A r c h i v e d  I n f o r m a t i o n

Updated information on America's HOPE Scholarship Proposal

Opening Wide the Doors of College

One of the great challenges of our time is making the dramatic economic changes occurring all over the world benefit our young people and open opportunities for our older adults as well. While many people were managing to find education and training that prepared them for high-skilled jobs without a college degree, too many young people lost their way between high school and the world of work. And for those who are academically prepared for college, the cost limits access for many working families and middle-income families, just as it does for low-income families. The average cost of a public college increased from 9 percent of the typical family's income in 1979 to 14 percent in 1994.

We must make two years of college--the 13th and 14th years of education--as universal for young Americans as the first 12 are today. And, we must make college more affordable for all Americans. To support these goals, the President has already initiated an unprecedented college opportunity strategy that will make college more accessible and affordable to Americans than at any time in their lives, while also reducing fraud and abuse and reducing costs to taxpayers.

Over the next five years, the President's budget will more than double the federal commitment to postsecondary education from the time he entered office--going from $24 billion a year in 1993 to $58 billion in 2002.

The Direct Lending Program

An important aspect of the new Direct Loan program is that it provides students the ability to repay their loans as a percentage of their income -- income-contingent repayment -- to encourage community service, and to make debt more manageable and to reduce defaults. As of November 1996, nearly 100,000 borrowers with loans totaling $1.5 billion have consolidated into direct lending. About three-quarters of these borrowers are selecting non-standard repayment options with 52 percent selecting income-contingent repayment.

Through the legislation that created the Direct Student Loan program we were able in 1993 to reduce by 50 percent (from 8 percent to 4 percent) the student loan fees that lenders and guarantee agencies were allowed to levy on student borrowers. But we need to do more. We propose to further reduce these fees in both the new Direct Student Loan and the older Federal Family Education Loan programs, cutting loan fees from 4 percent to just 2 percent on need-based Stafford loans, and to 3 percent on other loans for students and parents. Furthermore, because the Congressional Budget Office and other analysts have noted that lender costs are very low during the in-school period, when students are not required to make payments on their loans, we propose to reduce the interest rate paid to lenders during that period by one percentage point.

Increasing Grant Aid Available to Students--Pell Grants

Pell Grants are the most important form of student financial aid for the nation's neediest students. In the decade preceding 1992, funding for this critical program did not keep pace with inflation, which seriously eroded the Pell Grants' purchasing power. The Clinton Administration began immediately in 1993 to restore fiscal integrity to this program at a time when it had been allowed to accumulate a projected internal program deficit of over $2 billion. After eliminating that program deficit, the President secured bipartisan support for the largest Pell Grant increase in recent history, a $230 increase (9 percent) in the maximum grant to $2,700 in FY97. This represents a full $400 increase, more than 17 percent, in the maximum grant since 1993.

We now are proposing to increase the maximum award from $2,700 to $3,000, as well as greatly expand eligibility to older independent students. Increasing the maximum award to $3,000 provides more aid to currently eligible students, and makes an additional 130,000 students eligible for the grants. The President's budget also expands the eligibility of low income students age 24 and older. This change will make an additional 218,000 students eligible for Pell Grants, and expand aid for over 890,000 students by an average of $800. These changes, contained in the President's balanced budget, will increase Pell Grant funding by $1.7 billion in fiscal year 1998, a more than 25 percent increase over current funding levels.

HOPE Scholarship and Other Tax Benefits: Making the 13th and 14th years of education--at least two years of college--as universal in America as high school is today.

HOPE Scholarships. A centerpiece of President Clinton's HOPE and Opportunity Agenda for higher education is the proposed HOPE Scholarship tax credit, which offers two years of tuition at the typical community college for any student enrolled at least half-time. It provides students with a maximum $1,500 tax credit for tuition and required fees in their first year, and another $1,500 in their second year if they work hard, stay off drugs, and earn at least a B minus average in their first year. This $1,500 tax credit will pay the full cost of tuition at a typical community college--essentially making community college free or nearly so for every student. In 1998, this credit is expected to help 4.2 million middle-income students pay for college.

Although the HOPE Scholarship tax credit is priced to pay the full cost of two years of tuition at a typical community college, the credit can be applied to tuition at any college, including four-year public and private colleges. The credit would be a substantial down payment for parents sending their children to four-year colleges with higher tuition. Students receiving tax credits would still be eligible for other federal student aid, including student loans, Pell Grants, and Work Study. However, the maximum tax credit would be $1,500 minus any federal grants awarded to the student.

The proposal builds on the enormously successful HOPE Scholarship program in Georgia, which guarantees any student in the state of Georgia free college as long as they have earned a B average and stayed off drugs. This year the scholarships are helping 80,000 students--including 70 percent of the freshman class at the University of Georgia.

The HOPE scholarship tax credit will help open the doors of college opportunity to every American who works hard and makes the grade, regardless of that student's ability to pay, because education at the typical community college will now essentially be free. The program also makes it clear that with opportunity comes the responsibility to work hard and achieve at a high level. This benefit will initially be available without restrictions tied to previous academic performance but the continued benefit will be reserved for those people who, by definition, are willing to work for it. It's America's most basic bargain: we as a nation will help create opportunity if you'll take responsibility.

$10,000 Tax Deduction for Education and Training. We have also proposed a tax deduction of up to $10,000 per family per year for tuition and fees (minus grants) for college, graduate school, community college and certified training and technical programs. In 1998, 8.1 million students stand to benefit from this proposal for tax relief in 1998.

Students eligible for both the tax credit and the tax deduction would choose one or the other, although students benefiting from the tax credit in the first two years would still be eligible for the deduction in later years. Because the tax proposals are meant to help working families and low- and middle-income students pay for college, eligibility for both the tax credit and the tax deduction would be phased out for joint tax filers with incomes between $80,000 and $100,000 and for individual filers with incomes between $50,000 and $70,000.

Helping Make Saving for College Tax Free: Using Individual Retirement Accounts for Educational Savings. We have proposed greater flexibility in using Individual Retirement Accounts so that all funds saved in these accounts can be used for postsecondary education expenses free from early withdrawal tax penalties. In addition, our proposal makes 20 million more families eligible for tax-deductible IRA contributions by substantially extending the income cutoffs for IRA participation. Currently, if an individual or spouse participates in an employer's retirement plan, eligibility is phased out for taxpayers filing a joint return with adjusted gross income between $40,000 and $50,000 (between $25,000 and $35,000 for single taxpayers). The proposal would expand the phase-out ranges to match the ranges described for the HOPE Scholarship tax credit and $10,000 deduction. Families who save through an expanded IRA, and then use the savings for higher education, can deduct up to $10,000 of their withdrawals a year, making savings for college virtually tax free for middle-class families.

Expanding Tax-Free Treatment for Forgiveness of Student Loan. We propose to change the tax law so that more students can use community or public service to repay their student loans without owing tax. Ordinarily, when a lender forgives a loan and erases the remaining debt, the borrower is treated as having income on which he or she must pay tax. Our proposal would eliminate this tax liability when the lender is a charitable or educational institution that lends money to a student to pay for education and then forgives the loan after the student fulfills a commitment to perform community or public service for a certain period of time. To be covered by this proposal, the loan must be used to pay the costs of attendance at an institution of higher education or to refinance other student loans. The same tax-free treatment would apply when the Federal government forgives a loan made through the direct student loan program for a student who has been making income contingent repayments.

Extension of Tax Benefit to Employees Who Receive Employer-Provided Education Assistance (Section 127). We propose reinstating through the year 2000 the current exclusion from an employee's income of up to $5,250 per year of postsecondary educational assistance provided by an employer for undergraduate and graduate students. In addition, for 1998-2000, small businesses would be given a new incentive to provide educational assistance to their employees through a 10 percent tax credit for amounts paid under an employer-provided educational assistance program for education provided by a third party.

Other Forms of Aid

Work-Study.Work-study helps students earn money while they are in school. The President proposed a multi-year plan to increase funding for this valuable federal program by 50 percent by the year 2000, so that one million students will be able to attain part-time employment. With strong bipartisan support from the Congress we received an exceptional one-year increase of 35 percent for FY 1997. This increase is substantial enough to allow an increase in the wages for student workers, an expansion of traditional work-study opportunities, and, perhaps most important, to expand higher education's commitment to community service activities. To this end, the President has challenged the higher education community to use one-half of the college work-study increase for community service, primarily to tutor young children in reading. Indeed, the Secretary of Education has issued regulations to waive the match for those who use work-study funds to help tutor young children to read.

Presidential Honors Scholarship. We propose a Presidential Honors Scholarship that further emphasizes the importance of student achievement. This program would award one-year, $1,000 scholarships to the top 5 percent of graduating high school students in every high school in the nation. We need to send a message to every high school in America that we are serious about excellence.

Reducing Fraud and Abuse. The Administration has made aggressive accountability and oversight efforts to remove ineffective schools from the student financial aid programs, both protecting students and ensuring accountability for taxpayer funds. The U.S. Department of Education's efforts, along with new statutory controls and lender and guarantor efforts, have cut the student loan default rate by more than one-half, from 22.4 percent for the FY90 cohort to 10.7 percent for the FY94 cohort. About 700 institutions have been eliminated from eligibility to participate in the federal student assistance programs, based on high default rates. At the same time, the U.S. Department of Education has reduced the administrative burden on participating institutions by streamlining our regulations and by reengineering our administrative processes to make them less intrusive and more effective.

A call to parents, schools, colleges and universities to help students take advantage of these expanded options.

• Students must work hard, play by the rules, and assume responsibility for obtaining the education they will need to get a job and succeed in life.

• Parents must make sure their children take the high school classes they need (such as chemistry, four years of math, advance placement and tech-prep courses, and at least two years of a foreign language) to get into college and take advantage of the savings afforded by the tax policies to help support their children once they are in college.

• Schools can make sure students (as early as in middle school) and their families understand the options available for paying for college and make sure students take the classes and obtain the skills they need to enroll and succeed in college.

• Colleges and universities must contain costs of postsecondary education to assure that the benefits of these increases in federal support accrue to the intended beneficiaries--students and their families, while maintaining their world-class standards of excellence.

• States can build on the HOPE Scholarship plan by making scholarships available for four years of college for students who maintain a B average.

Updated information on America's HOPE Scholarship Proposal

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