify eligible providers; (3) select and
award grants on a competitive basis to eligible providers of disadvantaged youth activities;
(4) work with Governors in identifying eligible providers of training services; and (5) develop a
budget for carrying out adult training and disadvantaged youth programs and conduct oversight
over such programs. Local boards, elected officials, and the Governor would conduct
negotiations and agree on local benchmarks toward meeting State performance goals.
Skill Grants
The bill would require adult training to be provided through skill grants (vouchers), distributed
through the full service employment and training system. Trainees would be provided choice in
their selection of eligible providers. Participating training programs would be required to report
annually on their performance to the State-identified agency.
Performance Accountability
The bill would require each State to establish its own long-term goals for each of the three block
grants through which it receives funds. Goals would be measured through indicators of
performance or "benchmarks," which include measures of specific "core indicators" of
performance. Each State's benchmarks would be negotiated between the State and the Federal
Government, taking into account factors such as how the State's performance levels compare
with other States and how they compare to the model levels of performance. However, the bill
does not provide guidelines for settling these negotiations. Currently, under the JTPA, the
Secretary of Labor establishes national standards for job training programs, which are then
adjusted by the States.
4
Vocational Rehabilitation
H.R. 1385 would reauthorize for three years the Vocational Rehabilitation Act, which provides
training and rehabilitation money to States for the mentally and physically disabled. It would
amend that act to better coordinate it with other employment and training programs.
ISSUES FOR RESOLUTION IN THE SENATE
The Department of Labor (DOL) has the following concerns:
Lack of an assured summer jobs component. DOL supports consolidation of the
summer and year-round training programs for disadvantaged youth into a single grant.
However, the Department believes that summer jobs must be an essential element of that
grant. While H.R. 1385 would authorize summer jobs as an allowable activity, DOL
believes that the legislation should ensure that each local area provides summer job
opportunities to disadvantaged youth. Labor notes that for many youth, a summer job is
their first opportunity to work and their first critical step in learning the work ethic.
Inadequate worker representation on local boards. DOL supports the provision in the
bill for local workforce development boards to have a strong role in the administration of
the new workforce development system. However, DOL believes that it is essential that
such boards explicitly include representatives of organized labor, in order to enhance the
board's ability to link the workforce development system to the labor market.
The Department of Education (ED) has the following concerns:
Inadequate accountability. ED is concerned that H.R. 1385 would not ensure that States
can be held accountable for providing high-quality, effective programs that yield
satisfactory outcomes for their participants. ED believes the Secretaries should approve
State plans based on their quality and promise to meet the purposes of the Act, not solely
on their technical compliance. In addition, ED believes that the Secretaries and States
should negotiate, and reach agreement on, challenging levels of program performance,
including all the "core indicators" of such performance. (Note: DOL does not share this
concern.)
State Governance. ED believes the bill should make clear that State educational agencies
will continue to play the lead role -- as they do under current law -- in planning and
implementing adult education programs. This would maintain stable administrative
structures that help to link such programs to other education efforts and funding
resources.
5
Legislative Authority. ED believes the bill should retain a free-standing Adult Education
Act that contains all the statutory provisions necessary for understanding, and
implementing, the programs authorized. H.R. 1385, while nominally reauthorizing the
Adult Education Act, would strip it of provisions relating to the definition of terms, State
plan requirements, and accountability measures, which would be placed in another law.
ED believes there is no programmatic justification for this complex and confusing
legislative approach.
OMB certification of agency compliance with information technology accessibility
procurement guidelines. Rep. Eschoo (D-CA) may offer an amendment that would
require the Director of OMB to certify agency compliance with information technology
accessibility procurement guidelines. This amendment would place compliance
enforcement responsibility with OMB, which does not have the personnel resources
necessary to do this effectively.
The Department of Justice also has concerns about certain changes to the nondiscrimination
provisions of the Job Training Partnership Act and believes that some of the provisions regarding
Native Americans are in need of refinement. Justice would like to submit its comments to the
Senate, pending the outcome of interagency review.
PAY-AS-YOU-GO SCORING
According to HRD (Fairhall) and BASD (Sullivan), H.R. 1385 is subject to the pay-as-you-go
(PAYGO) provisions of the Omnibus Budget Reconciliation Act of 1990. The estimated PAYGO
effect of the bill is zero. H.R. 1385 would authorize programs under the Rehabilitation Act that
are scored as mandatory under the Budget Enforcement Act. The provisions in H.R. 1385 would
simply extend appropriations authorizations of such sums as may be necessary. As funding levels
would be subject to appropriations, the PAYGO effect would be zero.
LEGISLATIVE REFERENCE DIVISION DRAFT
May 15, 1997 - 11:15 am
ID:
MAY 15'97
11:24 No 002 P.02
THE WHITE HOUSE
WASHINGTON
April 29, 1997
Dear Mr. Chairman:
There has been widespread agreement on the
nood to reform Federal job training programs to
create a world class workforce development system.
While we have engaged in a healthy debate on the
best means of achieving that reform, I appreciate
your willingness to incorporate many of my core
principles in H.R. 1385 -- bipartisan legislation
to realize our mutual goal.
Although we do not agree on every provision
of this hill, especially those affecting adult
education and vocational rehabilitation, H.R.
1385, as introduced by Represontatives Howard
McKeon and Dale Kildee, advances our common goal
of building an integrated workforce development
system consistent with most of the principles I
articulated in my G.I. Bill for America's Workers.
Those principles include: individual empowerment
coupled with good information to guide customer
choice; leaner government through program
consolidation and one-stop service delivery;
better accountability for results: and the State
and local flexibility needed to shape local
systems in partnership with business-led local
workforce development boards.
I am pleased that this legialation
incorporates principles that are similar to my
G.I. Bill tenets. Your approach will permit
continued progress toward reforming, streamlining,
and integrating job training and employment
services within a one-stop workforce development
system. Most importantly, this new system will be
based on a firm foundation of individual
opportunity, empowerment, and improved performance
information -- representing a good first step
ID:
MAY 15'97 11:25 No. 002 P.03
The Honorable William F. Goodling
Page Two
t.owards improved aocountability to consumers and
taxpayers for results. The inclusion of skill
grants will ompower those seeking training or
retraining, ultimately giving them greater control
over their career development.
It is time for us to work together to craft a
system that allows all Americans to obtain the
skills needed to succeed in the 21st Century
workforce. My Administration stands ready to work
with you and the Congress to assure that this
vital reform legislation meets our shared
objectives.
Sincerely,
Bui Clintea
The Honorable William F. Goodling
Chairman
Committee on Education and the Workforce
House of Representatives
Washington, D.C. 20515
MAY-19 yr 14:47 FROM:
1u:20245bcce3
PHGE : 01
Office of the First Lady
The White House
PH: (202) 456-6266
FAX: (202) 456-6244
To: Bob Shireman
Title (Affiliation): NEC
Telephone Number: (1)456-2803 (6)
FAX Number: ( 16-2223 )
From: Abby Hendel
Telephone Number: ( , 6-626 )
Number of Pages (Including Cover): 3
Date Sent: S/IT
Comments:
Thanks for your help
l'IHT - 19 14:48 RUIT:
PHGE : VC
PANHANDLE
STATE
Established 1909
OKLAHOMA
UNIVERSITY
Office of the President
March 6, 1996
Ms. Hillary Rodham Clinton
The White House
Washington, D. C., 20500
Dear Ms. Clinton
You may or may not recall that ] was Vice President for Agriculture at the University of
Arkansas and spent about ten days in the fall of 1985 with you and then Governor Clinton on
a trade mission to the Orient. Since then, we have both moved on to larger responsibilities.
You and he are in the White House and 1 am President of my alma mater -- a regional state
university in Oklahoma.
It is as a college president that I am writing to you. I well remember -- and respect -- the
contribution that you made to the quality of education in the state of Arkansas. I also remember
that the advisor to whom Bill Clinton listened most carefully was his wife. Most of the
President's proposed programs I can fully support. The Hope Scholarship proposal of a $1,500
tax credit for first year students 1 perceive to be a sound national investment While I can
support the concept of tax deductibility for tuition and fees, the $5,000 limit for 1997 and 1998 -
- increasing to $10,000 per year in 1999 -- is in my judgement excessive.
The tuition and fee expense in most publicly supported colleges and universities is considerably
below $5.000 per year -- indeed, at Oklahoma Panhandle State University. the total cost for
tuition, fees. book rental, and room and board in an on-campus dormitory is less than $4,000
annually!
The $10.000 annual tax deduction for college tuition and fees is objectionable for three reasons.
First, it would encourage governing boards to increase tuition and fees beyond the levels that
are absolutely necessary. Second. it would encourage students to select private rather than
public institutions. This would drain resources from public institutions, forcing either increased
public investment in the operation of these institutions or escalation in the fees extracted from
the reduced numbers of students enrolled. Third, this excessive $10.000 limit would tend to
foster an elitist attitude that is philosophically repugnant to my old populist roots. The Reagan-
Bush era fostered a quite enough of an elitist attitude in this country, thank you very much.
PO Box 430, Goodwell, Oklahomu 73939 Telephone 405-349-2611 Fux 405-349-2302
ПНТ-19 yr 14:48 FRUIT:
PHGE 05
Nationally, students in publicly supported higher education currently pay about one-third of the
total cost of their education (In Oklahoma, they pay about one-fourth). The 1945-65 baby boom
dramatically expanded the need for higher education beginning in the early 1960's. This need
was met through increased public rather than private investment. The wisdom of utilizing the
tax structure to encourage students to select private institutions when the public sector has
already invested in the facilities and already pays two-thirds of the operating costs of public
institutions is questionable. It is even more questionable in view of the reality that there exists
a substantial excess capacity in higher education - most of which is the result of previous public
investment that addressed a need that the private institutions were either unable or unwilling to
meet.
A well educated populace is unquestionably a key to the nation's ability to compete in a global
economy. But that objective can be accomplished at considerably less public expense through
public institutions of higher education. May I suggest that the tax deductibility of college tuition
and fees be limited to $115 per semester credit hour (or $77 per credit hour in institutions
utilizing the quarter system) in which the student is enrolled? This approach would permit tax
deductions of up to about $3,450 annually per family member enrolled in a full-time course of
study. This would address the problems of middle class families maintaining access to higher
education. It would further address the problems of families that have more than one offspring
in college and those in which one or both spouses need to seek further education through part-
time study.
Yours very truly,
John John W. Goodwin H. Goodwin
President
CRITICISMS OF AMERICA'S HOPE SCHOLARSHIPS
WOULD ONLY HELP THOSE ALREADY PLANNING TO GO TO COLLEGE
Washington Post: "Several economists said yesterday that money spent on the Clinton
educational credit would mostly end up lining the pockets of students planning to further their
education anyway." [Source: Washington Post, 6/05/96]
Robert Reischaur, former director of the Congressional Budget Office. Called the Clinton
proposal "a certifiably bad idea." Like tax breaks generally, he argues, it will subsidize activities -
in this case, college education - that many people would have undertaken without the sweetener."
[Source: Wall Street Journal, 6/05/96]
TUITION INFLATION
Washington Post: "One expert criticized the tax break as a disguised government subsidy whose
primary effect would be inflated tuition costs." [Source: Washington Post, 6/05/96]
American Association of State Colleges and Universities. "The American Association of State
Colleges and Universities said it is `very likely over time' that some schools, or the state officials
who regulate their prices, would raise tuition to that amount to capitalize on new federal money.
[Washington Post, June 8, 1996]"
Washington Post. "Even some higher education officials who said the president's latest proposal
could greatly improve access to college, particularly for poor and working-class families,
expressed concern that it could lead as well to more tuition increases." [Washington Post, June 8,
1996]
GRADE INFLATION
Washington Post. "The fear, echoed by officials in other departments, is that community college
teachers all over the country would feel responsible for students losing out on a college education
if they don't give B grades or higher." [Source: Washington Post, 6/5/96]
WON'T HELP INCREASE ACCESS OR INCREASE ENROLLMENT
Investor's Business Daily. "Clinton's tax plan likely will go the way of the middle-class tax cut,
fast forgotten once the election was won. Even if it becomes law, it still might not help. In fact,
subsidies and tax breaks may make it easier for colleges to keep jacking up prices." [Source:
Investor's Business Daily, 6/12/96]
Aldona & Gary Robbins on Why HOPE is Not Necessary: "Today, 62% of high school
graduates go on to college, up from 45% in 1960. The tuition tax credit would boost that only
slightly, at considerable cost." (Investor's Business Daily)
Aldona & Gary Robbins on Ineffectiveness of HOPE: "The combined credit-deduction would
cut average tuition costs by only 10% a year. And it would shave just 3% off the average student's
total costs for a year of post-secondary education. If people exhibit the same price sensitivity with
respect to college education as they do for most other goods and services, enrollment would rise
by 3% On average, every extra dollar spent on higher education from 1973 to 1993 drove up
the real cost per student by 40 cents. So we can only expect the tuition tax credit to cut the price
of college by 6%, not 10%. That drops the expected rise in enrollment from 3% to 1.8%."
(Investor's Business Daily)
LITTLE BANG FOR THE BUCK
Aldona & Gary Robbins on High Cost of HOPE: "[S]tudents who already go to college would
also qualify for the tax relief, so the plan provides extremely little bang for the buck. To get three
more students to go to college, it would spend $4,500 (3 X $1,500) plus $150,000 for the 100
students who would have gone to college anyway. In other words, the Treasury would be out
$33.33 for every $1 that reaches a new student. The president claims that a student with two years
of college will earn an extra $250,000 over his or her lifetime. That makes spending the $3,000 on
tax credits seem wise. But the aid to 33 students who would have attended in any event makes the
true cost $103,000. Even allowing for tax income from the $250,000 in extra earnings, the U.S.
government is out $60,000 for each new student On average, every extra dollar spent on higher
education from 1973 to 1993 drove up the real cost per student by 40 cents [that] boosts the
government's cost per new student from $60,000 to $125,000." (Investor's Business Daily)
Barry Farnsworth, Brookings Institute. "These sorts of things tend to have very low bang for
the buck we already have an elaborate system in place for offering financial assistance to those
who qualify." [Source: Washington Post, 6/05/96]
Barry Farnsworth, Brookings Institute. "Academic evidence suggests "the real problem isn't
money, it's either that students have no interest in more schooling or they underestimate its future
benefits," [Source: Washington Post, 6/05/96]
LITTLE SHORT TERM GAIN
Aldona & Gary Robbins on HOPE Only Having Impact in Long-Term: "[T]he gains would not
show up in the labor force for a long time. It would take 20 years to increase the share of workers
with some post-secondary education by 0.5 percentage point and 35 years to raise the share by
one percentage point." (Investor's Business Daily)
STRAIGHT TAX CUTS ARE BETTER
Aldona & Gary Robbins on Tax Cuts Instead of HOPE: "We could raise the value of
investment in human capital by lowering the taxes on labor income and by raising the demand for
labor services and, therefore, wage rates. A cut in marginal tax rates would do both." (Investor's
Business Daily)
GENERAL
Washington Post: "But Clinton's proposal for new students tax breaks earned low marks from
many economists, some of the members of the president's economic team." [Source: Washington
Post, 6/05/96]
Washington Post: "As one aide put it: "There was a sense from some that this was good social
policy and good tax policy, perhaps, but that it was not good education policy." [Source:
Washington Post, 6/05/96]
Pete Sepp, National Taxpayers Union. "On the one hand, he's giving a tax credit to the kids to
go to school, and on the other hand, he's taxing the companies who would otherwise be able to
hire them. He's simply offsetting one credit for a bunch of tax increases. It won't do much for the
economy. It doesn't really address the reasons college tuitions are increasing," [Source:
Washington Post, 6/05/96]
MA
Robert M. Shireman
05/06/97 09:10:12 PM
Record Type:
Record
To:
Jake Siewert/OPD/EOP
CC:
Subject: Re: Josh Shenk, U.S. News -- Questions on Education Proposals
Jake: I'm happy to talk Josh through these, or you can give him this info.
Q. Evolution of tax credit originally refundable? Dropped?
A: As originally designed, the HOPE Scholarship was a refundable tax credit. Refundability
is necessary to ensure that a credit is available to individuals -- generally low income -- who
do not have sufficient tax liability to take advantage of a tax credit. But in the case of HOPE,
those low-income individuals should be eligible for a Pell Grant instead, making refundability
of HOPE unnecessary (the proposal has always been designed so that anyone who receives
$1500 or more in Pell Grants is not eligible for the tax credit). In analyzing the HOPE
proposal during the development of the FY 98 Budget (Nov-Jan), we determined that there
was one major group of low-income individuals who are not eligible for Pell Grants and
therefore would need refundability in order to benefit from HOPE: independent students
(generally over age 24) without dependents other than a spouse. Since grants, provided
up-front, are the best way to help low-income students, we decided to spend more than $4
billion over the five-year budget to add this group to the Pell Grant program. This allowed us
to drop refundability.
Q. Were Pell grants added later in process?
The expansion of the Pell Grant program to 218,000 additional independent students was part
of the decision to drop refundability of the HOPE Scholarship. The increase in the Pell Grant
maximum to $3,000 was not related to HOPE, but was an option that was under consideration
throughout the budget process.
Questions and Answers
PELL GRANTS
Moving funds from middle-income HOPE recipients?
Q:
The early press reports imply that in order to fund the increase in Pell Grants for low-
income students, money was shifted from the middle-class HOPE Scholarship. Is that accurate.
A.
Absolutely not. The "refundability" in the prior design of the HOPE Scholarship was
there to provide the credit to low-income students with little or no tax liability. That provision
has been eliminated because those same low-income students can be better served by this
increase and expansion of the Pell Grant. So it is essentially the same population; there is no
shift of funds from one income category of students to another.
Need Determination Rule Change
Q:
You say that many poor older students aren't eligible for Pell Grants now. What level of
income are you talking about? Why is that the case?
A:
The formula for determining a student's need for Federal aid, under changes made in
1992, is less generous to needy students aged 24 or over than other students. The President's
proposal will restore equity for older students and thereby increase their eligibility for Pell
Grants. This expansion will bring 218,000 students into the program who are currently not
eligible. They are generally students with annual incomes from $10,000 to $20,000. In addition,
891,000 students, generally with incomes between $5,000 and $20,000, will see increases in their
grants of an average of more than $800.
Change in Announced Pell Policy
Q:
Last year, the President talked about increasing the Pell Grant maximum to $2,780 in
FY1998 and $3,120 by FY2002. Now the President proposes increasing a maximum Pell Grant
to $3,000 in FY1998. Which programs are proposed to be cut to pay for the large increase in the
maximum Pell Grant? How much increase will the President seek in future years?
A:
The five-year budget builds in continued inflation-offset increases for spending on Pell
Grants. That's a floor, not a ceiling. The President certainly wouldn't want to rule out additional
1
increases in future years, depending on the budget situation. Similar increases are predicted for
other Education programs. Education is one of the President's highest priorities.
STUDENT LOANS
Reduced Origination Fees
Q:
The committee and subcommittee chairmen who handle education have warned that if the
Administration puts student loan changes into reconciliation, they will renew their attacks on the
direct loan program. Are these cuts in fees paid for by imposing costs on the student loan
industry, and do you plan for this to be in reconciliation?
A:
The bank-backed guaranteed loan program is not under attack. The Secretary of
Education met with the committee leadership and told them that there would be student loan
changes in the budget. They had heard rumors that the industry subsidies would be reduced by
$8 or $9 billion. That figure is way off. The bank reductions will be on the order of what was
included in the Republican budget plan last year. And there will be some restructuring of the
program, to improve management and accountability.
Student Loan Interest Rates
Q:
You say that in addition to reduced origination fees, student loan interest rates will be
reduced. Would you explain this reduction?
A:
It is a one percentage point reduction during the in-school and deferment periods, when
banks don't have any significant work that they have to do. This saves money for taxpayers on
Stafford loans (where the government picks up the in-school interest), and saves money for
borrowers on Unsubsidized and Parent loans.
Competition of Direct and Guaranteed Loans
Q:
Is there any change in your policy of competition between the Direct and guaranteed loan
programs?
A:
No. The budget will support allowing colleges to choose between the two loan programs,
and will propose changes to remove barriers so that the guaranteed program can try to do some of
the innovative things that the Direct Loan Program has been able to do.
2
STUDENT LOANS (Continued)
Bank-Paid Fee Proposal
Q:
On fees, Chairman Goodling tried to move a bill last year that would allow banks to pay
the fees for students, but it ran into trouble from Democrats in the Senate and the Administration.
Do you think that will change?
A:
The Administration's proposal is much broader and more equitable than Chairman
Goodling's proposal. It should be embraced by Republicans and Democrats alike.
HOPE SCHOLARSHIPS AND TUITION TAX DEDUCTION
IRS Role of Information Collection
Q:
Will the IRS be collecting transcripts to confirm the B average requirement?
A:
No, the Federal government is not going to be collecting transcripts. A simple, non-
intrusive procedure will be used to provide students and the IRS with the information they need
to administer the tax credit. As currently envisioned, colleges would simply check a box if the
student has at least a B- average or the equivalent, on the same simple computer printout that
would tell the student and the IRS how much tuition he paid, and how much Federal aid he got.
We will continue working with the higher education community to determine the details of this
reporting requirement to ensure as little burden as possible,
Non-Traditional Grading System
Q:
How do colleges that don't use traditional grading systems satisfy this requirement?
A:
Those colleges are accustomed to dealing with this problem for things like auto insurance
that offers discounts for good grades. The Secretary of Education will work with the higher
education community to develop whatever standards are necessary.
Reporting Burden on Schools
Q:
This reporting system sounds like it could be a burden on colleges. Is that going to be a
problem, either administratively or politically?
3
A:
The burden will be very small compared to the $36.2 billion that will be made available
for higher education over the next five years. A few key pieces of information -- many already
on the school's computer system -- will need to be provided. The cost will be minimal. (As a
point of comparison, the federal government reimburses educational institutions $5 for each Pell
Grant application it processes; these reports would be far less complicated).
Grade Inflation
Q:
Won't this cause grade inflation?
A:
This proposal is based on a successful program in Georgia, and there hasn't been any
evidence of a grade inflation problem since that program began four years ago.
Keep in mind that professors always have a lot of pressure to raise grades -- for some
students who want to go to a top graduate school, for lower auto insurance rates, or for other
reasons. Ultimately, professors need a grading system that is equitable for all students, not just
those with special circumstances. Moreover, the HOPE grade requirement is only relevant for
second-year, middle-income students.
That's not to say that we don't want to see an increase in grades. The purpose of the B
requirement is to give freshmen an additional incentive to really apply themselves, because
students who get off to a good start are most likely to finish college successfully.
Tuition Inflation
Q:
Won't colleges, especially community colleges, increase their tuition, now that so many
students will be getting this $1500 credit?
A:
This is always an issue with any tax benefit or government program, so it is something to
watch for. But even with the increases and decreases in student aid over the past three decades,
there is little evidence of a relationship between federal aid and college tuition levels. In Georgia
-- where the HOPE scholarship idea began in 1993 -- tuition at public two-year colleges grew by
13% between the 1992-3 and the 1995-6 academic year, compared to a national average of 21%.
Community college fees are heavily influenced by the community member who takes just
one course at a time. Those students are not eligible for HOPE, so this would be a strong
counter-weight to any inflationary pressure in that sector.
Remember also that the credit is available for only the first two years. The third- and
fourth-year students taking advantage of the deduction would still be very sensitive to price.
Four-year institutions don't have different tuition levels for juniors and seniors than for freshmen
4
and sophomores, and that should help keep any inflationary pressure under control.
Mismatch between Academic and Tax Years
Q:
Isn't there a mismatch here between academic years and tax (calendar) years that could
cause some real confusion? Chairman Archer raised the issue of a student who has a C+ average
in the fall of 1996 and a B+ average in the spring of 1997. Could he or she take the second
credit?
A:
We have reworked the credit so it is now very simple. If you have already taken the
credit once, then, the second time you plan to take it, you look at your GPA at the beginning of
that second taxable year. Students would not have to track precisely when they technically
finished their first or second academic years.
Part-Year Attendance
Q:
But if I'm starting college this fall, and I want to claim the credit next April at tax time, I
would only have gone to school for one semester. Does that cut my credit in half?
A:
No. Whatever you paid for tuition and fees in 1997 would count toward your full credit
eligibility (up to $1500). You could even pay for the spring '98 semester in December, so that
you could claim that payment for the credit or deduction. (We expect that taxpayers will learn to
take advantage of this, and that colleges may use it as a carrot to get students to pay their bills on
time).
Distributional Effects
Q:
How would the benefits of the credit and deduction be distributed across the income
scale?
A:
This is a targeted, middle-class tax cut. At a higher tuition school, the deduction would
be a benefit to any tax-paying family, even Pell Grant recipients. The value of the deduction is
obviously greater in the higher tax brackets, but both the credit and deduction phase out
completely at a $100,000 income level (for joint filers).
Expanded Access to Postsecondary Education
Q:
The President has talked about the tax breaks as a means of increasing access to higher
education by making it available to those who currently cannot afford it. Will the tax credit and
5
deduction boost postsecondary enrollment? How many more students would be likely to attend
college as a result of the tax break?
A:
There is no question that the Federal government's investments in higher education -- the
post WWII G.I. Bill, student loans, Pell Grants -- have helped to boost college enrollment. We
expect that this will also have a modest effect. But this is also a tax cut, to help middle class
families who are struggling now to pay to send their kids to college. Just because some families
are successfully struggling doesn't mean they don't deserve a break.
Shift from a Refundable to Non-Refundable Credit
Q:
Refundability of HOPE was the key aspect of the proposal that offered aid to lowest
income families. Why have you eliminated it?
A:
Essentially, it was a trade. The purpose of refundability is to provide a tax benefit to the
poorest Americans, those who don't have enough tax liability to make use of the credit. We
decided it would be better to serve these students through the Pell Grant program. That's one of
the reasons for the increased Pell Grant maximum, and particularly for the $4 billion eligibility
change for low-income older students. They would have benefited from refundability, but with
Pell they can get even more aid, over four years of college.
Impacts of Non-Refundable Credits on Needy Students
Q:
The tax credit amount is reduced by all non-taxable Federal educational grants (including
Pell grants) received by the student. Will the HOPE scholarship (and tuition tax deduction)
really help low- and moderate- income students who have the most difficulty meeting tuition
costs?
A:
The dramatic increases -- both last year and this year -- in the Pell Grant program are
designed to address the needs of low-income students. HOPE is part of a targeted, middle-class
tax cut plan.
Timing of Tax Credit Benefits
Q:
How will students be able to use a tax credit to pay for their education if they cannot get
their refund until many months after their tuition bill is due?
A:
As many people do when planning how to pay their mortgages, taxpayers will be able to
adjust their withholding in anticipation of taking the credit or the deduction.
6
Students Who Stop and Then Resume Their Education
Q:
Many students transfer after their first year (especially at community colleges) or "stop
out" and after several years resume their academic careers at a different institution. How would
grade and student account reporting requirements be handled for these students?
A:
The school would not need old financial data to prepare its information report. Grades
and academic credits are already generally transferred from one institution to the next. (To the
extent that any problems are raised, the Secretary of Education will work with the higher
education community to develop workable solutions).
Duration of Keeping Student Information
Q:
Individuals are generally advised to keep their tax records for at least seven years. Most
institutions do not keep account records for that long. If institutions were to provide information
to the IRS, how long would they be required to maintain records?
A:
The institutions would generally want to retain their records for student information in
much the same way they keep their tax records on employees. This may be as long as seven
years, but it depends on the institution and its advisors.
Eligible Institutions
Q:
To receive the HOPE scholarships or tax deductions, do students need to attend any
particular type of schools?
A:
Eligible institutions are defined by section 481 of the Higher Education Act. Such
institutions generally would be accredited postsecondary education institutions offering credit
toward a bachelor's degree, an associate's degree, or another recognized postsecondary
credential. They could also be proprietary institutions or postsecondary vocational institutions.
The institution must be eligible by the Department of Education to participate in the student aid
program under rules issued.
Changes in HEA Resulted from New Tax Proposals
Q:
The tax deduction is "above the line." That is, it is an "adjustment to income," such as
the IRA deduction, that lowers AGI. There must be significant implications of this adjustment
for the results of need analysis and the distribution of HEA Title IV aid. What are these effects?
7
A:
As part of the President's total package of education proposals, the Department of
Education has already drafted legislative language to ensure that need analysis and aid eligibility
will not change as a result of the education tax cuts.
Authority to Write Regulations
Q:
Who will have responsibility for writing the regulations to implement the HOPE
Scholarship and tuition deduction propsoals?
A:
The Department of Treasury will be primarily responsible for writing regulations
concerning tax administration, and the Department of Education will be primarily responsible for
writing regulations concerning the educational issues. There will be careful coordination
between the two Departments.
Older or Dislocated Workers
Q:
How will the deduction help older workers who lost jobs or want to learn new job skills?
A:
Even if they are not pursuing a degree, they can enroll in courses and the cost will be tax-
deductible. For example, they could take a course in computer programming or auto repair.
Courses for Hobbies VS. Courses for Career Development
Q:
The President's tuition tax deduction proposal provides tax relief to those who pursue
postsecondary education or training to improve their job skills. How is the IRS going to tell
whether a course was for fun or for job improvement?
A:
Our tax system is called a self-assessment system because there are many times where the
IRS must rely on the judgement and honesty of taxpayers filling out tax returns. For example,
taxpayers are required to distinguish between deductible business expenses and non-deductible
personal expenses. Of course, the IRS will provide guidance to taxpayers on how to distinguish
between a course that is for job training or skill enhancement and one that is simply for fun.
Felony Drug Conviction
Q:
If a student has been convicted of a drug felony, may he/she claim the tuition deduction?
A:
Yes.
8
GPA Requirement
Q:
If a student does not have a B- average at the end of the second year for which he wants
to claim a HOPE Scholarship credit, may he/she claim the tuition deduction instead?
A:
Yes, but not the credit.
Half-Time Requirement
Q:
If a student is enrolled in school less than half-time, may he/she claim either the
deduction or credit?
A:
The student may not claim the credit, but may claim the deduction if the courses are
being taken to improve or acquire job skills.
Foreign Students Not Eligible for Credit or Deduction
Q:
May foreign students claim the HOPE Scholarship or the tuition deduction?
A:
No. To be eligible, a student must first meet the eligibility requirements for Federal
student aid and must then also be a permanent resident of the United States.
Prevention of Multiple Claims for Same Student
Q:
What prevents both the parent and the student from claiming the credit for the student's
educational expenses?
A:
If the parent is claiming the student as a dependent, only the parent is permitted to claim
the credit or the deduction. Because the credit is no longer refundable, there is no incentive for a
student to elect to be treated as independent.
Interaction of Credit and Deduction
Q:
Can a student -- or the student's parents -- choose between the tuition credit and the
tuition deduction?
A:
Yes. A family can take either the credit or the deduction for tuition expenses incurred
9
during a student's first two years of college. However, the family cannot take both for a single
student in the same year.
Claiming the Credit and/or Deduction
Q:
If a family has multiple dependent children enrolled in college, may the parents claim
more than one tuition credit?
A:
Yes. The family may claim a credit for the tuition expenses of each child in the first or
second year of college. Alternatively, they may claim a deduction for their tuition expenses
during those years if it produces a better tax benefit for the family. The deduction, but not the
credit, is also available for tuition expenses after the second year of college. However, the
largest tuition deduction a family may claim in any single year is $10,000 ($5,000 for 1997 and
1998), regardless of how many children they have enrolled in college.
New Tax Form For The Credit and Deduction
Q:
Will taxpayers have to fill out a separate form to claim the tax credit or deduction? Tell
us what the form will look like.
A:
There will be a separate schedule to attach to the regular tax return.
Temporary vs. Permanent Tax Breaks
Q:
Are these tax benefits permanent or temporary? Do any of these spending or tax
provisions end just before the budget must be balanced?
A:
No games. The tax credit and deduction are proposed to be permanent, as are the IRA
changes and the public service provision. Section 127 (employer-paid educational assistance) is
extended through 2000.
10
WORK-STUDY
Number of Work-Study Jobs Created in FY1998
Q:
How many Work-Study slots can be funded at the FY98 funding level of $857 million?
A:
We estimate that the FY98 funding level would provide about 973,000 work-study
employment opportunities and would guarantee about $1 billion in student earnings..
View on Making Work-Study Earnings Non-Taxable
Q:
What do you think of the Republican proposal of making Work-Study earnings
nontaxable to students? Will the Administration support the Republican proposal?
A:
None of the Republican ideas for higher education tax breaks are bad ideas. We are
pleased that they agree on the need for some tax initiatives to support higher education, and look
forward to working with both parties in Congress to determine the best way to target the benefits.
Obviously, we feel that our plan is the best mix.
Requirement for Spending Increased Funding on Community Service Jobs
Q:
Will colleges be required to spend a portion of their increased work-study funds on
reading tutors for America Reads?
A:
The response of college presidents to the President's challenge has been remarkable, so
we don't expect to need to make it a requirement. The Secretary of Education has waived the
required institutional match for reading tutors for pre K through elementary school children,
which has helped to encourage colleges to sign on to the effort.
11
HONORS SCHOLARSHIPS
Means Test for Honors Scholarships
Q:
Is the President's Honors Scholarships means-tested? And if not, why not?
A:
The President's Honors Scholarships are not means-tested. This program provides a one-
time, $1,000 scholarship to every high school senior finishing in the top five-percent of his or her
graduating class. The purpose of this program is to encourage high academic performance
among all students.
Honors vs. Byrd Scholarships
Q:
How are the President's Honors Scholarships different from Byrd Scholarships?
A:
Both the proposed Presidential Honors Scholarship program and the existing Robert Byrd
Honors Scholarship program provide financial reward in recognition of the academic
achievement of graduating high school students. Byrd Scholarships, which the Administration
also supports, are not available to students at every high school in the country, go to a far more
limited population, and are four-year academic scholarships.
12
Student Loan Forgiveness Proposal
Beneficiaries of The New Propsoal
Q:
Whom do you expect to help with your proposals for student loan forgiveness?
A:
We expect to help students who enter what may become a growing number of programs
run by educational and charitable organization that essentially allow students to make their debt
payments through work in low-paying public or community service jobs.
13
REPUBLICAN PROPOSALS
Republican VS. President's Packages
Q:
How does the President's package compare to the Republican bill just introduced?
A:
As far as the higher education components, the President's package is far more
comprehensive. The President's tax proposals complement significant increases in Pell Grants
and substantial reductions in borrower fees. So far, at least, Republicans have not proposed such
increases in benefits for students receiving grants and loans. In addition, the President's
proposals include many components that encourage lifelong learning and attempt to help not
only traditional college students but also all other people who try to improve their job skills or
acquire new skills.
Permanent VS. Temporary Extension of Section 127
Q:
Republicans propose extending tax exclusion for employer-provided education assistance
(Section 127) permanently. Why does the President extend it only through the year 2000?
A:
Section 127 has frequently been extended for short periods, sometimes even
retrospectively. Section 127 needs to be extended for a significant length of time so that
employers and employees can count on the exclusion. The budget extends section 127 through
the end of the year 2000. Further extension could be considered in advance of expiration and
evaluated as part of development of future balanced budgets.
Bob Dole Education Investment Account
Q:
The Bob Dole Education Investment Account proposal seems to aim at encouraging
savings specifically for college education, whereas the President's expanded IRA proposal seems
to encourage people to replace IRA savings with educational investments. Wouldn't it be better
to encourage people to save for their retirement as well as for their children's college education?
A:
You have to look at each package as a whole and then evaluate whose plan would be more
effective in making college affordable to working families. We believe our package does the best
job of helping the broadest class of students.
14
Deductibility of Student Loan Interest Payment
Q:
Why doesn't the Administration support deductibility of student loan interest as do the
Republicans and Democrats?
A:
Again, there are a lot of ideas to consider. We will work with Congress to develop a
healthy package of targeted tax cuts for higher education. We have provided a package that helps
students while they are in school and allows them to reduce the debt they need to incur and leaves
the cost of the loans they do take out.
Making Qualified State Tuition Programs Tax-Free
Q:
What is the Administration's position on the Republicans' proposal to eliminate the
income tax on distributions from qualified state tuition plans?
A:
The Small Business Job Protection Act of 1996 made it clear that distributions from state
tuition plans would be taxed as income to the student beneficiaries. In most cases students will
not have sufficient income, even when the distributions are recognized, to have a significant tax
liability. Furthermore, our proposals for the HOPE Scholarship and the tuition deduction would
likely eliminate that tax liability. Because there are no income limits for qualified state tuition
programs, if distributions were completely tax free when used not only for tuition but personal
living expenses as well, wealthy families would be given a vehicle for deferring or avoiding tax
entirely on large amounts of income.
15
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Evaluating the Georgia HOPE Scholarship Program
Impact on Students Attending Public Colleges and Universities
SCHOOL
Gary T. Henry and Daniel T. Bugler
April 1997
Atlanta, Georgia
Two years after starting college, recipients of Georgia's HOPE scholarship program are more
likely to still be enrolled in college, have higher grade point averages (GPA), and have earned
more credit hours than their counterparts. The Council for School Performance, housed in the
Applied Research Center in the School of Policy Studies at Georgia State University, conducted
the first assessment of the Impact of the HOPE scholarship on college performance. After
following the 1994-95 HOPE recipients into their third year of college. the results show a
positive impact of the program on all three outcomes included in the study.
HOPE provides Georgia high school graduates who earn an overall high school GPA of 3.0 or
higher with free tuition, fees, and a book allowance at public colleges and universities. Only
HOPE scholars with a high school GPA between 3.0 and 3.16 were selected for this evaluation.
This allowed researchers to isolate the effect of the HOPE scholarship on the recipients by
selecting a comparison group with similar characteristics. The comparison group was matched
by their core high school GPA (includes academic courses only) and institution type1. The
students in the comparison group did not receive the HOPE scholarship because they did not
apply or did not meet all of the HOPE eligibility requirements.
Two questions were analyzed in this evaluation: (1) Does HOPE motivate higher levels of
performance and higher rates of persistence among students in college? (2) Does HOPE
allow students greater choice in selecting institutions of higher education? Other factors such
as institution type, sex, race, and high school preparation were included in this analysis
because they also affect college performance. This study compares students with similar
backgrounds to isolate the impact of HOPE on college performance. In future studies, we will
examine another potential impact of HOPE, its effect on high school performance.
Does HOPE motivate higher performance in college?
After two years of college, HOPE recipients whose high school GPAs were between 3.0 and
3.16, referred to as borderline HOPE scholars, had higher GPAs, more credit hours, and higher
persistence rates than a matched sample of non-HOPE recipients. HOPE recipients are
motivated to earn a B or better in college to retain the financial reward of free tuition, fees, and
books. In some cases, the possibility of earning a scholarship would motivate capable students
to simply work harder. Since HOPE eligibility depends on a set and measurable standard (a
GPA of 3.0 or higher at the completion of 45, 90, and 135 quarter hours), these students have
both a definitive goal and intermediate feedback as they acquire credits each quarter.
1 Institution type is based on Board of Regents' categories, which include national universities, regional
universitles. state universities, and two-year colleges. National universities are Georgia State University,
Georgia Institute of Technology, and University of Georgia. Regional universities are Georgia Southern
and Valdosta State. State universities include Albany State, Clayton State. and others.
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Impact of HOPE on College Performance
Because HOPE is relatively new, the research follows the progress of students through only
two years of post-secondary education. Three commenly used measures of college
performance have been used: persistence in college after two years of study, number of earned
college credits, and college GPA. Persistence is defined as whether the student is enrolled in a
Georgia public college or university in the fall quarter of 1996. two years after beginning
collegiate studies. College credits consist of quarter credit hours for work contributing to a
degree obtained through the summer quarter of 1996. Finally, college GPA is the cumulative
grade point average of the student through the same time period.
Highlights of the study's findings are:
After two years of study, HOPE students have slightly higher college GPAs and significantly
more college credits. They are also less likely to drop out of college.
Students who are better prepared in high school do better in college. earning higher college
GPAs and more college credits. They are also less likely to drop out of college.
Students who are required to take learning support courses have lower college GPAs and
fewer college credits, but they are more likely to stay in college.
The type of institution attended has no effect on college GPAs. However. students in two-
and four-year institutions progress more slowly and drop out more frequently than their
counterparts in Georgia's national and regional universities.
Female students have higher college GPAs and more college credits than male students.
They are also less likely to drop out of college.
What is the impact of HOPE on college GPA?
Borderline HOPE students have slightly higher college GPAs after two years of college
controlling for all other factors. The difference amounts to about one-tenth of a point on a four-
point scale. The borderline HOPE students in this study have an average 1.90 GPA in college.
Overall, 1994-95 HOPE scholars have an average college GPA of 2.41. Because higher GPAS
also lead to more credit hours earned and greater likelihood of staying in school, this HOPE
impact yields additional benefits.
Other factors that might influence college performance were included in the analysis. As
expected. high school preparation affects college performance. Students with higher SAT
verbal scores have higher GPAs, while students who are required by Board of Regents policies
to take learning support courses have lower GPAs. Unexpectedly, we find that students with
college prep diplomas had lower GPAs than those who did not acquire the college prep seal.
Female students have higher GPAs than males, but African American students have lower
GPAs than other students. Those who transfer to other institutions have lower college GPAs.
probably because dissatisfaction with the school or with their own performance would likely
cause students to transfer. After controlling for these other factors, the type of institution
attended has no independent effect on GPA averages except at two year institutions. where
GPA averages are about one-tenth of a point higher.
What is the impact of HOPE on college credits earned?
After two complete years of college, the borderline HOPE students have earned about 48 credit
hours. compared with 35.3 for their matched non-HOPE students. Overall, 1994-95 HOPE
scholars have earned 64 credit hours in two years of study. The difference that is directly
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Impact of HOPE on College Performance
3
attributable to HOPE is a little over one course. or seven credit hours. As noted above,
students with HOPE have higher GPAs, which also contributes to earning more credits.
Again, we find other factors also influence the credit hours earned. As expected, high school
preparation affects college performance. Those with higher SAT scores earn more credits, and
those requiring learning support courses studies eam 4.2 fewer credit hours than those who do
not. Also as expected, institutional type affects college performance. Students at state
universities and state two-year colleges earn fewer credit hours than students at national
institutions, while students at regional universities earn the most. Those who transfer to other
institutions earn 11 fewer credit hours than those who do not transfer. African-American
students eam 4.1 more credit hours than other students. Female students earn 2.1 more credit
hours than their male counterparts.
What is the impact of HOPE on persistence in college?
In the fall of 1996, 60.8% of the borderline HOPE scholars started into their third year of post-
secondary education, compared with 51.1% of their companson group. For all HOPE scholars
that entered with this class, 73.7% are still in college in a Georgia public college or university.
After controlling for other factors. three percentage points more of the HOPE scholars are likely
to be in school than their counterparts.
After controlling for other factors, a one-point increase in college GPA (on a four-point scale)
translates into a 18% increase in persistence rate. Students who transfer are also more likely
to stay in school, which may offset their lower GPAs and fewer number of earned credits. It is
likely that a number of these students have attended two-year institutions and are transferring
at this point to continue their baccalaureate studies.
Again high school preparation affects college performance. Students with higher SAT scores
are more likely to remain in school. As with transfer students, we can see 3 positive effect of
remedial courses that shows up relative to persistence. Students who are required to take non-
credit learning support courses are more likely to be in school after two years than those who
do not-controlling for other factors. Learning support courses appear to serve an important
role in helping students cope and persevere with their college studies.
Finally, it is important to note that after controlling for receipt of HOPE. high school preparation,
and other influences on performance, African Americans and females are more likely to persist
in college after two years. African Americans are seven percent more likely than other racial
groups to persist in college, and females are five percent more likely than males to persist in
college, after controlling for other influences.
What is the impact of HOPE on African-American students?
One of the intended consequences of the HOPE scholarship program is to increase the
attainment of a college education by traditionally underrepresented groups. Educational
opportunity is at the core of strongly held American values and often posed as the most widely
accepted antidote to systematic discrimination among Americans. Some analysts of the HOPE
program have speculated that the program would negatively affect traditionally
underrepresented groups because these groups are less likely to meet the B or better eligibility
standard for high school GPA.
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4
Impact of HOPE on College Performance
The results of this research showed that African Americans with HOPE performed at higher
levels than those without HOPE. Those with HOPE had higher achievement levels in high
school, have higher college GPAs, have earned more college credit hours, and were even more
likely to still be in college after two years of study. Table 1 shows the higher levels of
achievement among African-American HOPE recipients. Sixty percent (60.3%) of those with
HOPE are still in school. versus 46.9% of those without HOPE. Cumulative GPAs are .23
points higher among HOPE recipients. And those with HOPE have earned 16.8 more credit
hours, the equivalent of three college classes. HOPE appears to be motivating African
Americans to work harder in high school and, by giving these students more time for study,
increasing college persistence levels and allowing them to complete college in less time.
Table 1. Impact of HOPE on African-American Students
African Americans
African Americans
with HOPE Scholarship
without HOPE Scholarship
Hign School Preparation
High school GPA (core)
2.49
2.44
Combined SAT scores
806
732
Performance in College
Still in school after 2 years
60.3%
46.9%
Cumulative college GPA
1.75
1.52
Total college credits
45.9
29.1
What is the impact of HOPE on institutional choice?
One of the most highly publicized Impacts of HOPE is that it has increased the likelihood that
Georgia residents will attend Georgia institutions. Colleges from Georgia's border states report
enrolling fewer top flight Georgia students. Apparently, the some of the most competitive high
school graduates have chosen to remain in the state, thereby increasing first-year student
enrollments at national universities in the state (University of Georgia, Georgia Institute of
Technology, and Georgia State University) from about 6,200 in the 1991-92 school year to
about 6,700 in 1995-96, and increasing the average SAT scores of enrolled students in the
same time period from an average combined score of 1039 to 1073.
However, the main focus of this section is on the range of choice facilitated by HOPE for
students who attend college within the state. There are two means by which HOPE could
expand students' choice of institutions of higher education. The HOPE scholarship may
increase access to higher education for those students who had previously been excluded due
to financial restrictions. In addition, students who might have attended a local institution to
defray room and board expenses may be able to afford an institution further away, where these
expenses can now be partially Off set. It may be that some of these students will be able to
choose a more competitive institution in Georgia and live there rather than at home.
For the samples of students used in this study, HOPE students differ from non-HOPE students
in significant ways. A comparison of HOPE and non-HOPE (see Table 2) students revealed
that the non-HOPE students are more likely to attend state two-year colleges (42.7%) than
HOPE students (23.5%). HOPE students were more likely to attend state universitles (37% for
HOPE vs. 33% for non-HOPE sample), as well as regional universities (26.7% for HOPE vs.
12% for non-HOPE). Just over 12% for both groups attend national universities. It is important
to note that overall 28% of all HOPE recipients attended the state's national universities.
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Impact of HOPE on College Performance
5
Table 2. Effect of HOPE on Institutional Choice (Borderline HOPE and поп-НОРЕ
Samples Matched on Core High School GPA)
Combined SAT
Required Learning
Percent Attending
Scores
Support
without
without
without
Choice of Institution
HOPE
HOPE
HOPE
HOPE
HOPE
HOPE
Enrolled in National University
(UGA, GA Tech. GA State)
12.8%
12.3%
1013
1036
31.5%
27.3%
Enrolled in Regional University
(GA Southern, Valdosta State)
26.7%
12.0%
879
856
29.6%
43.0%
Enrolled in State University
(e.g. Albany State, Clayton State)
37.0%
33.0%
864
809
39.1%
51.9%
Enrolled in State Two-year College
(e.g. Dalton Col., Waycross Col.)
23.5%
42.7%
839
749
43.4%
59.6%
SAT averages increase from the least to most competitive institutions, based on the four
categories of institutions. HOPE students have higher SAT scores than the non HOPE sample
in all types of institutions except the national universities. Fewer HOPE students required
learning support courses in all institutional types except the national universities. This analysis
suggests that more competitive students were able to move to more competitive state and
regional universities. HOPE scholarship recipients seem to exercise greater choice in selecting
their institution than other graduates with similar core course GPAs. This is especially true with
respect to choosing two-year institutions, which tend to attract students who have a limited
range of choice.
How comparable are the groups of HOPE and non-HOPE students in this study?
The first group included 2.080 borderline HOPE students (HOPE GPA 3.0-3.16) who graduated
from Georgia high schools in 1994 and enrolled in the freshman class of 1994-95 in University
System of Georgia Institutions. The comparison group was created by matching the HOPE
sample with a group of 2.057 students from the freshman class who did not receive HOPE.
The groups were matched using core course high school GPAs to control for differences in the
level of high school preparation in the two groups and institutional choice to control for
differences due to the type of institution attended.
Overall, HOPE students are more likely than the matched non-HOPE sample to have a college
prep diploma (93.1% for HOPE vs. 79.7% for non-HOPE). The non-HOPE sample has a
slightly higher percentage of women and African Americans, and more students requiring
learning support (48.5% vs. 36.6% for HOPE students). HOPE students transferred between
Georgia colleges at a slightly higher rate (14.5% versus 12.4% for non-HOPE).
A major concern in this matched group design is that differences exist between the groups that
are not related to the program. To reduce this possibility, the research design included other
factors that may affect college level performance. Three types of variables in our final statistical
models were used to control for (1) the effects of institutional choice (variables for type of
institution attended and whether or not the student transferred during the two years looked at in
this study): (2) level of high school preparation (SAT scores, type of high school degree, and
required learning support courses); and (3) demographic variables that have been shown to
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6
Impact of HOPE on College Performance
relate to college performance (race and sex). After controlling for these factors, HOPE
remained a significant impact on college GPA, credits, and persistence.
Table 3. Comparisons of Borderline HOPE and Non-HOPE Samples Matched by Core
High School GPA and Type of Institution Attended
With HOPE
Without HOPE
Demographic Characteristics
Female students
49.3%
54.0%
African-American students
30.4%
32.5%
High School Preparation
Learning support
36.6%
48.5%
College prep endorsement
93.1%
79.7%
Choice of Institution
Transferred to new institution
14.5%
12.4%
Performance in College
Still in school after two years
60.8%
51.1%
Cumulative college GPA
1.90
1.76
Total college credits
48.0
35.3
How do the borderline HOPE students compare to HOPE students overall?
The HOPE students used in this study were drawn from borderline recipients. On average.
these students have lower performance levels than do all HOPE students, and they exhibit
different rates of attendance at Georgia institutions. For example, over 28% of all HOPE
scholars enrolled at national universities within the state while only 12.8% of the borderline
students enrolled in national universities. For all variables, the performance of the HOPE
scholars overall exceeded the performance of the borderline students (see Table 4).
Table 4. Comparison of Borderline HOPE students with all HOPE
Borderline HOPE students
All HOPE students
GPA 3.0-3.16 (N=2.080)
(N=10,301)
Choice of Institution
Enrolled in national university
12.8%
28.2%
Enrolled in regional university
26.7%
19.9%
Enrolled in state university
37.0%
32.4%
Enrolled in state two-year college
23.5%
19.5%
High School Preparation
Learning support
36.6%
20.9%
Combined SAT scores
881
976
High school GPA (core)
2.48
3.04
Demographic Characteristics
Female students
49.8%
60.9%
African-American students
30.4%
21.1%
Performance in College
Cumulative college GPA after 2 years
1.90
2.41
Total college credits after 2 years
48.0
64.0
Still in college/university after 2 years
60.8%
73.7%
"for HOPE students newly enrolled in Georgia's university system in fall 1994
"does not include sample of HOPE students used in this study
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Impact of HOPE on College Performance
7
in addition to differences in enrollment patterns, we expect the borderline HOPE students to
have lower achievement levels. Table 4 shows the differences between the borderline HOPE
students sampled for this study and all HOPE students. The HOPE students as a group are
more likely than the study group to be female, white, enrolled in national universities, and not
required to take learning support. Naturally, the achievement levels of the HOPE students
overall are much higher than the study sample. In high school, their SAT scores and GPAs
were higher. In college these differences persist. The HOPE students who are excluded from
this study have higher college GPAs. have more college credit hours, and are more likely to be
in college after two years of study.
Are the HOPE recipients retaining their scholarships?
For students who are on track to graduate in four years and have completed over 90 credit
hours, 66% of all HOPE recipients have a GPA high enough to retain their scholarship. Of
those who have crossed only the first threshold, that Is, those that have acquired 45 but less
than 90 credit hours, 25% are maintaining the 3.0 or better GPA. For the borderline HOPE
scholars in this study, only 29.8% of those who have earned 90 credit hours and 9.5% of those
with 45 to 89 credit hours have the required average. With this group it is interesting to note
that despite losing their HOPE scholarship. they are staying in college at higher than expected
rates. Even though they must use their own resources or other forms of financial aid. it seems
that by gaining a HOPE scholarship, they are more likely to stay in school.
Table 5. Comparing Borderline HOPE Students to HOPE Students Overall: Percent of
Students Retaining HOPE (GPA>3.0) at 45, 45-89, and 90+ Credit Hours
College GPA Greater than or
equal to 3.0 (retain Hope)
Credit Hours Earned
Less than 45
45-89 credit
More than 89
credit hours
hours
credit hours
Total
Borderline HOPE (HS GPA 3.0-3.16)
1.3%
9.5%
29.5%
6.4%
(N=1133)
(N=808)
(N=139)
(N>2080)
All Students with HOPE
4.3%
25.0%
66.0%
26.5%
(N=3897)
(N=4057)
(N=2347)
(N=10301)
Conclusion
After two years of college. HOPE registers an impact on GPA, credits earned. and persistence.
It seems to have a positive effect even among the group that is most likely to lose the financial
benefits of the program. The study findings are limited due to the two years available for study
since the income eligibility for the program has been significantly raised (the household income
cap was $100,000 for the 1994-95 HOPE scholars). The study should be continued for three
more years to examine the impact of HOPE on college graduation rates. At least as important
is the impact of HOPE in motivating higher performance levels in high school. Results from this
and other studies show that high school preparation is key to success in college. If HOPE is
effective in encouraging higher levels of high school preparation, its Impact on college
performance could be much larger than estimated in this evaluation. The Council for School
Performance is currently evaluating HOPE's impact on high school motivation and
performance.
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8
Impact of HOPE on College Performance
Description of Methods for the Evaluation of the HOPE Scholarship Program
Selection of porderline HOPE recipients: Study population from which this group was selected
included 15,089 HOPE Scholars from the Georgia Student Finance Commission's database. This data
was then matched with data from the Board of Regents SIRS database. When we limited the study to
1994 graduates, and excluded those who were listed as transfers and those with incomplete data, 10,301
HOPE students remained. HOPE students selected for this study were those with an overall high school
GPA of 3.0 to 3.16, yielding 2,080 students. On core courses these students had a GPA of 1.2 to 4.0.
The HOPE recipients with lower GPAs were selected because these are the students who are less likely
perform sufficiently well to maintain their scholarship. While it is nearly impossible to find good
comparisons at the upper ranges of performance, at the lower levels of HOPE eligibility it is possible to
select a reasonably matched group.
Selection of matched comparison group: The study population for this group was 39,097 поп-НОРЕ
students from the Board of Regents SIRS database who enrolled in college in the summer and fall of
1994 When we eliminated transfer students, graduate students, and non-traditional students, 12,328
students remained. These students were matched with the 2,080 HOPE students by core course GPA
and the type of institution attended, yielding 2,057 students (at state universities there were 23 fewer non-
HOPE students with a core course GPA of 2.5 to 2.7, so our analysis used weighted averages to account
for the difference in sample size). We included institution type attended as a matching criteria because of
different rates of institutional enrollments among borderline HOPE students and the group with which they
were originally matched.
Analysis: The percentages and averages for the groups presented in the tables and narratives are
simple averages of the two groups. Because the matching program had not controlled for all pre-existing
differences, a number of variables were included in least squares regression equations to control for
observable differences. Those results are presented after the percentages in the narrative. The
regression equations are also used to provide estimates of the impact of the other factors on each of the
three outcomes that were analyzed. All regression analysis used weighted scores because of the
differences in sample sizes between the HOPE and non-HOPE samples.
The mission of the Council for School Performance is to provide impartial and accurate information so that
schools and the communities they serve will have appropriate benchmarks for performance and
accountability. The Council will be a positive body to promote quality and progress in all schools, helping
communities attain local, state and national education goals by sharing innovative educational practices
and local successes.
Gary T. Henry, Director
Jeanie Jones, Assistant Director
Council Members
Pat Wills, Chairman
Buford Amoid
Dorothy Cottom
Leena Johnson
Melvin Kruger
Dean Swanson
Linda Schrenko, Ex officio
Council for School Performance P. O. Box 4039 Georgia State University Atlanta, GA 30302-4039
Voice: 404.651.3523 Fax: 404.651-3524
Council for School Performance
uthor: Daniel Bernal at WDCB01
Date:
4/11/97 07:54 PM
Priority: Normal
TO: Maureen McLaughlin at WDCA01
TO: Susan Frost
Subject: Kathy Livingston
Message Contents
Maureen-
I sent the following to Kathy Livingston via fax:
The following pages are the letters of support we have received for
the President's higher ed initiatives. It is important to note that
not all organizations endorse all parts of the agenda (i.e. HOPE
Scholarship's B minus and drug-free requirements).
On our 28 page document entitled "American Colleges and Universities
Support President Clinton's Higher Education Initiatives," there are
303 presidents and 273 trustees listed from the various letters. In
total, 395 colleges and universities are represented on the list.
PLEASE NOTE: These figures are approximations. New letters come in
every day, and while we try to keep track, some names are missing or
repeated. It would be safe to say over 300 presidents, almost 300
trustees, and almost 400 colleges.
Hope this is helpful,
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FROM:DADE, J.
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DEPARTMENT OF EDUCATION
Identical
Statement by
David A Longanecker
to 3/5/97
Assistant Secretary for Postsecondary Education
on
H.W.M
Postsecondary Education Tax Proposals
before the
testimony
Finance Committee
U.S. Senate
April 16, 1997
Mr. Chairman and Members of the Committee:
I am pleased to submit this testimony to you UII the Administration's postsecondary
education tax initiatives. Our discussion comes at a time when, more than ever before in our
history, education is the fault line between those who will prosper in the new economy and those
who will be left behind. We know that most of today's good jobs require more skills and training
than a high school diploma affords. Effective and accessible postsecondary education is critically
important both for individuals and for the strength of America's economy and democracy. That is
why President Clinton made excellence in education our national mission in his State of the Union
address, and why he has issued a bold "Call to Action for American Education in the 21st
Century."
Our Nation faces great challenges when we strive to ensure access to effective education.
In the next decade, increasing numbers of high school graduates will significantly expand demand
for postsecondary education. More and more older students will return to college to get the
education they need to succeed in the new economy. And a growing population of disadvantaged
students will need financial and other kinds of support.
Over the past several decades, the Federal government has firmly established its
commitment to ensuring access to effective postsecondary education - but we have an unfinished
agenda. We must do more in order to meet the challenges of the twenty-first century.
We believe that we can best address our commitment to higher education and the
challenges we face with a comprehensive, three-pronged agenda made up of our tax initiatives,
fiscal year 1998 budget proposals, and our proposals to reauthorize the Higher Education Act
(HEA). The higher education proposals from the President's budget, including the higher
education tax incentives, ware transmitted to Congress on March 20 as "The Hope and
Opportunity for Postsecondary Education (Hope) Act of 1997." This legislation was introduced in
the House as H.R. 1233 by Congressmen Clay and Rangel, and in the Senate as S. 559 by Senators
Daschie and Kennedy. Our budget proposals were described in our budget documents, and we
hope to share the HEA proposals with Congress this spring These three components, which we
1
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FROM:DADE, J.
P. 5/9
propose in the context of a balanced Federal budget, form our coordinated higher education
strategy for the twenty-first century.
Tax Proposals
Our tax initiatives are designed to assist students and families and to encourage
postsecondary education, We believe that these proposals will effectively complement the
traditional student financial aid programs. The tax proposals are critical to our goal of establishing
a national ethic of learning to high standards and a national expectation that at least two years of
education after high school is the norm for which all students should strive. We want to make at
least 14 years of education the standard in America.
Our HOPE Scholarship proposal, modeled after a successful program in Georgia, would
provide students who are enrolled at least half-time and have no prior drug-related felony
convictions with 1 maximum $1,500 tax credit for tuition and required fees for their first year of
postsecondary education. Students would receive another $1,500 for the second year if they stayed
drug-free and earned at least a B minus grade point average This credit would put $18.6 billion in
the hands of students and their parents over the next five years. It would help 4.2 million students
in 1998 alone, allowing them to pay the equivalent of the full cost of tuition at a typical community
college and encouraging them to work hard and achieve excellence.
In 1998, 8.1 million other students would have available to them a $5,000 tax deduction for
higher education expenses. The deduction would increase to $10,000 beginning in 1999. Families
would save $17.6 billion over the next five years with this deduction. Because the credit and the
deduction are designed to help middle-income families pay for college, eligibility would be phased
out for families with incomes between $80,000 and $100,000, and for individuals with incomes
between $50,000 and $70,000.
We must also do more to encourage families to save for their children's education. That is
why we have proposed greater flexibility in using Individual Retirement Accounts BO that funds
saved in these accounts can be used for postsecondary education expenses, free from early
withdrawal tax penalties. In addition, we have proposed an expansion in eligibility for tax-
deductible IRA contributions. From 1997 through 1999, eligibility would be phased out for
families with incomes between $70,000 to $90,000 and for individuals with incomes between
$45,000 and $65,000. Beginning in 2000, the phase-out ranges would match the ranges of the
proposed tax credit and deduction. This expansion would double the previous eligible income
levels. Families who save through an expanded IRA and then use the savings for higher education
could deduct up to $10,000 of their withdrawals a year, making savings for college virtually tax
free.
We also suggest several smaller but important tax incentives. We propose extending the
tax exclusion for employer-provided oducation assistance of up to $5,250 for both undergraduate
and graduate students. In addition, for 1998-2000, small businesses would be given a new
incentive to provide educational assistance to their employees. Employers would receive a ten-
percent tax credit for amounts paid under an employer-provided educational assistance program for
education provided by a third party. The President's budget also provides tax relief for loan
2
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FROM:DADE, J.
P. 6/9
forgiveness 50 that students whose Inans are forgiven by charitable or educational institutions in
return for a community or public service commitment, and borrowers whose Direct Loans are
forgiven after 25 years in the Income Contingent Repayment plan. are not taxed on the forgiven
loan amount
Our tax initiatives are designed to benefit working families who are struggling to pay for
college. Since 1979, the bottom three quintiles (fully sixty percent) have seen only modest growth
in their real incomes. Over that same period, college costs increased by 165 percent. It is no
wonder that so many middle-income families are worried about their financial circumstances and
wondering how they are going to pay for college.
Moreover, evidence tells us that we need to improve access to college for both low- and
middle-income students, who have much lower rates of participation in postsecondary education
than higher-income students. In 1994, only 45 percent of high school graduates from low-income
families and 58 percent from middle-income families went directly to college, compared to 77
percent of students from high-income families.
We also believe that our tax initiatives will improve college completion rates, as grants do.
Ensuring initial access to postsecondary education is not enough. We want students to complete
their education. Our data show that low- and middle-income students are less likely than higher-
income students to earn bachelor's degrees within five years, and one of the main reasons that
students drop out of college is lack of money. By putting more resources in the hands of students
and families, we can help to increase degree attainment. In addition, many adult workers could be
expected to return to school on a part-time basia in order to improve their job skills and
credentials.
One often overlooked benefit of using tax incentives to provide educational assistance is
their predictability. Students are more likely to pursue and complete postsecondary education
when they are aware early in their schooling of predictable and consistent financial aid. Taxpayers
who see a specific line item reference to the HOPE tax credit and the deduction on their tax forms
year after year will be well aware of these sources of college financing. As a result, we expect to
see increases in the participation and completion rates of low- and middle-income families.
Thus. the tax proposals will help working families who are struggling to pay for college.
They will improve both access and college completion among middle-income students. They will
reward savings and help reduce the need to borrow. And they will encourage adult workers to
pursue re-training and life-long learning.
Fiscal Year 1998 Budget Propossis
We know, however, that the tax code may not be the best vehicle for helping the neediest
students, who often do not have significant tax liabilities. That is why we have dedicated ourselves
to doing all we can to increase the availability of need-based grants, as well. Our fiscal year 1998
budget proposals are important for this reason. I would like to address them briefly since they
complement our tax initiatives. The tax and budget proposals together are integral to our
commitment to accessible and effective higher education for all students.
Our budget request would make an unprecedented $47 billion in student financial aid
3
APR-15-1997 17:00 TO:76 - NEC
FROM:DADE, J.
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available to some eight million students in fiscal year 1998, with a particular focus on the programs
that help the neediest students.
The Pell Grant program is one of our highest priorities, and our proposal would provide
nearly $7.8 billion in Pell Grants to four million needy students in fiscal year 1998 -- and at least
$40 billion over the next five years. We would increase the maximum award to $3,000 in fiscal
year 1998 and expand the eligibility of independent students. This kind of federal commitment to
need-based grants is critical to our goal of enhancing access, for grant support remains the most
effective way to ensure access and to encourage graduation among financially disadvantaged
students.
Our budget will also make a number of changes in the Federal Family Education Loan
(FFEL) and Direct Loan programs that will help the increasing numbers of students who borrow to
finance their education. Our proposal would cut fees from four to two persent for need-based
loans, and to three percent for other loans - thus saving four million low- and middle- income
students $2.6 billion over five years. These fee reductions will put more money in the hands of
students when they are paying tuition and other college costs. In addition, because lender costs
during the in-school, grace, and deferment periods are very low, our budget would reduce the
interest rate during those periods by one percentage point, thereby reducing both Federal costs and
borrower costs on unsubsidized loans. We would provide these benefits to students while saving
taxpayers $3.5 billion over five years by streamlining the guaranty agency system to make it more
efficient and cost-effective and by eliminating excess lunder profits.
Reauthorization of the Higher Education Act
Our tax and budget proposals are designed to work together to ensure that low- and middle-
income students have the opportunity to go to college They are complemented by the third piece
of our higher education strategy, the reauthorization of the Higher Education Act (HEA). Because
these three pieces are part of A coordinated effort, I now would like to touch briefly on our strategy
for reauthorizing the HEA.
The HEA, which authorizes our postsecondary education programs, is scheduled for
reauthorization. We believe that the current HEA provides a strong foundation of support for
higher education. Its programs work well and have opened the doors to college for millions of
students over the last several decades. That is why we support these programs 50 strongly in our
fiscal year 1998 budget. Our task now is to consider how to make the HEA better and to ensure
that it can address the challenges of the twenty-first century.
In developing our postsecondary education strategy, we are consulting the people most
affected by our programs. In December, we held a series of public meetings in six cities across the
country so that we could listen to and learn from all parts of the higher education community. We
have been very encouraged by the high level of support we have heard both for our tax proposals
and for the programs of the HEA
While we are in the process of developing our ideas and do not have complete
reauthorization proposals yet, we do know that whatever decisions we make will be designed to
benefit students. We also know that our overall proposal will be aggressive, but realistic. We will
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APR-15-1997 17:00 TO:76 - NEC
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identify priorities and suggest targeted program reforms rather than a "wish list" of new programs
that we cannot fund in the context of a balanced budget.
Let me share with you now the four principles, reinforced by our tax and budget proposals,
that guide the development of our reauthorization proposal.
The first principle is access opportunity with responsibility. We must continue our
efforts to ensure that all students, including disabled and economically disadvantaged students,
have access to higher education. At the same time, we must help families and students take
responsibility for their own education. Postsecondary institutions, too, have the responsibility to
protect the value of their students' access by providing high-quality programs, supporting students,
restraining tuition increases, and being fiscally responsible in their management of federal funds.
And States must take responsibility for investing in the education of their students in spite of tight
state budgets and limited resources. We are considering several changes to the HEA that will
enhance access.
For example, we will do our best to guarantee that the HEA provides a strong Pell Grant
program for years to come. We will complement our increased funding for the program this year
by authorizing future maximum awards that are ambitious but also paid for within our balanced
budget proposal. Likewise, strong student loan programs are necessary to ensure access. Our
proposal will continue our commitment to both the FFEL and Direct Loan programs. We can best
serve students by maintaining a healthy and fair competition between the two programs while
promoting officioncies in the guaranty agency and lender systems.
Our second resuthorization principle is the support of effective education, high standards.
and high achievement. Federal programs should continue to promote and enhance outstanding
educational opportunities and encourage students to take advantage of those opportunities to the
best of their abilities. We should also encourage the effective use of new technologies to meet the
changing needs of students by providing access to high quality postsecondary education.
For example. in promoting effective education and high standards, we will propose changes
to Title V of the HEA that focus on recruiting the next generation of teachers, preparing them well,
and supporting them in their first few critical years. Teaching is a key variable in students'
learning: without effective teaching. the highest standards in the world will not ensure that our
children are well educated. We must give teachers the education and support that they need to
teach to higher standards.
The reauthorized HEA should simplify program delivery and improve management, and
that is our third guiding principle for reauthorization. Students and postsecondary institutions
should continue to receive outstanding customer service in # predictable and seamless way so that
they are assured of aid and can plan ahead. Federal programs should be simplified and burden
reduced as much as possible.
We have already begun efforts to simplify program delivery through initiatives such as Easy
Access for Students and Institutions (EASI). Students deserve a friendly system when they seek
information about financial aid and apply for it. We are examining ways that the HEA could
encourage a streamlined delivery system for student financial aid.
And our fourth principle is that we must improve outreach to potential students and ensure
5
APR-15-1997 17:00 TO:76 - NEC
FROM: DADE, J.
P.9/9
strong links among elementary and secondary education, postsecondary education, and
employment As the President emphasized in his "Call to Action," this principle is key to our goal
of making college more accessible and more affordable for Americans. Too many young people
lose their way between high school and the world of work. We must reach out to potential
students as part of our effort to change the way that young people and their families participate in
postsecondary education - SU that everyone places a high priority on continuing his or her
education. With this in mind, we will strengthen the TRIO programs, which provide students with
needed information and support so that they will be ready to go to college.
Conclusion
As this testimony indicates, our vision for higher education includes tax incentives to help
families pay for college, as well as major increases in funding for important postsecondary
education programs and a Higher Education Act that is even stronger than it is today. This
Administration is calling for a significant increase in our national commitment to postsecondary
education, and I hope you will give strong consideration to our proposals.
6
Independent Student, No Dependents
Firs: Two Years of Postsecondary Education
Maximum Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,713
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
Tuition deduction
0
3,050
5,000
0
0
0
0
0
0
Credit
0
0
0
1,500
1,500
1,500
1,500
1,500
750
Tax before EITC
0
0
458
458
1,170
1,785
2,478
3,626
8,968
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net tax
(341)
(3)
458
458
1,170
1,785
2,478
3,626
8,968
Tax reduction
Amount
0
458
751
1,500
1,500
1500
1,500
1,500
750
46
38
29
8
Percentage
0
100
62
77
56
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount for
maximum aid
3,000
6.050
6,550
1,500
1,500
1,500
1,500
1500
1,500
Maximum aid
3,000
3,458
2,301
1,500
1,500
1,500
1,500
1,500
750
Maximum increased aid
1,010
3,458
2,301
1,500
1,500
1,500
1,500
1,500
750
March 5, 1997
Department of the Treasury
Office of Tax Analysis
Independent Student, No Dependents, $1,200 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 8% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable ncome
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposa.
Tuition deduction
0
0
0
0
0
0
0
0
0
Credit
0
0
0
1,200
1,200
1,200
1,200
1,200
600
Tax before EITC
0
458
1,208
758
1,470
2,085
2,773
3,926
9,118
Earned income tax credi
341
3
D
0
0
0
}
0
0
Net tax
(341)
455
1,208
758
1,473
2,085
2,778
3,926
9,118
Tax reduction
Amount
0
0
0
1,200
1,200
1,200
1,200
1,200
600
Percentage
0
0
0
61
45
37
30
23
6
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
Aid
3,000
3,000
1,550
1200
1,200
1,200
1,200
1,200
600
Increased aid
1,010
3,000
1,550
1,200
1,200
1200
1,200
1,200
6C0
Department of the Treasury
March 5, 1997
Office of Tax Analysis
independent Student, No Dependents, $4,000 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AG, (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
€0,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,713
Earned income tax credit
341
3
0
0
0
0
0
0
3
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
Tuition deduction
0
1,000
2,450
0
0
0
0
0
0
Credit
0
0
0
1,500
1,500
1.500
1,500
1,500
750
Tax before EITC
0
308
840
458
1,170
1785
2,478
3,626
8,968
Earned income tax credi
341
3
0
0
0
0
0
0
0
Net tax
(341)
305
840
458
1,170
1,785
2,478
3,626
8,968
Tax reduction
Amount
0
150
368
1,500
1,500
1,500
1,500
1500
750
Percentage
0
33
30
77
56
46
38
29
8
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
Aid
3,000
3,150
1,918
1,500
1,500
1,500
1,500
1,500
750
Increased aid
1,010
3,150
1,918
1,500
1,500
1,500
1,500
1,500
750
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Independent Student, No Dependents, $6,500 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amourts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Taxable income
1,958
2,670
3,285
3,973
5,126
9,718
Current aw tax before EITC
0
458
1,208
Earned income tax credit
341
3
0
0
0
0
J
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
0
3,050
4,950
0
0
0
0
0
0
Tuition deduction
1,500
1,500
1,500
1,500
750
Credit
0
0
0
1,500
Tax before EITC
0
0
465
458
1,170
1,785
2,478
3,626
8,968
Earned income tax credi
341
3
0
0
0
0
0
0
0
Net tax
(341)
(3)
465
458
1,170
1,785
2,478
3,626
8,968
Tax reduction
Amount
0
458
743
1500
1,500
1,500
1,500
1,500
750
46
38
29
8
Percentage
0
100
62
77
56
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6.500
6,500
Aid
1,010
3,458
2,293
1,500
1,500
1,500
1,500
1500
750
Increased aid
3,000
3,458
2,293
1,500
1,500
1,500
1,500
1,500
750
March 5, 1997
Department of the Treasury
Office of Tax Analysis
Independent Student, No Dependents, $13,500 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,358
2,670
3,285
3,973
5,126
9,718
Current law Pell grant
1,990
0
1)
0
0
0
0
0
0
Proposal
Tuition deduction
)
3,050
5,000
0
0
0
0
0
0
Credi:
0
0
0
1,500
1,500
1,500
1,500
1,500
750
Tax before EITC
0
0
458
458
1,170
1,785
2,478
3,626
8,968
Earned income tax credi
341
3
0
0
0
0
0
0
0
Net tax
(341)
(3)
458
458
1,170
1,785
2,478
3,626
8,963
Tax reduction
Amount
0
458
751
1,500
1,500
1,500
1,500
1,500
750
46
38
29
8
Percentage
0
100
62
77
56
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
13,500
13,500
13,500
13.500
13,500
13,500
13,500
13,500
13,500
Aid
3,000
3.458
2,301
1500
1,500
1,500
1,500
1,500
750
ncreased aid
1,010
3.458
2,301
1,500
1,500
1.500
1,500
1,500
750
March 5, 1997
Department of the Treasury
Office of Tax Analysis
Independent Student, No Dependents
Other Years of Postsecondary Education
Maximum Propcsed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
0
3,050
8,050
13,050
17,800
21,900
26,000
30,'00
45,500
Taxable income
1,958
2,670
3,285
3,978
5,126
9,718
Current law tax before EITC
0
458
1,208
Eamed income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
Tuition deduction
0
3,050
5,000
5,000
5,000
5,000
5,000
5,000
2,500
3
0
)
0
0
Credit
D
0
0
0
Tax before EITC
0
0
458
1,208
1,920
2,535
3,150
3,765
9,018
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net tax
(341)
(3)
458
1,208
1,920
2,535
3,150
3,765
9,013
Tax reduction
0
458
750
750
750
750
828
1,361
700
Amount
23
21
27
7
Percertage
0
100
62
38
28
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount for
maximum aid
3,000
6,050
6,550
5,000
5,000
5,000
5,000
5,000
5,000
Maximum aid
3,000
3,458
2,300
750
750
750
828
1,361
700
Maximum increased aid
1,010
3.458
2,300
750
750
750
828
1,361
7C0
March 5, 1997
Department of the Treasury
Office of Tax Analysis
Independent Student, No Dependents, $1,200 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
45,500
Taxable income
1,958
2,670
3,285
3,978
5,126
9,718
Current law tax before EITC
0
458
1,208
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,203
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
Tuition deduction
0
0
0
1,200
1,200
1,200
1,200
1,200
600
0
0
0
0
0
Credit
0
0
0
0
Tax before EITC
0
458
1,208
1,778
2,490
3,105
3,720
4,790
9,550
Earned income tax credi
341
3
0
0
0
0
0
0
3
Net tax
(341)
455
1,208
1,778
2,490
3,105
3,720
4,790
9,550
Tax reduction
0
0
0
180
180
180
258
336
168
Amount
5
6
7
2
Percentage
0
0
0
9
7
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
1,200
1,200
1,200
1.200
1,200
1,200
1,200
1,200
1,200
Aid
3,000
3.000
1,550
180
180
180
258
336
168
1,010
3,000
1,550
180
180
180
258
336
168
Increased aid
March 5, 1997
Department of the Treasury
Office of Tax Analysis
Independent Student, No Dependents, $4,000 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% cf AGI
2,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
C
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,67C
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
C
Proposal
Tuition deduction
0
1,000
2,450
4,000
4,000
4,000
4,000
4,000
2,000
Credit
0
0
0
0
0
0
0
0
0
Tax before EITC
0
308
840
1,358
2,070
2,685
3,300
4,006
9,158
Earned income tax credi
341
3
0
0
0
0
0
0
0
Net tax
(341)
305
840
1,358
2,070
2,685
3,300
4,006
9,158
Tax reduction
Amount
0
150
363
600
600
600
678
1,120
560
Percentage
0
33
30
31
22
18
17
22
6
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
Aid
3,000
3,150
1,918
600
600
600
678
1,120
560
increased aid
3,000
3,150
1,918
600
600
600
678
1,120
560
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Independent Student, No Dependents, $6,500 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction 0' 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemplion
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
0
0
0
0
0
0
Proposal
Tuition deduction
0
3,050
4,950
5,000
5,000
5,000
5,000
5,000
2,500
Credit
0
0
0
0
0
0
0
0
0
Tax before EITC
0
0
465
1,208
1,920
2,535
3,150
3,765
9,018
Earned income tax credi
341
3
0
0
0
0
0
0
0
Nel tax
(341)
(3)
465
1,208
1,920
2,535
3,150
3,765
9,018
Tax reduction
Amount
0
458
743
750
750
750
828
1,361
700
Percentage
0
100
61
38
28
23
21
27
7
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
Aid
3,000
3,458
2,293
750
750
750
828
1,361
700
Increased aid
1,010
3,458
2,293
750
750
750
828
1,361
700
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Independent Student, No Dependents, $13,500 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Ad, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
60,000
Standard deduction or 18% of AGI
4,250
4,250
4,250
4,250
4,500
5,400
6,300
7,200
10,800
Personal exemption
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
2,700
Taxable income
0
3,050
8,050
13,050
17,800
21,900
26,000
30,100
46,500
Current law tax before EITC
0
458
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Earned income tax credit
341
3
0
0
0
0
0
0
0
Net current law tax
(341)
455
1,208
1,958
2,670
3,285
3,978
5,126
9,718
Current law Pell grant
1,990
0
0
C
0
C
0
0
0
Proposal
Tuition deduction
0
3,050
5,000
5,000
5,000
5,000
5,000
5,000
2,500
Credit
0
0
0
0
0
0
0
0
0
Tax before EITC
0
0
458
1,208
1,920
2,535
3,150
3,765
9,018
Earned income tax cred
341
3
0
0
0
0
0
0
0
Net tax
(341)
(3)
458
1,208
1,920
2,535
3,150
3,765
9,018
Tax reduction
Amoun:
0
458
750
750
750
750
828
1,361
700
Percentage
0
100
62
38
28
23
21
27
7
Pell grant
3,000
3,000
1,550
0
0
0
0
0
0
Tuition amount
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
Aid
3,000
3,458
2,300
750
750
750
828
1,361
700
Increased aid
1,010
3,458
2,300
750
750
750
828
1,361
700
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student
First Two Years of Postsecondary Education
Maximum Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current aw tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
4,800
5,000
5,000
5,000
0
0
0
0
Credit
0
0
0
0
0
1,100
1,500
1,500
1,500
Tax before EITC
0
0
720
1,470
2,220
2,605
3,435
4,665
6,792
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(1,039)
479
1,470
2,220
2,605
3,435
4,665
6,792
Tax reduction
Amount
0
720
750
750
750
1,100
1,500
1,500
1,500
Percentage
0
na
61
34
25
30
30
24
18
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount for
maximum aid
3,000
7,800
7,520
6,850
6,050
1,500
1,500
1,500
1,500
Maximum aid
3,000
3,720
3,270
2,600
1,800
1,500
1,500
1,500
1,500
Maximum increased aid
300
1,020
1,050
1,050
1,050
1,500
1,500
1,500
1,500
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $1,200 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
0
0
0
0
0
0
0
0
Credit
0
0
0
0
150
800
1,200
1,200
1,200
Tax before EITC
0
720
1,470
2,220
2,820
2,905
3,735
4,965
7,092
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(319)
1,229
2,220
2,820
2,905
3,735
4,965
7,092
Tax reduction
Amount
0
0
0
0
150
800
1,200
1,200
1,200
Percentage
0
0
0
0
5
22
24
19
14
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
Aid
3,000
3,000
2,520
1,850
1,200
1,200
1,200
1,200
1,200
Increased aid
300
300
300
300
450
1,200
1,200
1,200
1,200
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $4,000 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Nel current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
1.000
1,480
2,150
0
0
0
0
0
Credit
0
0
0
0
450
1,100
1,500
1500
1,500
Tax before EITC
0
570
1,248
1,898
2,520
2,605
3,435
4665
6,792
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(469)
1,007
1,898
2,520
2,605
3,435
4,665
6,792
Tax reduction
Amount
0
150
222
322
450
1100
1,500
1,500
1,500
Percentage
0
na
18
15
15
30
30
24
18
Pell grant
3,000
3,000
2,520
1.850
1,050
400
0
0
0
Tuition amount
4,000
4,000
4,000
4000
4,000
4,000
4,000
4,000
4,000
Aid
3,000
3,150
2,742
2 173
1,500
1,500
1,500
1,500
1,500
Increased aid
300
450
522
623
750
1,500
1,500
1,500
1,500
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $6,500 of Tuilion
Firs: Two Years of Postsecondary Education
Proposed Tuition Aid, by income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30.000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3.705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
3,500
3,980
4,650
5,000
0
0
0
0
Credit
0
0
0
0
0
1,100
1,500
1,500
1,500
Tax before EITC
0
195
873
1,523
2,220
2,605
3,435
4,665
6,792
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(844)
632
1,523
2,220
2,605
3,435
4,665
6,792
Tax reduction
Amount
0
525
597
698
750
1,100
1,500
1,500
1,500
Percentage
0
na
49
31
25
30
30
24
18
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
Aid
3,000
3,525
3,117
2,548
1,800
1,500
1,503
1,500
1,500
Increased aid
300
825
897
998
1,050
1,500
1,500
1,500
1,500
Department cf the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $13,500 of Tuition
First Two Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
3,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
C
0
Proposal
Tuition deduction
0
4,800
5,000
5,000
5,000
C
0
0
0
Credit
0
0
0
0
0
1,100
1,500
1,500
1,500
Tax before EITC
0
0
720
1,470
2,220
2,605
3,435
4,665
6,792
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(1,039)
479
1,470
2,220
2,605
3,435
4,665
6,792
Tax reduction
Amount
0
720
750
750
750
100
1,500
1,500
1,500
Percentage
0
na
61
34
25
30
30
24
18
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
Aid
3,000
3,720
3,270
2,600
1,800
1,500
1,500
1,500
1,500
Increased aid
300
1,020
1,050
1,050
1,050
1,500
1,500
1,500
1,500
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student
Other Years of Postsecondary Education
Maximum Proposed Tuilion Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
4,800
5,000
5,000
5,000
5,000
5,000
5,000
5,000
Credit
0
0
0
0
0
0
0
0
0
Tax before EITC
0
0
720
1,470
2,220
2,955
4,135
5,415
6,892
Earned ncome tax credit
1,839
1,039
241
0
0
0
0
0
0
Nel tax
(1,839)
(1,039)
479
1,470
2,220
2,955
4,135
5,415
6,892
Tax reduction
Amount
0
720
750
750
750
750
750
750
1,400
Percentage
0
na
61
34
25
20
15
12
17
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount for
maximum aid
3,000
7,800
7,520
6,850
6,050
5,400
5,000
5,000
5,000
Maximum aid
3,000
3,720
3,270
2,600
1,800
1,150
750
750
1,400
Maximum increased aid
300
1,020
1,050
1,050
1,050
1,150
750
750
1,400
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $1,200 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
€,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
0
0
0
0
800
1,200
1,200
1,200
Credit
0
0
0
0
450
0
0
0
0
Tax before EITC
0
720
1,470
2,220
2,520
3,585
4,755
5,985
7,956
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(319)
1,229
2,220
2,520
3,585
4,755
5,985
7,956
Tax reduction
Amount
0
0
0
0
450
120
180
180
336
Percentage
0
na
0
0
15
3
4
3
4
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
Aid
3,000
3,000
2,520
1,850
1,500
520
180
180
336
Increased aid
300
300
300
300
750
520
180
180
336
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $4,000 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
0
4,800
9,800
14,800
19,800
24,700
32,900
41,100
49,300
Current law tax before EITC
0
720
1,470
2,220
2,970
3,705
4,935
6,165
8,292
Earned income tax credit
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Curren: law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
1,000
1,480
2,150
2,150
0
4,000
4,000
4,000
Credit
0
0
0
0
450
1,100
0
0
0
Tax before EITC
0
570
1,248
1,898
2,520
2,605
4,335
5,565
7,172
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net lax
(1,839)
(469)
1,007
1,898
2,520
2,605
4,335
5,565
7,172
Tax reduction
Amount
0
150
222
322
450
1,100
600
600
1,120
Percentage
0
na
18
15
15
30
12
10
14
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
4,000
Aid
3,000
3,150
2,742
2,173
1,500
1,500
600
600
1,120
Increased aid
300
450
522
623
750
1,500
600
600
Department of the Treasury
1,120
March 5, 1997
Office of Tax Analysis
Married Couple One Dependent Student, $6,500 of Tuition
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
Standard deduction or 18% of AGI
70,000
7,100
7,100
7,100
7,100
7,100
7,200
9,000
Personal exemption
10,800
12,600
8,100
8,100
8,100
8,100
8,100
8,100
8,100
Taxable income
8,100
8,100
0
4,800
9,800
14,800
19,800
24,700
32,900
Current law tax before EITC
41,100
49,300
0
720
1,470
2,220
2,970
3,705
4,935
Earned income tax credit
6,165
8,292
1,839
1,039
241
0
0
0
0
0
Net current law tax
0
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
3500
3,980
4,650
3,950
0
5,000
5,000
Credit
5,000
0
0
0
0
0
1,100
0
0
0
Tax before EITC
0
195
873
1,523
2,378
2,605
4,185
5,415
Earned income tax credi
6,892
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(844)
632
1523
2,378
2,605
4,185
5415
6,892
Tax reduction
Amount
0
525
597
698
593
1100
750
750
Percentage
1,400
0
na
49
31
20
30
15
12
17
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
6,500
Aid
3,000
3,525
3,117
2,548
2,600
1,500
750
750
1,400
Increased aid
300
825
897
998
1,850
1,500
750
750
Department of the Treasury
1,400
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Student, $13,500 of Tuitior
Other Years of Postsecondary Education
Proposed Tuition Aid, by Income at 1998 Levels
jamounts in dollars)
AGI (all earnings)
15,000
20,00C
25,000
30,000
35,000
40,000
50,000
60,000
Standard deduction or 18% of AGI
70,000
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
Personal exemption
12,600
8,100
8,100
8,100
8,100
8,100
8,10C
8,100
Taxable income
8,100
8,100
0
4,800
9,800
14,800
19,800
24,700
32,900
Current law tax before EITC
41,100
49,300
0
720
1,470
2,220
2,970
3,705
4,935
Earned income tax credit
6,165
8,292
1,839
1,039
241
0
0
0
0
0
0
Net current law tax
(1,839)
(319)
1,229
2,220
2,970
3,705
4,935
6,165
8,292
Current law Pell grant
2,700
2,700
2,220
1,550
750
0
0
0
0
Proposal
Tuition deduction
0
4,800
5,000
5,000
5,000
0
5,000
Credit
5,000
5,000
0
0
0
0
0
1,100
0
0
0
Tax before EITC
0
0
720
1,470
2,220
2,605
4,185
5,415
6,892
Earned income tax credi
1,839
1,039
241
0
0
0
0
0
0
Net tax
(1,839)
(1,039)
479
1,470
2,220
2,605
4,185
5,415
6,892
Tax reduction
Amount
0
720
750
750
750
1,100
750
750
Percentage
1,400
0
na
61
34
25
30
15
12
17
Pell grant
3,000
3,000
2,520
1,850
1,050
400
0
0
0
Tuition amount
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
13,500
Aid
3,000
3,720
2,600
2,600
2,600
1,500
750
750
1,400
ncreased aid
300
1.020
380
1,050
1,850
1,500
750
750
Department of the Treasury
1,400
March 5, 1997
Office of Tax Analysis
Married Couple, One Dependent Freshman, One Dependent Senior
Maximum Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
Taxable income
0
2,100
7,100
12,100
17,100
22,000
30,200
38,400
46,600
Current law tax before EITC
0
315
1,065
1,815
2,565
3,300
4,530
5,760
7,536
Earned income tax credit
3,185
2,132
1,079
26
0
0
0
0
0
Net current law tax
(3,185)
(1,817)
(14)
1,789
2,565
3,300
4,530
5,760
7,536
Current law Pell grant
5,400
5,400
4,980
4,500
3,680
2,900
800
0
0
Proposal
Tuition deduction
0
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
Credit
0
0
0
0
0
0
810
1,500
1,500
Tax before EITC
0
0
3'5
1,065
1,815
2,550
2,970
3.510
4,740
Earned income tax credit
3,185
2.132
1,079
26
0
0
0
0
0
Net tax
(3,185)
(2,132)
(764)
1,039
1,815
2,550
2,970
3,510
4,740
Tax reduction
Amount
0
315
750
750
750
750
1,560
2,250
2,796
Percentage
0
na
na
42
29
23
34
39
37
Pell grant
6,000
6,000
5,580
5,100
4,280
3,500
1,380
0
0
Tuition amount for
maximum aid
6,000
11,000
10,580
10,100
9,280
8,500
7,190
6,500
6,500
Maximum aid
6,000
6,315
6,330
5,850
5,030
4,250
2,940
2,250
2,796
Maximum increased aid
600
915
1,350
1,350
1,350
1,350
2,140
2,250
2,795
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Note: Each student receives half of the Pell grant amount. Credits and deductions are calculated accordingly.
Married Couple, One Dependent Freshman, One Deperdent Senior, $1,200 of Tuitior per Student
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AG (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
Taxable income
0
2,100
7,100
12,100
17,100
22,000
30,200
38,400
46,600
Current law tax before EITC
0
315
1,065
1,815
2,565
3,300
4,530
5,760
7,536
Earned income tax credit
3,185
2,132
1,079
26
0
0
0
0
0
Net current law tax
(3,185)
(1,817)
(14)
1,789
2,565
3,300
4,530
5,760
7,536
Current law Pell grant
5,400
5,400
4,980
4,500
3,680
2,900
800
0
0
Proposal
Tuition deduction
0
0
0
0
0
0
510
900
900
Credit
0
0
0
0
0
0
510
1,500
1,500
Tax before EITC
0
315
1,065
1,815
2,565
3,300
3,944
4,125
5,784
Earned income tax credi
3,185
2,132
1,079
26
0
0
0
0
0
Net tax
(3,185)
(1,817)
(14)
1,789
2,565
3,300
3,944
4,125
5,784
Tax reduction
Amount
0
0
0
0
0
0
587
1,635
1,752
Percentage
0
0
0
0
0
0
13
28
23
Pell grant
6,000
6,000
5,580
5,100
4,280
3,500
1,380
0
0
Tuition amount
2,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
Aid
6,000
6,000
5,580
5,100
4,280
3,500
1,967
1,635
1,752
Increased aid
600
(3,900)
(3,900)
600
(3,900)
600
1,167
1,635
1,752
Department of the Treasury
March 5, 1997
Office of Tax Analysis
Note: Each student receives half of the Pell grant amount. Credits and deductions are calculated accordingly.
Married Couple, One Dependent Freshman, One Dependent Senior, $4,000 of Tuilion per Student
Proposed Tuition Aid, by Income al 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
Taxable income
0
2,100
7,100
12,100
17,100
22,000
30,200
38,400
46,600
Current law tax before EITC
0
315
1,065
1,815
2,565
3,300
4,530
5,760
7,536
Earned income tax credit
3,185
2,132
1,079
26
0
0
0
0
0
Net current law tax
(3,185)
(1,817)
(14)
1,789
2,565
3,300
4,530
5,760
7,536
Current law Pell grant
5,400
5,400
4,980
4,500
3,680
2,900
800
0
0
Proposal
Tuition deduction
0
2,000
2,420
2,900
3,720
4,500
3,310
5,000
5,000
Credit
0
0
0
0
0
0
810
1,500
1,500
Tax before EITC
0
15
702
1,380
2,007
2,625
3,224
3,510
4,636
Earned income tax credi
3,185
2132
1,079
26
0
0
0
0
0
Net tax
(3,185)
(2.117)
(377)
1,354
2,007
2,625
3,224
3,510
4,636
Tax reduction
Amount
0
300
363
435
558
675
1,307
2,250
2,900
Percentage
0
na
na
24
22
20
29
39
38
0978 779 ZOZO
Pell grant
6,000
6,000
5,580
5,100
4,280
3,500
1,380
0
0
Tuition amount
8,000
8,000
8,000
8,000
8,000
8,000
8,000
8,000
8,000
Aid
6,000
6,300
5,943
5,535
4,838
4,175
2,687
2,250
2,900
Increased aid
600
IC:/T
(3,600)
(3,537)
1,035
(3,342)
1,275
1,887
2,250
2,900
Department of the Treasury
March 5, 1997
Office of Tax Analysis
18/20/90
Note: Each student receives half of the Pell grant amount. Credits and deductions are calculated accordingly.
Married Couple, One Dependent Freshman, One Dependen: Senior, $6,500 of Tuition per Student
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60,000
70,000
Standard deduction or 18% of AGI
7,100
7,100
7,100
7,100
7,100
7,200
9,000
10,800
12,600
Personal exemption
10,800
10.800
10,800
10,800
10,800
10,800
10,800
10,800
10,800
Taxable income
0
2100
7,100
12,100
17,100
22,000
30,200
38,400
46,600
Current law tax before EITC
0
315
1,065
1,815
2,565
3,300
4,530
5,760
7,536
Earned income tax credit
3,185
2,132
1,079
26
0
0
0
0
0
Net current law tax
(3,185)
(1,817)
(14)
1,789
2,565
3,300
4,530
5760
7,536
Current law Pell grant
5,400
5,400
4,980
4500
3,680
2900
800
0
0
Proposal
Tuition deduction
0
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
Credit
0
0
0
0
0
0
810
1,500
1,500
Tax before EITC
0
(435)
315
1,065
1,815
2,550
2,970
3,510
4,740
Earned income tax credi
3,185
2,132
1,079
26
0
0
0
0
0
Net tax
(3,185)
(2,567)
(764)
1,039
1,815
2,550
2,970
3,510
4,740
Tax reduction
Amount
0
750
750
750
750
750
1,560
2,250
2,796
Percentage
0
na
na
42
29
23
34
39
37
0976 770 7070
Pell grant
6,000
6,000
5,580
5,100
4,280
3,500
1,380
0
0
Tuition amount
13,000
13,000
13,000
13,000
13,000
13,000
13,000
13,000
13,000
Aid
6,000
6,750
6,330
5,850
5,030
4,250
2,940
2,250
2,796
89:/T
Increased aid
600
(3,150)
(3,150)
1,350
(3,150)
1,350
2,140
2,250
2,796
Department of the Treasury
March 5, 1997
Office of Tax Analysis
18/90/C0
Note: Each student receives half of the Pell grant amount. Credits and deductions are calculated accordingly.
Married Couple, One Dependent Freshman, One Dependent Senior, $13,500 of Tuition per Student
Proposed Tuition Aid, by Income at 1998 Levels
(amounts in dollars)
AGI (all earnings)
15,000
20,000
25,000
30,000
35,000
40,000
50,000
60000
70,000
Standard deduction or 18% of AGI
7,100
7100
7,100
7 100
7,100
7,200
9,000
10800
12,600
Personal exemption
10,800
10 800
10,800
10 800
10,800
10 800
10,800
10.800
10,800
Taxable income
0
2,100
7,100
12 100
17,100
22 000
30,200
38,400
46,600
Current law tax before EITC
0
315
1,065
1815
2,565
3300
4,530
5,760
7,536
Earned income tax credit
3,185
2,132
1,079
26
0
0
0
0
0
Net current law tax
(3,185)
(1,817)
(14)
1.789
2,565
3,300
4,530
5,760
7,536
Current law Pell grant
5,400
5,400
4,980
4,500
3,680
2,900
800
0
0
Proposal
Tuition deduction
0
5,000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
Credit
0
0
0
0
0
0
810
1,500
1,500
Tax before EITC
0
0
315
1,065
1,815
2.550
2,970
3,510
4,740
Earned income tax credi
3,185
2,132
1,079
26
0
0
0
0
0
Net tax
(3,185)
(2,132)
(764)
1,039
1,815
2,550
2,970
3,510
4,740
Tax reduction
Amount
0
315
750
750
750
750
1,560
2,250
2,796
Percentage
0
na
na
42
29
23
34
39
37
Pell grant
6,000
6,000
5,580
5,100
4,280
3,500
1,380
0
)
770
Tuition amount
27,000
27,000
27,000
27,000
27,000
27,000
27,000
27,000
27,000
Aid
6,000
6,315
6,330
5,850
5,030
4,250
2,940
2,250
2,796
Increased aid
600
915
1,350
1,350
1,350
1,350
2,140
2,250
2,796
Department of the Treasury
March 5, 1997
Office of Tax Analysis
16/90/80
Note: Each student receives half of the Pell grent amount. Credits and deductions are calculated accordingly.
HIGHER EDUCATION CLAIM BACKUP
Outlays for Payments to Students
Constant
VA: Education
ED & other
HOPE Tax
Nominal $
TOTAL
% Increase
(1992) $
for Veterans
non-VA
Expenditures
Increase
Increase
1945
0
0
46
1,342
1,342
1,342
100
12,854
47
3,566
3,566
2,224
166
17,806
48
3,174
3,174
(392)
(11)
(3,063)
49
3,207
3,207
33
1
257
50
2,739
2,739
(468)
(15)
(3,511)
51
1,953
1,953
(786)
(29)
(6,055)
52
1,326
1,326
(627)
(32)
(4,697)
53
668
668
(658)
(50)
(5,752)
54
546
546
(122)
(18)
(817)
55
678
678
132
24
1,146
56
781
781
103
15
888
57
787
787
6
1
51
58
711
711
(76)
(10)
(644)
59
585
585
(126)
(18)
(657)
60
392
392
(193)
(33)
(959)
61
246
246
(146)
(37)
(708)
62
159
159
(87)
(35)
(417)
63
102
102
(57)
(36)
(263)
64
77
77
(25)
(25)
(114)
65
58
58
(19)
(25)
(85)
66
54
45
99
41
71
179
67
305
226
531
432
436
1,824
68
478
460
938
407
77
1,648
69
701
570
1,271
333
36
1,278
70
1,015
503
1,518
247
19
893
71
1,659
904
2,563
1,045
69
3,556
72
1,960
1,067
3,027
464
18
1,486
73
2,800
1,199
3,999
972
32
2,963
74
3,249
1,054
4,303
304
8
857
75
4,591
1,604
6,195
1,892
44
4,825
76
5,527
2,394
7,921
1,726
28
4,111
77
4,483
3,314
7,797
(124)
(2)
(273)
78
3,362
3,059
6,421
(1,376)
(18)
(2,833)
79
2,825
3,767
6,592
171
3
325
80
2,450
5,089
7,539
947
14
1,627
81
2,395
6,166
8,561
1,022
14
1,592
82
2,113
5,758
7,871
(690)
(8)
(1,005)
83
1,854
6,601
8,455
584
7
812
84
1,564
7,036
8,600
145
2
192
85
1,352
7,800
9,152
552
6
705
86
1,172
8,036
9,208
56
1
70
87
1,105
7,469
8,574
(634)
(7)
(766)
88
1,071
8,139
9,210
636
7
744
89
1,046
9,906
10,952
1,742
19
1,957
90
828
10,442
11,270
318
3
344
91
849
11,272
12,121
851
8
878
92
1,042
10,500
11,542
(579)
(5)
(579)
93
1,140
13,463
14,603
3,061
27
2,986
94
1,409
7,231
8,640 (1)
(5,963)
(41)
(5,683)
95
1,429
13,385
14,814
6,174
71
5,746
96
1,427
11,407
12,834
(1,980)
(13)
(1,801)
97
1,610
8,281
9,891
(2)
(2,943)
(23)
(2,608)
98
1,633
11,171
4,100
16,904
7,013
71
6,051
98
1,633
11,171
12,804
2,913
29
2,514
source: Historical Tables, FY 1998 Budget
(1) the reduction from 1993 to 1994 is due in part to a $2 billion Sallie Mae payment to the Federal Government, $1.5 billion reduction in the
cost of the Pell program, and $1.4 billion in credit and liquidating account changes.
(2) the reduction from 1996 to 1997 is due primarily to a reestimate of the pre-1998 student loan cohorts, which reduced the costs of the
programs by $2.5 billion.