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HR 6 -- 04/28/98

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H.R. 6 -Higher Education Amendments of 1998
(Rep. McKeon (R) CA and 3 others)

Unfortunately, there are a number of highly problematic provisions in the reported bill, such as the repeal of funding for the National Board for Professional Teaching Standards, a change to the student loan interest rate structure that provides excessive profits to lenders and requires unnecessary new spending, and significantly increased payments to guaranty agencies and insufficient funding for the Department of Education to manage effectively all of the student aid programs. Further, the Administration understands that provisions may be added to the bill that are also strongly objectionable, such as an amendment to incorporate the text of H.R. 3330, the so-called Anti-Discrimination in College Admissions Act of 1998. Overall, if such provisions are in the bill as presented to the President, particularly in light of other concerns raised in this Statement of Administration Policy, the President's senior advisers would recommend that he veto H.R. 6.

National Board for Professional Teaching Standards. The National Board recognizes and rewards excellent teachers who thereby become an observable standard of excellence to which other teachers can aspire. Upgrading the teaching corps and raising teaching standards in this way is a key element necessary for long-term improvement in student achievement.

Student Loan Interest Rates. The Administration cannot accept the bill's provisions that would provide lenders with excessive profits and require taxpayers to finance those profits through an additional $2.7 billion subsidy to lenders over five years. Most of the additional $2.7 billion of spending is not offset in the bill and therefore would trigger a possible sequester of several entitlement programs specified in law. Statutorily set lender subsidies are not necessary to ensure access to Federal Family Education Loans (FFEL), and they ignore promising market-based solutions, such as an auction mechanism, for addressing concerns expressed by the lender community. A policy that moves toward an auction mechanism should be part of the interest rate structure.

A budget sequester would raise student loan origination fees -- which are already too high -- and reduce Federal mandatory spending across-the-board. Vital programs such as vocational rehabilitation, foster care and adoption assistance, and Medicare should not have to bear the cost of lender subsidies.

H.R. 3330. The Administration strongly opposes H.R. 3330, which may be offered as an amendment during House consideration of H.R. 6. The Administration strongly supports properly constructed affirmative action to achieve the compelling interest of eradicating the effects of discrimination or promoting the educational benefits of diversity. For Congress to deny Federal funds to institutions that promote such efforts would unduly constrain their ability to meet their constitutional obligations and would be an unwarranted Federal intrusion into the freedom of public and private institutions to establish their own admissions policies.

Section 458 Funding Reductions. The Administration strongly opposes provisions in H.R. 6 that would reduce administrative funds available to the Department of Education under section 458 of the HEA by more than $220 million during fiscal years 1999 to 2003, while increasing administrative payments to guaranty agencies by roughly $350 million during that period. These provisions directly threaten the Department's ability to manage the over $50 billion annual Federal investment in student financial aid by taking away the funds necessary to carry out vital activities, such as student aid application processing, student loan default collection, and urgently needed modernization of student aid delivery systems.

In addition, there are other significant provisions in H.R. 6 that the Administration will seek to improve during further congressional consideration. Among these issues are the following.

• H.R. 6 fails to make adequate performance-based reforms to encourage and reward efficient service delivery by guaranty agencies, and it would include new and excessive sources of revenue for guaranty agencies. The Administration is also very concerned that the Department of Education's authority to advance funds to guaranty agencies for lender-of-last-resort loans would be eliminated. This would impair the Department's ability to work with guaranty agencies to ensure students' access to guaranteed loans under a program that is efficient and cost-effective for the FFEL program and the taxpayer. The Administration hopes to work with the Congress to fashion an acceptable compromise that provides much-needed guaranty agency reform.

• The Administration is also very disappointed that H.R. 6 does not lower origination fees for students. The Administration proposed to lower the fees by one percentage point for all borrowers and to phase them out entirely for borrowers of subsidized loans, and offered the necessary offsets to finance these fee reductions.

• The bill does not include changes necessary to implement the President's proposal to allow individuals with unsubsidized student loans to serve their communities for up to three years without accruing interest on these loans. Under current law, individuals with subsidized loans do not accrue interest while receiving a deferment and performing community service, but those with unsubsidized loans continue to accrue interest. This proposal is part of the President's call to action to encourage all Americans to serve their communities.

• H.R. 6 also fails to exclude from taxation any loan balances that are forgiven after the maximum number of years of income-contingent repayment. Income-based repayment ensures that borrowers who remain low-income relative to their debt do not have to carry that burden for more than 25 years. Saddling them with an additional tax liability is neither appropriate nor was it ever intended.

• The Administration appreciates the bill's strong support for postsecondary education programs, but notes that certain proposed authorization levels are not realistic in the current budget environment.

• The Administration shares the goal of adopting a performance-based organization (PBO) for the administration of the student aid programs, but is concerned that H.R. 6 fails to incorporate fundamental components of the Administration's model legislation for PBOs. That model was carefully crafted to provide more personnel management and procurement flexibility than H.R. 6 provides, while ensuring accountability for the exercise of that flexibility.

• The Administration opposes Title X of H.R. 6 as reported out by the Committee because these changes to the Age Discrimination in Employment Act go too far in allowing arbitrary, differential treatment on the basis of age. However, the Administration understands that the managers will be proposing new language which should address these concerns. If those changes are made, the Administration would have no objection to the provision.

The Administration looks forward to working with Congress to resolve these and other issues, such as those articulated in more detailed letters from concerned departments, as Congress works to reauthorize the Higher Education Act.

Pay-As-You-Go Scoring

H.R. 6 would increase direct spending; therefore, is subject to the pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of 1990. The bill does not contain provisions to fully offset this increase in outlays. Therefore, if the bill were enacted, its deficit effects could contribute to a sequester of mandatory programs. OMB's preliminary scoring of this bill is that it would increase outlays by $2,061 million during FYs 1998-2003: