Statement of Administration Policy: H.R. 3553 - Higher Education Act Amendments

(House)
(Ford (D) MI and 64 others)

The Administration strongly supports reauthorization of the Higher Education Act and submitted its proposals to Congress in June 1991. These proposals would significantly increase financial support for all eligible students, with increased aid targeted particularly to low- and middle-income students. They also would: (l) improve the fiscal integrity of the student loan guarantee programs; (2) restructure and make more effective programs that help disadvantaged youth go to college and graduate; and (3) provide, for the first time, scholarships for low-income students who excel in their educational endeavors.

In contrast, H.R. 3553, as modified to incorporate the text of H.R. 4471, would (1) shift student aid to focus more assistance on those least in need; (2) provide unrealistic authorization levels that will create false expectations for students; (3) compound the administrative problems facing the Department of Education; (4) create a poorly structured direct student loan program; and (5) violate the pay-as-you-go provisions of the Budget Enforcement Act, unless the origination fee provision printed in the Committee report accompanying the rule is included. The Administration would oppose the phaseout of current origination fees. Therefore, the Administration opposes enactment of H.R. 3553 in its current form. If the bill were presented to the President, his senior advisers would recommend a veto.

In particular, the Administration strongly objects to provisions that would:

• Change Pell Grant eligibility and determine award sizes in ways that would give excessive aid to the wealthiest students.
  

  — H.R. 3553 would significantly increase Pell Grant funding for students from high-income families. In particular, the total amount of Pell Grant awards to families with incomes over $60,000 would grow by almost 1,400 percent, the highest increase of any income category.

  — The percentage of total Pell Grant funds targeted on the neediest category of students would drop from 61 percent to 49 percent.

• Authorize Pell Grants at levels so high — almost double current funding — that the appropriators will have no choice but to override the statutory provisions in order to reduce them. In 1993, the program would cost a total of $10.3 billion, $4.9 billion more than the current program. The authorizing committee has included unrealistically high funding levels with no financing source. In authorizing such unrealistically high levels, the authorizing committee is effectively requiring the appropriations committees to restructure the program each year.
  
  
• Create an enormous new ($2.5 - $3.0 billion over five years) direct loan program that would increase the Federal debt. This new program, misleadingly labeled a "pilot", does not address any important policy issues and would burden the Education Department with yet another administrative problem for more than a decade.

  — There is no evidence that a direct loan program can be run more efficiently than a guaranteed loan program.

  — Prior experience with the Federally Insured Student Loan program demonstrates the difficulty of having the Department of Education run a central loan program.

  —   There is no research to show that a new Federal bureaucracy can deliver services more efficiently than 8,000 community banks. If the special allowance payment to banks participating in the Guaranteed Student Loan program is too high, the response should be to lower the special allowance — not to create a new Federal delivery system.

  —   The direct loan program would provide a line of credit and a direct draw on the Federal Treasury to proprietary schools, with default rates averaging 45 percent, that have demonstrated that they are not worthy of public trust.

  — The program would unjustifiably add as much as $3.0 billion of Federal debt for a high-risk, untested program.

• Create two redundant "scholarship" programs, one of which includes no real merit-based standards. The Administration prefers the Congressional Achievement Scholarship program that rewards Pell Grant recipients who excel in high school and postsecondary studies.
  
  
• Create a costly, new loan entitlement for all students, regardless of income, that is incorrectly labeled as "unsubsidized". This program is not unsubsidized. In 1993, it would result in $171 million in Federal outlays — $1.4 billion over the next five years — for special allowance payments to banks and default subsidy coverage primarily for higher-income students.

— The bill does not increase Stafford loan limits for financially needy students as the Administration's proposal would. The bill instead expands eligibility to those most able to pay for postsecondary costs.

• Continue the existing fragmented, uncoordinated approach to precollege outreach by reauthorizing the current Upward Bound, Talent Search, Educational Opportunity Centers, and School, College, and University Partnerships programs. In addition, H.R. 3553 would create a new National Liberty Scholarships and Partnerships program, which duplicates current Federal and State outreach and student financial aid programs. The Administration would restructure the programs to improve delivery to students.
  
  
• Violate the pay-as-you-go provisions of the Budget Enforcement Act, unless the origination fee provision printed in the Committee report accompanying the rule is included.. Direct spending for the guaranteed student loan and direct loan provisions would increase by $1.3 billion over six years without adequate offsets.

In addition, the Administration opposes H.R. 3553 because it:

• Fails to include a "Lifetime Line of Credit" for all Americans for education and job training, with repayments made on a borrower's ability to repay.
  
  
• Includes program integrity provisions that do not go far enough. (See Administration-supported amendments in the Attachment.)
  
  
• Does not require the Student Loan Marketing Association (Sallie Mae) to meet risk-based standards. Congress has made other Government Sponsored Enterprises subject to such standards and should do the same for Sallie Mae.
  
  
• Adds unnecessary programs in international education and community service that are in themselves redundant and duplicate current programs.
  
  
• Continues Federal funding for facilities construction and renovation, which is not an appropriate Federal responsibility.
  
  
• Inappropriately requires negotiated rulemaking for higher education grant programs. Mandating negotiated rulemaking is an unwarranted intrusion on Executive branch regulation promulgation.
  
  
• Does not require schools to contribute a sufficient matching share for the Supplemental Educational Opportunity Grants and Work-Study programs. Participating schools receive substantial benefits from these programs and therefore should be willing to share equally in the program cost.

The Administration would support the amendments to H.R. 3553 that are listed in the Attachment.

Scoring for Purposes of Pay-As-You-Go

The provisions of H.R. 3553 would increase direct spending; therefore, the bill is subject to the pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of 1990 (OBRA). Although some offsets are provided in the bill, unless the origination fee provision printed in the Committee report accompanying the rule is included, they will not fully meet the increased costs. A budget point of order applies in both the Senate and House against any bill that is not fully offset under CBO scoring. If, contrary to the Administration's recommendation, the House waives any such point of order that applies against H.R. 3553, the effect of enactment of this legislation would be included in a look-back pay-as-you-go sequester report at the end of the congressional session.

OMB's preliminary scoring estimates of the guaranteed student loan and direct loan provisions are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 3553 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA. The cumulative effects of all enacted legislation on direct spending will be issued in monthly reports transmitted to Congress.

ESTIMATES FOR PAY-AS-YOU-GO
(outlays in millions)

The above estimates do not include the pay-as-you-go effects of certain provisions because there has been insufficient time to determine the scoring effects of these provisions. The statutory language is being reviewed and estimates are under development.

Attachment

The Administration strongly supports the following amendments to H.R. 3553:

— Lifetime Line of Credit: to establish a $25,000 "Lifetime Line of Credit" for all Americans for education and job training, with repayments made on a borrower's ability to repay. (Rep. Petri)

— One Course at a Time: to make Pell Grants and Guaranteed Student Loans available for students studying one course at a time to improve their knowledge and skills. (Rep. Gunderson)

— Need analysis changes and Pell Grant award rules: to determine Pell awards by (1) meeting a higher percent of need for those with the lowest incomes; (2) capping the assessment of home value at three times income; (3) requiring minimum student contributions from only those who can afford it; (4) tightening the independent student definition to reflect more accurately the ability of parents to contribute toward the cost of the student's education; and (5) eliminating the "blank check" discretion of financial aid administrators to adjust Pell awards regardless of the statutory method of determining a student's need.

— Integrity: to (1) eliminate certain schools with high default rates from the Pell Grant program; (2) specify that the Secretary may, consistent with current law, mandate the transfer of defaulted loans to the Department at any time; (3) require accrediting agencies to consider default rates, student complaints, and program reviews; (4) ensure that States play a greater role in ensuring institutional quality by strengthening "triggers" for State oversight; and (5) reduce the trigger for the elimination of high default schools from the Guaranteed Student Loan programs to 25 percent. (Reps. Gordon, Waters, Roukema — 1,2, and 3; Reps. Roukema, Waters, Gordon — 4 and 5)

— Minimum Academic Performance: to require students to maintain at least a "C" average or comparable standing- subject to school standards approved by the Secretary, in order to remain eligible for Federal student aid. (Rep. Boehner)

— Program integrity measures: to maintain credit checks for borrowers age 21 and over and confess judgment provisions enacted in the Emergency Unemployment Compensation Act of 1991.

— Accrediting bodies: to prohibit accrediting bodies from applying standards to postsecondary institutions that infringe upon their institutional mission, or religious tenets. (Rep. Henry)

— Pre-college outreach: to replace duplicative, uncoordinated authorities with a program that builds on current successful models and encourages States to make services available for all students who need them.

— Improve Supervision and Regulation of Financial Safety and Soundness of the Student Loan Marketing Association (Sallie Mae): to ensure the financial safety and soundness of Sallie Mae by (1) establishing risk-based capital standards, (2) establishing prompt regulatory action requirements, and (3) providing sufficient regulatory authorities to the safety and soundness regulator (i.e., the agency head) to enforce capital requirements. (Reps. Gradison and Pickle)

— Stafford Loan Limits: to increase Stafford Loan limits for students who have completed one year of study, and delete the "unsubsidized" Stafford loan program in the bill. (Rep. Roukema)

— State Oversight: to require State review of schools with a default rate in excess of 15 percent. (Rep. Kolbe)