[Senate Hearing 109-126]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-126
 
  PROVIDING QUALITY POSTSECONDARY EDUCATION: ACCESS AND ACCOUNTABILITY

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

   EXAMINING ACCESS AND ACCOUNTABILITY RELATING TO PROVIDING QUALITY 
 POSTSECONDARY EDUCATION, FOCUSING ON THE FEDERAL GOVERNMENT'S ROLE IN 
   MAKING POSTSECONDARY EDUCATION FINANCIALLY AVAILABLE FOR AMERICANS

                               __________

                             APRIL 28, 2005

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions












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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                   MICHAEL B. ENZI, Wyoming, Chairman

JUDD GREGG, New Hampshire            EDWARD M. KENNEDY, Massachusetts
BILL FRIST, Tennessee                CHRISTOPHER J. DODD, Connecticut
LAMAR ALEXANDER, Tennessee           TOM HARKIN, Iowa
RICHARD BURR, North Carolina         BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia              JAMES M. JEFFORDS (I), Vermont
MIKE DeWINE, Ohio                    JEFF BINGAMAN, New Mexico
JOHN ENSIGN, Nevada                  PATTY MURRAY, Washington
ORRIN G. HATCH, Utah                 JACK REED, Rhode Island
JEFF SESSIONS, Alabama               HILLARY RODHAM CLINTON, New York
PAT ROBERTS, Kansas

               Katherine Brunett McGuire, Staff Director
      J. Michael Myers, Minority Staff Director and Chief Counsel

                                  (ii)



















                            C O N T E N T S

                               __________

                               STATEMENTS

                        Thursday, April 28, 2005

                                                                   Page
Enzi, Hon. Michael B., Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Dodd, Hon. Christopher J., a U.S. Senator from the State of 
  Connecticut, opening statement.................................     7
Alexander, Hon. Lamar, a U.S. Senator from the State of 
  Tennessee, opening statement...................................     9
Haycock, Kati, director, Education Trust; Trninity Thorpe, 
  student, Pepperdine University; Brian Bothworth, president, 
  FutureWorks; Robert M. Shireman, director, the Institute for 
  College Access & Success, Inc.; and Phillip F. Van Horn, 
  chairman of the board and president, Wyoming Student Loan 
  Corporation, and president and ceo, Western States Learning 
  Corporation....................................................    12
    Prepared statements of
        Ms. Haycock..............................................    14
        Overview of testimony by Ms. Haycock.....................    19
        Ms. Thorpe...............................................    22
        Mr. Bosworth.............................................    25
        Mr. Shireman.............................................    35
        Mr. Van Horn.............................................    43

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Response to questions of Senator Enzi by Kati Haycock........    55
    Response to questions of Senator Enzi by Trinity Thorpe......    57
    Response to questions of Senator Enzi by Brian Bosworth......    57
    Response to questions of Senator Enzi and Senator Murray by 
      Robert Shireman............................................    62
    Response to questions of Senator Enzi by Phillip F. Van Horn.    69

                                 (iii)





















  PROVIDING QUALITY POSTSECONDARY EDUCATION: ACCESS AND ACCOUNTABILITY

                              ----------                              


                        THURSDAY, APRIL 28, 2005

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:00 a.m., in 
Room 430, Dirksen Senate Office Building, Senator Enzi, 
chairman of the committee, presiding.
    Present: Senators Enzi, Alexander, Burr, Dodd, Bingaman, 
and Murray.

                   Opening Statement of Senator Enzi

    The Chairman. Good morning. I call the hearing to order. I 
want to thank the witnesses for participating in today's 
hearing.
    It has been 40 years since Congress first enacted the 
Higher Education Act. During that time this important program 
has provided billions of dollars in student financial 
assistance to millions of students. I am pleased to be able to 
hold this hearing as we continue the process of reauthorizing 
the Higher Education Act. In fact, there is no better way to 
mark the 40th anniversary of the enactment of this legislation 
than by continuing the Federal commitment to postsecondary 
education and every student's dream of a higher education.
    The American postsecondary education is renowned throughout 
the world. More than 6,000 colleges and universities enroll 
more than 14 million students, providing access to all types of 
academic and training programs. We are doing our part in 
Wyoming but we only have a handful of the total. We have only 
one 4-year university and 7 community colleges. The recent 
opening of the University of Phoenix campus in Cheyenne brought 
us to a grand total of 10 accredited institutions of higher 
education in the State, and that is the smallest of any State 
but Alaska.
    This country's institutions are good enough that students 
all over the world make enormous sacrifices to be able to come 
here and study. Today's students at these schools will be 
tomorrow's leaders in the fields of health care, technology, 
manufacturing, business, just to name a few. These schools are 
also helping to prepare tomorrow's generation of teachers, who 
will help our children to begin to mold their future and shape 
their destiny in classrooms throughout the country.
    Today more postsecondary students are receiving Federal 
Pell grant assistance than ever before. Over 5 million students 
received Pell grant assistance in the 2003-04 school year, with 
the greatest number of those students enrolled in public 2-year 
colleges. All together the Federal Government has provided or 
helped to leverage more than $70 billion in student financial 
aid in the past year.
    Enrollment in postsecondary education has increased for the 
past 30 years and it is expected to continue to do so, 
particularly in 2-year programs. By 2008 the number of students 
enrolled in postsecondary education will have doubled from 1970 
levels.
    At the same time, the face of today's average college 
student is changing. The average student enrolled in 
postsecondary education or training these days is most likely 
to be older than 24 years. They are more likely to be 
independent and more likely to be female. These changes should 
not surprise any of us. Higher education in America is in the 
middle of a revolution. We are facing monumental changes in the 
American workforce and the need for employees with a higher 
education is growing at a faster rate than ever.
    As the American workforce changes, so do the needs of 
today's college students. The need to provide broad access and 
strong accountability with respect to higher education has 
never been greater. Our economy is on the threshold of the most 
significant transformation in history. In the next 10 years 
about 12 percent of the workforce will be leaving their careers 
behind for retirement. In addition, today's jobs are requiring 
more of workers than ever before. It is estimated that by 2015 
three-quarters of all workers will have some postsecondary 
education or training, but 2020 we will need 14 million more 
skilled workers in this country than we are currently able to 
provide.
    As we stand on the brink of this workforce revolution, 
Congress has an important opportunity to meet the coming 
challenges head on with the reauthorization of the Higher 
Education Act. The availability of seamless, lifelong education 
opportunities is critical for our long-term competitiveness. In 
this global economy learning is never over, school is never 
out. The Higher Education Act is part of the comprehensive 
approach to education and training that this country needs. 
This approach must effectively coordinate programs such as the 
Workforce Investment Act, the Perkins Career and Technical 
Education Act and other Federal education and training 
initiatives to ensure that we remain competitive.
    Congress must also consider change to the law that will 
help today's students attend and succeed in college, such as 
permitting greater access to distance education, ensuring that 
students have reliable information about the cost of attending 
college, and that schools are partners with businesses in 
supporting a strong American economy.
    Today's panel will help build on the themes that we have 
looked at through a number of hearings so far this year. Our 
panelists will look at issues relating to access and 
accountability with higher education. They will suggest ways we 
can ensure more students are able to attend postsecondary 
education and that they leave these programs with a certificate 
or degree prepared for future success, whether that be in the 
workforce or additional education or something else all 
together.
    I look forward to the testimony of our witnesses. I hope 
this hearing will help provide the committee with information 
we need to take a great step forward in securing our long-term 
competitiveness. Postsecondary education will play a critical 
role in that process. I look forward to working with my 
colleagues on the committee in a bipartisan manner and in the 
Senate to reauthorize the Higher Education Act.
    Senator Dodd.

                   Opening Statement of Senator Dodd

    Senator Dodd. Thank you very much, Mr. Chairman. Let me 
begin by thanking you for the hearings that we are conducting 
on this critically important piece of legislation.
    It is always dangerous to call one piece of legislation the 
most important, but I cannot think of another piece of 
legislation as important as the reauthorization of the Higher 
Education Act. It has been a part of our critical success as a 
nation going back to the earliest days of our republic. One of 
the first acts ever passed by Congress was the Northwest 
Ordinance at the very end of the 18th century as we were a new 
Government; this act set aside lands for education. We passed 
the Morrill Act in the middle of the Civil War. Here was a 
nation preoccupied with how it would survive as a people, and 
yet Abraham Lincoln and the Congress found the resources and 
the time to create the land Grant Colleges. The University of 
Connecticut in my State is one of those institutions that was 
founded as a result of the Land Grant College Act under Senator 
Morrill of Vermont.
    Even before the end of World War II the GI Bill was enacted 
into law, and then of course the Higher Education Act later on, 
but throughout our history, even at times of great crises we 
have always understood the value of education, and in the 20th 
century the importance of a higher education. There are a lot 
of reasons why we are successful as a people, but if I had to 
pick one quality more so than any others, it is our commitment 
to education over the years. I think it is tremendously 
worthwhile that we are going to spend as much time as we are 
this year on this issue.
    You have identified already, Mr. Chairman, in your opening 
comments the statistics today. 6,600 roughly degree and 
nondegree granting institutions are eligible to receive Federal 
aid as higher education institutions. They enroll more than 
15.5 million students, 15.6 million to be exact. Of those 6,600 
institutions, 75 percent of students are enrolled in public 
colleges or universities. Over 70 percent of those students 
receive financial aid, which is a tremendously high number.
    Since the inception of the Higher Education Act the face of 
postsecondary education has changed dramatically. I think it is 
worth noting what has happened in these last 40 years or so. 
There were 5.7 million students in 1965 when we passed the 
Higher Education Act, we have more than 10 million more 
students today, 40 years later. In 1965 women composed 38 
percent of the student body. Today, more than half of the 
student body is women. In 1965 only 6 percent of the students 
identified themselves as being black. Today African-Americans 
make up more than 14 percent of the incoming class. Hispanic 
enrollment has increased from less than one percent in 1975--to 
more than 9 percent in the year 2000. Today 73 percent of 
students are nontraditional students, as the chairman has 
pointed out, in some way or another. They are either older, 
have children, are more likely to be working or are attending 
institutions on a part-time basis.
    When I think of higher education, Mr. Chairman, I find 
myself thinking about access. That is an important question 
obviously. It has to do with academic access, to what extent we 
have prepared students for their university experience. It has 
to do with information, to what extent we made students aware 
of their higher education opportunities. And it has to do with 
cost, to what extent can Americans afford to go on to a higher 
end. More and more I am particularly concerned, as I know many 
of my colleagues are, with the issue of cost. According to the 
College Board last year the average cost of attending a public 
4-year college including tuition fees, room and board, 
increased by 7.8 percent to over $11,000. For private 4-year 
colleges the average cost increased 5.6 percent to over 
$27,000.
    I asked my staff, because as my colleagues know, as the 
father of a 2-month-old and father of a 3\1/2\-year-old, I 
thought it might be interesting to extrapolate what kind of 
costs I would be looking at 15 or 18 years from now, and I had 
better find another job quickly here if I intend to do this. 
[Laughter.]
    I think at my public institution I will be paying $31,000 
for my oldest to go to college, if these numbers hold up over 
the coming years. At any rate, cost is an issue we will have to 
confront in the coming years.
    In comparison, how are family incomes holding up? The share 
of family income required to pay total college cost has 
increased to 29 percent of an average family's income for 
public university tuition payments, and 41 percent of a family 
income to pay private university tuition, 29 percent and 41 
percent. These are huge numbers, Mr. Chairman, I know you 
agree. In comparison, the average family mortgage payment is 29 
percent of income. Clearly, college is not just an expensive 
investment, it is becoming unaffordable for millions and 
millions of people in this country.
    Worse still is the amount of debt students are taking on. 
In my State of Connecticut the average student graduates in 4 
years with over $15,000 in debt. Nationally, the figure rounds 
out closer to $17,000. If a student comes from a low-income 
family or is a minority, they are more likely to graduate in 
significant debt. I have to wonder to what extent does student 
indebtedness dictate career decisions. Are students foregoing 
careers in public service, education, and the like, because 
they just cannot afford to do it any longer?
    I am concerned about the lack of information many parents 
have as it relates to financial aid. A recent poll shows that 
45 percent of low-income and 50 percent of hispanic families 
have no idea how they are going to put their children through 
college. The survey also showed that low-income families 
receive financial aid information nearly 2 years later than 
upper income families, and lower income families are least 
likely to be able to identify common sources of aid.
    I am concerned about the basic academic preparation at the 
high school level, keeping kids out of college or causing them 
to drop out. In March, Cal State officials released a study 
that showed that only 43 percent of first-time freshmen were 
sufficiently prepared for college work in both English and 
mathematics. Similar figures have been reported throughout the 
country. Suggestions for changing this include making college 
preparatory curriculum the standard for all students, providing 
financial aid commitments earlier so that students begin to 
take the prospect of college seriously, or more seriously, at a 
younger age, and using data and assessments to develop 
effective support programs so that all students can achieve at 
a college level. Expansion of the TRIO program, programs that 
help motivate and prepare low-income students for college, 
would also I think be helpful.
    As global competition intensities, and I know again all my 
colleagues understand this and I am sure our panelists do as 
well, I find myself worried, Mr. Chairman. Will we be able to 
compete in a world today that is very, very different than it 
was even a few years ago in terms of the level of educational 
support, with our major competitors globally? The only way to 
ensure that is to ensure a world-class educational system for 
our children here in this country, to ensure that they are 
prepared and can access it once accepted, and then ensure that 
we do all we can to keep students in school until they 
graduate.
    One of today's witnesses will discuss research showing that 
fewer than 40 percent of college students graduate in 4 years. 
Again, we understand with the nontraditional student there is 
some rational for that. For minority students the rates are 
even lower. Today we will also touch upon the issue of 
accountability, and accountability for Federal dollars is 
something I strongly support. I would, however, caution the 
committee to proceed slowly and thoughtfully as we explore the 
proposals that are currently out there.
    Mr. Chairman, it is with great hope that I attend this 
morning's hearing. Again, as I said at the outset, I think 
there is no other set of issues that is as important as these 
and the cost issue. If we just look at this in terms of raising 
additional dollars to meet demand without looking at what can 
be done to hold down costs, the 7.8 percent number rising all 
the time, outstrips almost anything else occurring in our 
economy. We have with us today a former college president and 
someone who knows a great deal about the subject in our 
colleague from Tennessee. I know when I talk to my own college 
presidents about this, they get a little tense when I start 
talking about what can be done to bring down these costs, but 
we have got to figure some way to do this, otherwise these 
numbers are going to make it almost impossible for 
educationally eligible families to meet these responsibilities.
    So I thank you immensely for having today' hearing.
    The Chairman. Thank you.
    Senator Alexander, as Subcommittee Chairman for Education, 
would you like to make some comments?

                 Opening Statement of Senator Alexander

    Senator Alexander. Thank you, Mr. Chairman and Senator 
Dodd, and I appreciate the chance to be here, and I thank the 
chairman for his approach on this, getting early on into the 
importance of higher education and thinking of it as part of a 
seamless learning process.
    I would only say these things briefly, and then I will look 
forward to listening. I am convinced that we have an 
extraordinary asset in our system of colleges and universities. 
I remember President Cardozo of Brazil, who was here at the 
Library of Congress before he went back, was asked by Senator 
Hutchison what he would take back to Brazil about the United 
States. He said the American university, there is nothing like 
it in the world. And I believe that.
    I also think our next big surprise coming is to our 
pocketbooks. First big surprise was terrorism; next big 
surprise is to our pocketbooks and that we need to make sure 
over the next 10 years that we take a look at our brain power 
because that is where our standard of living comes from. While 
are outsourcing jobs we have been insourcing brains, and that 
is why we produce a third of all the money in the world for 
only 5 to 6 percent of the people. So how we keep doing that is 
what Senator Enzi is focusing on and it is exactly the right 
focus.
    I also believe that we stumbled into the right model for 
higher education. In some miraculous way after World War II 
with the GI bill for kids. We did not give the Federal dollars 
to Notre Dame and the University of Tennessee, we gave it to 
the soldiers and they spent where they wanted to. Our system of 
K through 12 would be much better off if we did that which is 
another debate.
    We did the same thing with the Pell grants and we did the 
same thing with the Stafford loans, and so as a result we have 
this system where no one tells me I have to go to the 
University of Alabama, I can choose to go to Vanderbilt or the 
University of Tennessee or even Connecticut if I wanted to, and 
I can go to a for-profit institution----
    Senator Dodd. Even Connecticut?
    Senator Alexander. Even Connecticut. [Laughter.]
    I can go to a for-profit institution----
    The Chairman. Or Wyoming. [Laughter.]
    Senator Alexander. So I will be keeping my eye--or 
Wyoming--I will be keeping my eye on this model we have in 
higher education, which is, number one, autonomy for the 
institutions, and number two, Federal dollars, and number 
three, following students to the institution of their choice.
    The last two comments I would make have to do with the cost 
issue. I want to look at the cost issue too, but I would 
emphasize that community colleges' tuition is about $2,000 a 
year. It is a pretty good bargain. University of Tennessee, 
University of North Carolina, pretty good institutions, tuition 
there is a few thousand dollars a year, maybe 3 or 4. Costs are 
going up but I think we ought to understand the reason. I think 
it is because State support is going down. I mean the tin cup 
is in Nashville, not Washington. Federal dollars for Pell 
grants are up 40, 45 percent, two or three times what State 
support for higher education is up in our State and probably 
other States.
    So the best thing perhaps we could do about the cost of 
higher education is to get the Medicaid program under control 
so States did not have to spend all their money on health care 
and had a little left for the colleges.
    So, finally, I will be looking at these issues: simplicity 
of applications, this committee has done some work on that and 
there is some good work, Mr. Chairman, that could be part of 
the Higher Education bill to simplify the forms for grants and 
loans; year-round schools and year-round attendance, which 
means amending how Pell grants and loans are dealt with.
    I would like to see deregulation of colleges and 
universities, not more regulation of colleges and universities 
because I think autonomy is why they are good. I want to make 
sure we continue to attract foreign students to help us have a 
high standard of living in this country, and to go home and 
spread democracy. I want to find out whether State funding is 
damaging the prospects for higher education in the future. And 
I want to make sure that we have ample funds for research 
because half our new jobs since World War II came from advances 
in sciences technology.
    So I can think of no more important subject, and I am 
delighted the chairman is holding this hearing.
    The Chairman. We will now hear from our panel of witnesses. 
I will introduce our five witnesses. They will give their 
statements and then we will move to questions. We do have a 
great panel of witnesses who will speak on providing 
postsecondary education and increasing access and 
accountability.
    The first member of our panel is Ms. Kati Haycock. Ms. 
Haycock is one of the Nation's leading child advocates in the 
field of education. She is the director of the Education Trust, 
which is a Washington-based organization that provides 
assistance in improving student achievement in education.
    The second member of our panel is Ms. Trinity Thorpe. Ms. 
Thorpe is a graduate of Laramie Senior High School in Laramie, 
WY and is currently a junior at Pepperdine University. She is 
also the recipient of the Gates Millennium Scholarship. We are 
very proud of Ms. Thorpe's success and her academic 
achievement, and we hope other students from Wyoming will 
follow in her footsteps. I mentioned to her earlier that she is 
probably the youngest person testifying on the Hill today, and 
she said, ``Actually, there are two of us from Pepperdine 
testifying today.'' [Laughter.] So Pepperdine is well 
represented on the Hill today, and as we will see in a moment, 
so is Wyoming.
    The third member of our panel is Mr. Brian Bosworth. Mr. 
Bosworth is the president of FutureWorks, which is a private 
consulting and policy development firm that helps design and 
build the strategies and institutions that promote sustainable 
skill-based regional economic growth.
    The fourth member of our panel is Mr. Robert Shireman. Mr. 
Shireman is the director of the Institute for College Access 
and Success. He also served on the Federal Advisory Committee 
on Student Financial Assistance, and is an adviser at the Aspen 
Institute.
    And our final member of the panel is Mr. Phillip Van Horn. 
Mr. Van Horn is the president of the Wyoming Student Loan 
Corporation. In addition, Mr. Van Horn was appointed by the 
Governor of Wyoming to chair the Wyoming Workforce Development 
Council in 1999 through 2002 and is still an active member of 
that council. I have known Mr. Van Horn for many years, and I 
am pleased that he was able to be here with us today and 
provide this excellent information that always comes out of 
Wyoming.
    I would ask all of the members of the panel to limit their 
oral statement to 5 minutes. Your entire written statement will 
be included in the hearing record. And I would mention that 
after all of you finish your statements, then we will have 
questions from the Senators, and then after that the testimony 
will remain open so that you can expand on remarks if you have 
some other things you wanted to comment on. Also since you are 
on the panel, we have the opportunity then to ask you some 
questions in writing. Sometimes the questions are more detailed 
than what you might have information for here at the hearing, 
or that anybody in the general public might be interested in. 
So we would appreciate the answers to those questions as well.
    So let us begin. Ms. Haycock.

STATEMENTS OF KATI HAYCOCK, DIRECTOR, EDUCATION TRUST; TRINITY 
    THORPE, STUDENT, PEPPERDINE UNIVERSITY; BRIAN BOSWORTH, 
   PRESIDENT, FUTUREWORKS; ROBERT M. SHIREMAN, DIRECTOR, THE 
 INSTITUTE FOR COLLEGE ACCESS & SUCCESS, INC.; AND PHILLIP F. 
VAN HORN, CHAIRMAN OF THE BOARD AND PRESIDENT, WYOMING STUDENT 
    LOAN CORPORATION, AND PRESIDENT AND CEO, WESTERN STATES 
                      LEARNING CORPORATION

    Ms. Haycock. Thank you, Mr. Chairman, Senators, members of 
the committee.
    As I think all of you know, for many decades the American 
education system led the world on almost every measure. We had 
the highest high school completion rate in the developed world. 
We had the highest college going rate and the highest 
proportion of our young people college educated.
    Higher education, as all of you know, has long been one of 
the main drivers of opportunity, of social mobility, and of 
economic progress in our country.
    Over the past decade, however, a surprising array of 
countries has run right past us. We have slipped from first in 
the world to 17th in high school completion rates. We have 
slipped from first to 7th in college entry rates. We no longer 
even lead in a proportion of our young people who get a college 
diploma.
    Moreover, while our results remain essentially flat, a 
surprising array of countries is poised right beneath us and 
has a much steeper upward trajectory, will soon pass us. And 
sadly, we are the only developed country in the world where the 
literacy levels amongst yours and my generation are actually 
higher than those of our children.
    Underneath that overall story, as dismal as it is, the 
numbers are even more worrisome for low-income students and 
students of color. They are less likely to complete high 
school, less likely to enter college and less likely to 
complete once they get there. We have got to get our systems 
back on track for the students, for our democracy, and for our 
economy.
    In reauthorizing the Higher Education Act this year, you 
have an opportunity to address at least some of the major 
problems that interfere with these results. Let me mention just 
three things that you could do.
    First, preparation. Every year thousands, hundreds of 
thousands of American high school students follow all the 
rules. They take all the courses they are required to take, 
they pass all the tests they are required to pass, with the 
full expectation that if they do so they will be ready for the 
next level of education. Unfortunately, as I think you know, 
when they get to college--and most of them are now going--they 
fall very short in many cases of having the skills and 
knowledge they need to succeed there. Nearly a third actually 
end up in high school level course, otherwise known as remedial 
or developmental course instead of the college courses that 
they expected to start. Why is this? Because we have not 
aligned the standards for high schools with the requirements of 
college and of today's workplace.
    Now, fortunately, as I think you know, many States are 
beginning now to do just that, some through the American 
Diploma Project, others on your own. You could help by 
providing some incentive funding for States that are willing to 
give their high school diploma real meaning by aligning their 
standards for high school exit with the standard courses 
requirements and assessments necessary to show readiness for 
both college and for work.
    Second, money matters. It did not help much if students are 
prepared for college if they cannot afford to go. The financial 
burden, as all of you know, of paying for college is a huge 
barrier for many young people. Low-income young people have 
been particularly hard hit by increased college costs, in part 
because of the diminished buying power of the Pell grant 
program. It is very important that you act to restored 
educational opportunity for our low-income young people by 
committing to a 5-year trajectory of restoring the buying power 
of the Pell grant program. Students also need to know about all 
this, so continuing your support for the TRIO and GEAR UP 
programs is important as well.
    College education, as all of you know, is in fact the 
surest route out of poverty, but it is now a route for only a 
handful of low-income young people. College going rates amongst 
our highest achieving low-income students are now exactly the 
same as college going rates amongst our lowest achieving high-
income students. And if you look at American families in the 
bottom economic quartile, ask how many of their kids have a 
bachelor's degree by age 26, the answer is 7 out of 100; for 
upper middle class kids it is 60 out of 100. Hugely important 
that we turn that around.
    Finally, college success. Far too many students who enter 
our colleges and universities fail to earn a degree. Overall 
fewer than 4 in 10 of students get a 4-year degree in 4 years. 
Only about 6 in 10 get one in 6 years, and the rates are much 
worse for low-income students and students of color.
    Now, because the number of students entering colleges and 
universities has continued to go up, not much attention has 
been devoted to this success problem. Better preparation and 
more generous financial assistance would of course help, but it 
turns out that what colleges and universities do matters a lot 
too.
    As I think some of you know, this last year was the first 
time that the Federal Government released data publicly on the 
success rates of colleges and universities around the country. 
And it turns out that even after you control for factors like 
the size and mission of the institution, its financial support 
and the academic and financial characteristics of its students, 
some colleges routinely do a much better job at getting their 
students through to a degree. And these colleges are a range of 
institutions from Elizabeth City University, a historically 
black college in North Carolina, to Miami of Ohio, a much more 
elite college, to East Carolina University. These are 
institutions that when compared with institutions that serve 
students just like theirs routinely do a far better job than 
their peers.
    But even as individual institutions distinguish themselves, 
what is important for you to remember is that our higher 
education system as a whole is stuck. We have made virtually no 
progress. Improving student success is now an option. You can 
by asking States to put in place accountability systems that 
will set some stretch goals for our colleges and universities, 
ask them to step up to the success achieved by their 
counterparts. You can begin to get some much-needed progress in 
improving student success across the country.
    Thank you very much.
    The Chairman. Thank you.
    [The prepared statement of Ms. Haycock follows:]
                   Prepared Statement of Kati Haycock
    For many decades, the American education system led the world on 
almost every measure. We had the highest high school completion rate, 
the highest college-going rate, and the highest proportion of college-
educated citizens. Collectively, our colleges and universities are 
unparalleled, attracting students and scholars from all over the world.
    Higher education has long been one of the main drivers of 
opportunity, social mobility, and economic progress in our society. And 
that promise has been supported through Federal policy--through tax-
exempt status, establishment of land-grant institutions in the 19t 
century, the G.I. Bill after World War II, and Pell grants since 1972. 
Our historical national commitment to education has paid fantastic 
dividends; the United States has long had the best-educated, most 
productive workforce in the world.
    Over the past decade, however, we have allowed a surprising array 
of countries to pass by us.
     We are now 17th in the developed world in high school 
graduation rates;
     We are now 7th in college-entry rates;
     And we are no longer first in the proportion of young 
people completing a college degree.
    Moreover, we are the only developed country where college-education 
rates are not improving and the only developed country where the 
literacy levels of older adults are higher than those among young 
adults.
    Underneath this overall story, the numbers are even more worrisome 
for low-income students and students of color. These students are less 
likely to graduate from high school; those who do graduate are less 
likely to be prepared for college or work. To make matters worse, low-
income students and students of color who do go on to college are also 
less likely to complete college after entering.
    What is going on here? Simply put, there are problems at several 
key points in the education pipeline, each of which must be addressed 
to turn these patterns around.

Better Aligning High School and College

    Every year, hundreds of thousands of American high school students 
follow all the rules--that is, take all of the courses they are 
required to take and pass all of the required tests--expecting that, if 
they do so, they will be prepared for the next level of education. 
Unfortunately, when they get to college--as most do--they often aren't 
even close to prepared for the challenges they face there. Nearly one 
in three end up in remedial--or high school level--courses. Why? 
Because the standards for American high schools have not been aligned 
with the requirements of college and today's workplace.
    Fortunately, many States are beginning to do just that--some 
working through the American Diploma Project, others on their own. You 
could help by providing incentive funding for States willing to give 
the high school diploma real meaning by aligning their standards, 
course requirements, and assessments across high school and college.
    Reauthorization of the Higher Education Act provides Congress with 
several opportunities to promote better preparation for work, for 
college, and for life. First, Congress should support State efforts to 
align the standards for high school exit with those for beginning 
postsecondary study. With a relatively small investment, Congress could 
help States to link their K-12 and higher education data systems, would 
allow States to significantly advance alignment and articulation 
activities. What should States have to do to receive these funds? Quite 
simple:
     K-12 and higher education systems need to agree on common 
definitions of the knowledge and skills required to begin postsecondary 
work.
     K-12 systems need to review State standards and course 
requirements required for a high school diploma and develop a process 
to bring them into alignment with the skills and knowledge required to 
begin postsecondary work.
     K-12 and higher education together need to agree on common 
assessments for measuring whether students possess the skills they 
need, and a curriculum that prepares students adequately for the 
challenges of postsecondary education.
     Higher Education needs to ensure that teacher preparation 
is aligned--both in terms of quality and quantity--with the 
expectations of what needs to be taught in the K-12 system.
     States willing to make a college- and work-ready 
curriculum the default curriculum for all students should receive 
additional Federal financial assistance to provide the professional 
development that will be required.
    In addition, Congress can provide extra encouragement to low-income 
students to prepare for success in postsecondary education by providing 
additional financial aid to low-income students who have completed the 
college prep curriculum.
    Many wonder whether the emphasis on preparing students to be 
successful in college neglects the needs of our non college-bound 
students. Large scale, national research, including research by the 
American Diploma Project and others, has established that the academic 
skills required for work are comparable to those required for college. 
The point is that high school graduates should be prepared to choose 
college or work. Right now, they are not being adequately prepared for 
either.

Money Matters

    Second, it is clear that some of the students who should be going 
on to college aren't. In the most recent year for which data are 
available, for example, low-income students in the top quartile of 
academic achievement nationally are entering college at rates exactly 
the same as high-income students in the bottom quartile of academic 
achievement. Though college-going rates for all groups of students are 
up, the gap in college attendance between White high school graduates 
and graduates of color is larger today than it was two decades ago.
    In a century where some postsecondary education is essential to 
gain a foothold in our economy, this is a tragedy for the young people 
themselves, for their families, and for our country. Providing 
financial incentives for students to complete a more rigorous college-
prep curriculum would begin to address another contributor to low-
graduation rates--the cost of attending college. But this step alone is 
by no means sufficient. The financial burden of paying for college is a 
huge barrier for many young people. Low-income young people are 
particularly hard hit, because the relative value of Pell grants has 
diminished by 50 percent since the late 1970s. Whereas Pell grants used 
to cover 84 percent of the average fixed cost at a public, 4-year 
institution, in 2001-02 they covered only about 40 percent of these 
costs. It is hugely important that you act to restore educational 
opportunities for our most vulnerable young people.
     Congress should commit to a 5-year trajectory to recoup 
the buying power of Pell grants.
    Beyond providing more help to low-income students, though, it is 
important for Congress to consider how it might provide stronger 
incentives to colleges to enroll low-income students. As college-going 
increases, colleges often have less incentive to educate more low-
income students. Despite the unique importance of higher education in 
breaking the cycle of poverty for students from low-income families, 
increases in student financial aid over the last 10 years--at the 
Federal, State, and institutional levels--have disproportionately 
benefited upper-middle and middle-class students. So even as the 
dollars for financial aid have grown, truly low-income students have 
been asked to shoulder more of the burden of paying for college through 
loans. Institutions of higher education should be eligible for 
supplemental financial assistance for enrolling and graduating low-
income students.
     Both Federal grants to individuals as well as Federal aid 
to institutions should be designed to better serve the Federal priority 
of increasing the access and success of low-income students.
    In addition, the process of simply arranging college financing 
presents a daunting morass of confusing, sometimes duplicative, 
programs. In some instances, the Federal Government is providing rich 
subsidies to private lenders without commensurate benefits to the low-
income students the programs were established to serve. To make matters 
worse, private lenders can use their subsidies to entice college and 
universities into their programs and out of the more efficient, less 
expensive direct loan program. These subsidies should be limited and 
the savings should be redirected to need-based aid for low-income 
students.
     Congress should eliminate excessive subsidies and directly 
administer a greater portion of federally guaranteed student financial 
assistance, and use the savings to expand need-based financial aid.
    As Congress works to make college more affordable for students from 
low-income families, it must not cut back on prior commitments to 
increase college access among low-income and minority students. The 
GEAR UP and TRIO programs represent a lifeline to college for some of 
our most disadvantaged young people. Given the inequitable access to 
college that exists right now, it would be unfair and unwise to 
eliminate these programs.

Increasing College Success--What Institutions do Matters a Lot

    Third, far too many students who enter our higher education system 
fail to earn a degree. Overall, only about 4 in 10 students who begin 
full-time at a 4-year college get a bachelor's degree within 4 years 
and only about 6 in 10 get a degree within 6 years, according to the 
U.S. Department of Education's Beginning Postsecondary Survey. 
Graduation rates are even worse for BA-seeking students who begin in a 
2-year college. Moreover, in both types of institutions, completion 
rates are substantially lower for minority students and students from 
low-income families.
    While approximately two-thirds of White freshmen in 4-year colleges 
(66.8 percent) obtain a degree within 6 years, fewer than half of 
African-Americans (45.7 percent) and Latinos (47.3 percent) do so. 
There are also significant differences in completion between students 
in terms of family income: 77 percent of students from high-income 
families graduate, compared to only 54 percent for students from low-
income families--a 23 percentage point difference. And remember: These 
figures represent the outcomes only of students who began as first-time 
degree-seeking freshmen in 4-year institutions--that is, the students 
who are most likely to persist and graduate.
    Because the number of students entering the Nation's colleges and 
universities has been rising overall, not much attention has been paid 
to these low-completion rates. The percentage of high school graduates 
going on to 2-year or 4-year colleges and universities increased from 
less than half in 1975 to almost two-thirds in 2001. But graduation 
rates among first-time, full-time students in 4-year colleges have 
remained stagnant for decades--we are successfully getting more young 
people to college, but not getting proportionally any more of them 
through college.
    While these disturbing patterns--low overall graduation rates and 
big gaps between groups--have remained stubbornly consistent, the 
consequences of not graduating have changed drastically. People with a 
4-year degree or higher now earn much more relative to high school 
graduates than they did 30 years ago, and the gap increases with the 
level of the degree. By contrast, those who enroll in college but fail 
to get a B.A. have made only slight gains.
    Unless we change current trends, we will become a society that is 
even more polarized by class distinctions. Consider this: Only 7 
percent of young people from the poorest one-quarter of American 
families earn a bachelor's degree by age 26, while 60 percent of young 
people from the top quartile of family income do so. College degrees 
may be the best route out of poverty, but they are a route now for only 
7 of every 100 youngsters born to a low-income family.
    It would certainly help if more of these young people entered 
college well prepared and if they didn't have to struggle to cover 
college costs. Preparation and ability to pay are important, but they 
do not tell the whole story. What is becoming increasingly clear is the 
critical role institutions themselves play in securing the success of 
their students. How do we know? Because right now, institutions that 
serve similar students with similar preparation and similar family 
incomes have widely divergent graduation rates. Our recent report 
focusing on this issue revealed that some colleges and universities are 
doing much better than others in graduating their students, even once 
we account for student characteristics.
    Last year for the first time, institution-level graduation-rate 
statistics were released to the public, disaggregated by student gender 
and race/ethnicity. Examining the numbers closely, we find that some 
institutions stand out--even after controlling for factors such as 
institution size, resources, mission, degree programs, and the 
financial and academic background of their entering students. Some 
colleges and universities have much higher graduation rates than other, 
very similar institutions.
    These exceptional higher education institutions range from 
Elizabeth City State University, a historically Black institution in 
North Carolina whose student body is predominantly low-income, to Miami 
of Ohio, a highly selective public university, to the University of 
California at Riverside, which serves a highly diverse mix of White, 
Black, Asian, and Latino students, to the University of Northern Iowa, 
a mid-sized comprehensive institution.
    These institutions are different in many ways--their size, 
location, mission, selectivity, and students vary tremendously. But 
they're similar in one fundamental respect--they consistently and 
significantly outperform their peers in graduating students.
    And the data reveal that high performance doesn't have to be for 
some students at the expense of others--institutions like East Carolina 
University in North Carolina and Binghamton University in New York 
outperform their peers without gaps in graduation rates between White 
students and students of color. We even know that rapid improvement is 
possible, thanks to the example of the University of Florida, Louisiana 
Tech, and others that have upped graduation rates for 5 years running.
    This newly available data establishes that what institutions do 
makes a very big difference when it comes to student success. Indeed, 
earlier this year, the Education Trust made all of this data publicly 
available through an interactive database on our web site. Visitors to 
the College Results Online database can select a given institution and 
see how it compares to similar, peer institutions in graduating 
students. We will be happy to provide Senators and their staffs with 
information and analysis from this database.
    Even as individual institutions have distinguished themselves, our 
higher education system has, collectively, made virtually no progress 
in improving graduation rates over the last three decades. That must 
change--both for the students and for our country. Institutions of 
higher education must be accountable for doing what they can to enable 
the success of the students they admit.
    Leaders in many States are beginning to step up to this 
responsibility:
     For example, The University System of Georgia, led by 
Chancellor Tom Meredith, has begun to study the graduation rates of its 
34 colleges and universities, with the aim of setting graduation-rate 
goals, both overall and for student subgroups, for which campus 
presidents will be held accountable.
     In Massachusetts, a graduation-rate task force has been 
appointed to find out why the number of undergraduate degrees awarded 
by 24 State and community colleges has dropped steadily since 1997, 
particularly in economically depressed areas served by the schools. 
Spurred by upcoming implementation of a new State performance funding 
system, the task force is expected to outline a series of concrete 
recommendations by December.
     And it is no coincidence that two of the unusually high-
performing institutions I mentioned earlier are from North Carolina. 
Some years ago, the UNC system began publishing graduation rates and 
holding campus presidents accountable for these numbers.
    The traditional State role in regulating and funding higher 
education suggests that States are currently in the best position to 
create robust accountability systems that hold institutions 
appropriately responsible for the success of their students. But given 
the national interest in tackling this problem, Congress should ask 
States to design and implement goals and accountability systems for 
higher education access and outcomes. While the quality of currently 
available data and the limited knowledge of best practices advise 
against a uniform system nationally, it is important that States and 
systems of higher education begin to see increasing student success as 
a responsibility, not a choice.
     Congress should require States to put in place an 
accountability system for 4-year colleges and universities.
    States should have broad discretion in designing systems that meet 
the particular needs and characteristics of their institutions, and 
that fit with systems that have already been established. But each 
system should share several common characteristics: (1) accurate, 
publicly available graduation rates that are disaggregated by student 
gender, race/ethnicity, and income status; (2) specific goals for 
improvement at each institution, including both overall improvement and 
closing gaps between groups; and (3) public reporting of institutional 
success in meeting graduation-rate goals. And States should develop 
plans to integrate 2-year institutions into their accountability 
system, once appropriate measure are developed that account for the 
diverse missions those institutions pursue.
    Some States are already well on the way to developing graduation-
rate measures that improve on the federally-collected data, by taking 
into account student mobility between institutions. These States should 
be allowed to use these fuller measures as they implement 
accountability systems. States that have not yet made the investment in 
the data systems they need should use the federally-collected measures 
in the meantime.
    Accountability for higher education should also incorporate 
measures of access and quality of learning, to ensure that increasing 
student completion doesn't come at the expense of academic standards or 
education opportunities for low-income students. Measures of 
institutional success must include both the institution's performance 
in graduating traditionally underserved students, and its success in 
recruiting and admitting such students. Too often, success in higher 
education is measured in terms of increasing the so-called ``quality'' 
of the students who are enrolled, which can come at the expense of 
serving the students whose need for an accessible, affordable high-
quality postsecondary education is greatest. Congress must help to 
counterbalance those pressures by recognizing and encouraging those who 
give access and success equal attention.

Building Even Better Data Systems

    We recognize that the institutional graduation-rate statistics 
currently gathered by the Department of Education aren't perfect, 
because they don't fully account for students who transfer from one 
institution to another. This is less of a problem than is sometimes 
suggested, though. Less than a quarter of beginning 4-year students 
transfer, and only a third of those students who transfer end up 
graduating within 6 years. As a result, 80 percent of all students who 
start college at a 4-year institution and earn a B.A. finish where they 
began. The current graduation-rate statistics are more than enough to 
know that some institutions are doing much better than others, and we 
should act on that information now.
    But we can and must do better. The U.S. Department of Education 
should be directed to work with States to develop a next generation of 
graduation-rate statistics that appropriately account for mobility and 
other factors. By moving to a more streamlined, powerful data 
collection system that allows the tracking of student success at 
multiple higher education institutions, we could increase the 
efficiency and utility of the data collection process while reducing 
the expense in the long run. We can also answer vital questions that 
currently lie beyond the scope of the data system, such as: What are 
the graduation rates of low-income students and students receiving 
Federal financial aid? How does the success of students seeking 
different academic majors compare? How successful are institutions in 
graduating students, after taking into account those who transfer?
    Such a system would also give us much more information about the 
pipeline of students between 2-year and 4-year colleges. We currently 
know even less about the success of our community colleges than our 
baccalaureate and graduate institutions, despite the fact that 2-year 
colleges represent a growing sector of higher education, particularly 
for low-income, minority, and non-traditional students. A more 
integrated, powerful data system will change this, providing a clearer 
picture of success across higher education sectors.
    With this new data in hand, Congress can help promote public 
scrutiny of higher education outcomes by disseminating and drawing 
public attention to a free, easy-to-understand, uniformly-comparable 
public information system. Such a system would allow students, parents, 
and policymakers to better understand how different colleges and 
universities compare on crucial performance benchmarks, including 
access, affordability, and graduation rates, as well as available 
information regarding academics and safety. Honest, objective, reliable 
information about the success of individual institutions of higher 
education needs to become more easily accessible and this data needs to 
permeate discussions of institutional quality.
    Moving forward, we need to know much more about which institutions 
are doing better, and then we need to learn more about what these 
institutions are doing. Gathering richer data about student progress 
and success is an important component of any strategy to improve 
outcomes in higher education. Better data will help researchers and 
higher education leaders identify high performers and learn from them. 
There are some promising initiatives underway in this regard, such as 
NSSE, the National Survey of Student Engagement, developed at Indiana 
University. NSSE and similar projects are exploring the connections 
between institutional practices and student success. But indepth ``best 
practices'' studies whose results are transferable from one college or 
university to another are far too rare in higher education, in part 
because there hasn't been enough good data to reliably know who the 
``high performers'' really are, and in part because neither tradition 
nor policy have created sufficient demand for such studies.
    Congress can advance the conversation on both of these issues 
through the HEA reauthorization.
     Better data systems should be developed to more accurately 
identify the most successful institutions and research should be 
supported to discern the policies and practices that distinguish these 
institutions from their peers.
    ETo spur interest in the colleges and universities that 
truly stand out in their service to their students, Congress should 
establish a program akin to the Blue Ribbon schools in the K-12 
context.
    The Federal Government should very publicly recognize and reward 
the colleges and universities that are serving the greatest number of 
low-income and minority students and demonstrating the greatest success 
in graduating these students. Our initial research suggests that these 
institutions come from all sectors of postsecondary education, from 
large research universities to small private colleges to minority-
serving institutions. By very publicly identifying the best of the 
best, and rewarding them for their success, Congress could set a 
standard against which all other institutions would be measured.
    Why is all this so important?
    Nationally, there are 772 colleges where at least 5 percent of the 
undergraduates are black. In 299 of those institutions the 6-year 
graduation rates for black students are less than 30 percent. In 164 of 
those institutions the 6-year graduation rates for black students are 
less than 20 percent. In 68 of those institutions the 6-year graduation 
rates for black students are less than 10 percent.
    Similarly, in colleges where more than 5 percent of the students 
are Latino, 25 percent have 6-year graduation rates for Latinos less 
than 30 percent.
    Surely, we can do better. Some institutions already are.
    There are now about 890,000 African Americans between 25 and 34 who 
hold a bachelors degree. If we could simply cut the black-white 
graduation rate gap in half--which some institutions already have--the 
number of black college graduates would grow by 10,000 per year. Over a 
decade, that would produce 100,000 more African Americans with access 
to a wide range of opportunities currently denied to them.
    If we went further and closed the gap--which some institutions 
already have--we could produce 200,000 more African Americans with such 
access. Similar improvement for Latino students would mean another 
20,000 Latino college graduates in Texas alone.
    Thank you for this opportunity to testify on this important 
subject. I look forward to answering your questions.
                                 ______
                                 

Overview of Testimony by Kati Haycock, Director, Education Trust

    For many decades, the American education system led the world on 
almost every measure. Over the past decade, however, we have allowed a 
surprising array of countries to slip by us. We are now 17th in the 
developed world in high school graduation rates and 7th in college 
entry rates. We don't even lead any longer in the proportion of our 
young people completing a college education.
    Underneath this overall story, the numbers are even more worrisome 
for low-income students and students of color.
    To get our country back on an upward trajectory will require action 
on a number of fronts. As it reauthorizes the Higher Education Act this 
year, Congress can make an important contribution to solving key 
problems at several levels.
     To ensure that high school students are better prepared 
for college, Congress should support State efforts to align high school 
requirements with the demands of college and work. You can help by 
providing financial support for linking K-12 and higher education data 
systems, for aligning course and exam requirements, and for ensuring 
that teachers have the help they need to teach to these standards. 
Congress should also provide an extra incentive for students to 
complete more challenging courses by providing additional financial 
aid.
     To ensure that low-income students are have the support 
they need to continue their educations, Congress should commit to a 5-
year trajectory to recoup the buying power of Pell grants, use Federal 
aid to institutions to provide incentives for institutions to enroll 
more low-income students, and eliminate excessive subsidies to lenders, 
using the savings to help more low-income students. Also, because it 
would be a cruel hoax to add additional financial aid for low-income 
students, but remove the main programs--like TRIO and GEAR UP--for 
helping them prepare for college, Congress should continue to fund 
these programs.
     To ensure that colleges focus on both access and success, 
Congress should require States to set stretch goals for their 4-year 
colleges and put into place accountability systems to monitor progress. 
What institutions do matters a lot, and at the moment, institutions 
don't have strong incentives to improve student success.
     To enhance our ability as a country to identify problems 
and track progress, Congress should direct the U.S. Department of 
Education to work with States to develop better data systems and create 
a next generation of graduation rate statistics that are capable of 
better tracking the progress of our highly mobile students.
    Why is all this so important?
    Nationally, there are 772 colleges where at least 5 percent of the 
undergraduates are black. In 299 of those institutions the 6-year 
graduation rates for black students are less than 30 percent. In 164 of 
those institutions the 6-year graduation rates for black students are 
less than 20 percent. In 68 of those institutions the 6-year graduation 
rates for black students are less than 10 percent. Similarly, in 
colleges where more than 5 percent of the students are Latino, 25 
percent have 6-year graduation rates for Latinos less than 30 percent.
    Surely, we can do better. Some institutions already are.
    There are now about 890,000 African Americans between 25 and 34 who 
hold a bachelors degree. If we could simply cut the black-white 
graduation rate gap in half--which some institutions already have--the 
number of black college graduates would grow by 10,000 per year. Over a 
decade, that would produce 100,000 more African Americans with access 
to a wide range of opportunities currently denied to them.
    If we went further and closed the gap--which some institutions 
already have--we could produce 200,000 more African Americans with such 
access. Similar improvement for Latino students would mean another 
20,000 Latino college graduates in Texas alone.

    The Chairman. Ms. Thorpe. I know that you have some family 
support here today too. We will not count it against your time 
if you make the introduction. [Laughter.]
    Ms. Thorpe. OK. This is my foster mother, Geri Hanly, in 
the pink, and my foster brother, Eric Hanly. He is in the Air 
Force. He is a captain right now. I am very pleased to have 
them with me today.
    Good morning, and I am truly, truly honored to be here 
today. This is something that I never had imagined myself 
doing. In fact, the majority of my accomplishments, my resume 
bullets, you could say, would not be where they are or even in 
existence if it had not been for the Upward Bound program or 
the TRIO program as many people know it. I am firm in my belief 
that if it were not for this program and its constant 
encouragement, their belief and acceptance of me, I would not 
be who I am or where I am.
    I need to tell you about my early life so you can fully 
understand what I mean. To this day I do not remember 
completing an entire year of school until the 8th grade. This 
truancy was not in any way my own choice. Coming from my 
background, education was not viewed as an important thing. 
When your bed is the floor of a truck and the way you get your 
meals is to beg on a street corner, education is not a 
priority.
    My biological mother did not feel it necessary for me to 
attend school. In fact, she saw my joy with school and would 
ground me from it. Constantly on the move, switching homes, 
there was no constancy or stability in my life. Then when I was 
in the 7th grade, not even 2 months after my 13th birthday, my 
mother finally enrolled me in school.
    I was thrilled, but at the same time I was crying for help. 
I needed someone to rescue me. Eventually I was rescued but not 
in the way I thought I would be. After only 2 weeks in the 7th 
grade I was kicked out for distributing drugs. I had taken 
these drugs from my mother's stash while living in our 7-foot 
by 9-foot pole trailer in a trailer park. I wound up in the 
juvenile justice system.
    Three months after being admitted to my last and best 
foster home, the courts allowed me to attend school. I was 
given achievement tests. I was 13-years-old, unable to fully 
comprehend reading, with little knowledge of mathematics or 
science, taking a test to determine what grade and school I 
would be. They put me in all remedial learning classes. I can 
still remember celebrating my very first completed semester. I 
had earned a 2.4 GPA.
    After that first semester in the 8th grade my life began to 
change. My foster mother, Geri, pushed for me to join the 
Upward Bound program to take advantage of the after school 
tutoring that they offered. I agreed and joined the Upward 
Bound program in the 9th grade. My improvement was rapid and 
drastic. My grades shot up to a 3.75 and I switched from 
remedial to honors courses, and eventually later on in high 
school these were all AP courses.
    With this new feeling of accomplishment I had a new self-
image. I did not want to be like my mother or my old friends. I 
wanted something more for myself. I always had wanted something 
more for myself. I just did not have a way to access it until 
the Upward Bound program came into my life.
    Through Upward Bound I was given a myriad of opportunities. 
The first difference I noticed with Upward Bound was that the 
field trips were free. I never felt poor and people believed in 
me. Education was becoming something I never thought it would 
be--for everyone. Although I began to believe in what this 
country refers to as equal opportunity, I developed a sense of 
fear. I knew I wanted to go to college. I just did not think it 
was right for me. I did not have a way to go.
    When my senior year rolled around I told my Upward Bound 
coordinator that I was not going to college. After knowing me 
for 4 years she was shocked. I still cannot remember if her 
reaction was an anger one or if she sincerely had thought I had 
gone crazy. She told me I would be wasting my mind, wasting a 
good chance that I might never have again. Although my foster 
parents had tried to convince me of this fact many times, it 
just was not sinking in. It did not sink in until my Upward 
Bound coordinator put it so squarely before me.
    Instead of letting me get away with applying to one school, 
Upward Bound got me to apply to 10. I received acceptances, but 
the issue of money was still there. I had no way to pay for 
college. I expressed this to my Upward Bound coordinator, who 
happily informed me that I had a lot of options. She introduced 
me to the FAFSA, helped me fill it out, and to a million 
different scholarship applications. She did not stop there. She 
went on to write me letters of recommendation, including one to 
the Gates Millennium Scholarship Fund.
    Pepperdine University accepted me and offered me the 
largest scholarships and grants including the Pell grant. Plus, 
the Gates Millennium Scholarship covers the difference. I went 
on to receive the Anton Kollars Scholarship and the Jim Casey 
Family Program Scholarship. This was the first time in my life 
in which I actually felt financially stable.
    And here I am in front of you, a newly-minted senior at 
Pepperdine University who is taking full advantage of the 
opportunities provided for her, and giving back in every 
situation possible. I now have the ability to point my life in 
whatever direction I see fit for it to go. This ability, with 
all of its blessings, is something I would not have had had it 
not been for the Upward Bound and the TRIO program's help and 
encouragements.
    This summer I will be giving back to my community through 
service as a team member for TRIO's Upward Bound summer program 
at the University of Wyoming.
    Currently, as well, I work as a researcher for a program 
called Los Angeles Bridges. This program is an outreach to 
high- and low-risk students of Fulton Middle School. This is 
where I learn to what extent programs like Upward Bound are 
necessary on a much larger scale. The mean grade point average 
of the 85 high-risk students that I work with is a 1.9. These 
kids will be the beneficiaries of the Upward Bound program upon 
admittance into high school. These kids may never see another 
opportunity to release themselves from the cycle of poverty if 
these programs are eliminated.
    I was a child like those I work with, crying for help, who 
needed someone to believe in her. Had it not been for the 
Upward Bound program I would not have made it this far, nor 
will I make it on to my next school.
    I thank you for your support for these programs and for 
inviting me to come here today to speak.
    The Chairman. Thank you very much. I am very proud of you, 
and I can tell that you are deservedly proud of what you have 
done, and I can hardly wait to see what you will do.
    Ms. Thorpe. Thank you.
    Senator Dodd. I have a feeling she is going to be sitting 
on this side of the dais. [Laughter.] If I were you, Senator, I 
would be very careful about it. [Laughter.]
    Ms. Thorpe. We will see.
    [The prepared statement of Ms. Thorpe follows:]
                  Prepared Statement of Trinity Thorpe
    Good morning/afternoon Senators. I am truly honored to be here 
today. This is something I never imagined myself doing. In fact, the 
majority of my accomplishments, my resume bullets you could say, would 
not exist if it weren't for a program called Upward Bound. I would not 
be where I am or who I am if it weren't for the constant encouragement, 
belief, and acceptance of the Upward Bound staff.
    I need to tell you about my early life so you will understand what 
I mean.
    To this day I don't remember completing an entire year of school 
until the eighth grade. This truancy was not in any way my own choice. 
Coming from my background, education was not viewed as an important 
thing. When your bed is the floor of a truck and the way you get your 
meals is to beg on the street corner, education is not a priority.
    My biological mother did not feel it was necessary for me to attend 
school. In fact, she saw my joy in education and would ground me from 
school. Constantly on the move, switching homes, there was no stability 
or consistency in my life. Then, when I was in seventh grade, not even 
2 months after my 13th birthday, my mother finally enrolled me in 
school.
    I was thrilled, but at the same time I was crying for help. I 
needed someone to rescue me. Eventually, I was rescued but not in the 
way I had imagined. After only 2 weeks in the seventh grade I was 
kicked out of the school for distributing drugs. I had taken the drugs 
from my mother's stash while in our 7- by 9-foot pull trailer. I wound 
up in the juvenile justice system.
    Three months after being admitted to my last and best foster home, 
the courts allowed me to attend school again. I was given achievement 
tests. I was 13 years old, unable to fully comprehend reading, with 
very little knowledge of mathematics or science, taking a test to 
determine my school grade. They put me in remedial learning classes. I 
can still remember celebrating my first completed semester, I had 
earned a 2.4 GPA!
    After that first semester in the eighth grade my life began to 
change. My foster mother pushed for me to join Upward Bound to take 
advantage of the after-school tutoring they offered. I agreed and 
joined Upward Bound in the ninth grade. My improvement was rapid and 
dramatic. My grades shot up to a 3.75 GPA and I switched from remedial 
to honors courses.
    With this new feeling of accomplishment I had a new self-image. I 
didn't want to be like my mother and my old friends. I wanted something 
more for myself. I always had wanted something more I just didn't have 
a way to access it until Upward Bound came into my life.
    Through Upward Bound I was given a myriad of opportunities. The 
first difference I noticed with Upward Bound is that the field trips 
were free. I never felt poor, and people believed in me. Education was 
becoming what I never thought it would be--for everyone. Although I 
began to believe in what this country refers to as equal opportunity I 
developed a sense of fear. I knew I wanted to go to college I just 
didn't think it was right for me.
    When my senior year rolled around, I told my Upward Bound 
coordinator that I wasn't going to college. After knowing me for 4 
years, she was shocked. I will never forget her reaction. I still can't 
tell if she was angry or if she sincerely thought I had gone crazy. She 
told me I would be wasting my mind, wasting a good chance that I might 
never have again. Although my foster parents had tried to convince me 
of this fact, it didn't sink in until my Upward Bound coordinator put 
it so squarely before me.
    Instead of letting me get away with applying to one school, Upward 
Bound got me to apply to ten. I received acceptances, but the issue of 
money was still there. I had no way to pay for college. I expressed 
this to my UB coordinator who happily informed me that I had options. 
She introduced me to the FAFSA and to a million different scholarship 
applications. She didn't stop there. She wrote letters of 
recommendation, including one to the Gates Millennium Scholarship Fund.
    Pepperdine University accepted me and offered me the largest 
scholarship. Plus, the Gates Millennium Scholarship covers the 
difference . I went on to receive the Anton Kollars Scholarship, and 
The Jim Casey Family Program Scholarship totaling amounts that went 
well beyond the cost of my education. Not to mention that if I needed 
to have the scholarships increase for any particular reason there would 
be no problem. This was the first time in my life in which I actually 
felt financially stable.
    And here I am in front of you, a junior at Pepperdine University, 
who is taking full advantage of the opportunity given to her and giving 
back in every situation possible. I now know I have the ability to 
point my life in whatever direction I want it to go. This ability, with 
all its blessings, is not something I would have had without the 
guidance, mentoring, and encouragement of the Upward Bound Program.
    Currently I work as a researcher for a program called Los Angeles 
Bridges. This program is an outreach to high and low risk students of 
Fulton Middle School. This is where I learn to what extent programs 
like the Upward Bound are necessary on a much larger scale. The mean 
grade point average of the 85 high risk students in the program is a 
1.9. These kids will be the beneficiaries of the Upward Bound Program 
upon entrance into high school. These kids may never see another way 
out of the cycle of poverty if programs like this are eliminated.
    I was a child who was crying for help, who needed someone to 
believe in her. Had it not been for the Upward Bound program I would 
not have made it this far nor will I make it my next goal.
    Thank you for listening.

    The Chairman. Mr. Bosworth.
    Mr. Bosworth. Mr. Chairman, members of the committee, I 
have a lot of very smart things to say, but there could be no 
more compelling testimony about the importance of higher 
education in America, no more strong evidence of its success 
than this very poised and articulate young lady sitting on my 
right.
    Congratulations.
    Ms. Thorpe. Thank you.
    Mr. Bosworth. Thank you for the opportunity to summarize 
today some of our work about the education needs of working 
adults who did not prepare for this economy when they were of 
traditional school age.
    Let me turn first to the easy part: what is the problem? 
Here is what I suspect you already know. Almost all of the good 
jobs demand postsecondary credentials, yet 60 million working 
adults in America between the ages of 25 and 65--that is over 
half of that working age population--have no education after 
high school. Most are stuck in low wage jobs. Few can buy homes 
or build family assets to pass on to their children, and most 
probably will not send their own children to college.
    If we cannot do a better job in getting working adults back 
to college, the Nation faces a major shortfall of educated 
workers. High school graduation rates are not increasing. 
College completion rates are increasing only very slowly. This 
problem will get worse.
    Working adults face huge barriers to postsecondary access 
and success. Many have very poor or at least very rusty basic 
skills, but colleges have limited ability to help them 
remediate those skills, and our adult basic education system is 
of almost no help at all. With full time work and family 
responsibilities, few adults can attend college on the half-
time basis required for most grant and loan aid. The Lifetime 
Learning Tax Credits are poorly marketed, too small to make 
much difference, and irrelevant to low-income workers with 
limited tax liability.
    Financing barriers aside, most colleges do not offer 
accessible programs, flexible schedules or modularized 
credentials that might work for working adults. Most programs 
are still seat time based in 15 week semesters, not the 
competency-based, smaller, more digestible chunks that would be 
accessible to working adults.
    Of course there are wonderful exceptions to this generally 
dismal picture of how higher education responds to the needs of 
working adults, but they remain isolated best practice, far 
from common practice. All working adults pay a high price for 
inflexibility and traditionalism in postsecondary education.
    Now to the more hard part: what can be done?
    these are deeply embedded problems. They are not going to 
yield to quick solutions. Still there are some things that this 
committee could begin now to fix, some as part of the 
reauthorization of the Higher Education Act and some as 
closely-related initiatives. I offer four recommendations for 
your consideration.
    1. Modify eligibility requirements for existing loan and 
grant programs. My written testimony recommends a few specific 
changes in Pell eligibility, and also suggests it is time to 
reconsider the limitation on Federal direct and insured loans 
to less than half-time students.
    2. Develop a new Federal/State partnership to promote 
higher education for working adults. Barriers to continues 
learning go very deep in the structure and financing of higher 
education, and just squeezing a little more money out of title 
IV will not help much. Solutions can come only through broad 
reforms and how the States manager their postsecondary 
education responsibilities. I recommend a modestly-funded 
temporary program of grants to States to promote access and 
success for working adults by reforms in education governance, 
financing, curricular program development policies, 
accountability systems, accreditation, credentialing, and 
faculty development.
    3. Make education tax credits more meaningful to working 
adults. This would include increasing the percentage of 
qualified educational expenses allowed under the Lifetime 
Learning Tax Credit from the current 20 percent of the first 
$10,000 to 50 percent, capping that credit at $2,000. Also make 
the credits refundable to low-skilled adults working in low-
wage jobs with low tax liability. With refundability many low-
skill, low-income workers could begin to use these credits for 
literacy and for occupational skill development.
    4. Reform adult basic education. The lack of basic literacy 
skills is the greatest single barrier to postsecondary 
education facing most working adults. Current Federal and State 
adult literacy programs do not work and should embarrass us all 
by their obvious failures. We need fundamental reforms that 
would involve employers and directly link adult basic skill 
development to postsecondary participation.
    Of course some of these ideas go well beyond the 
reauthorization of the Higher Education Act, but this is a 
systemic problem we face and it requires a systemic response.
    I look forward to the opportunity to discuss these ideas 
and others in more detail. Thank you.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Bosworth follows:]
                  Prepared Statement of Brian Bosworth
    Mr. Chairman, and members of the committee: My name is Brian 
Bosworth. I am the president of FutureWorks, a consulting and policy R 
& D firm focusing on the strategies and institutions that promote 
sustainable, skill-based regional economic growth. I am grateful for 
this opportunity to discuss problems and opportunities in strengthening 
access and accountability in postsecondary education.
    For the past few years, our firm has devoted an important part of 
our work to exploring the policies and practices that will promote 
training and education for millions of working adults who did not 
prepare for this economy when they were of traditional school age. I am 
pleased today to have this opportunity to summarize some of our 
findings and suggest their implications to the work of this committee. 
This testimony is further informed by our consulting work in regional 
economic and workforce development with business-civic institutions, 
workforce boards, and community colleges.
    In the 21st century economy, skill has become the most critical 
determinant of economic success--for individuals, for businesses, and 
for regions. The economic returns to education and skill development 
are growing. The most obvious and the widest divide between those who 
are doing well and those who are not is education attainment. For the 
unprepared individuals, businesses, and regions, the increasing bias 
toward education and skill demands wrenching adjustments. However, the 
good news is that these are not fixed regional or personal endowments. 
Unlike natural resource and location advantage in the last century, the 
chief determinates of region economic success in the 21st century 
economy--education and skills advantage--are not immutable; they can be 
changed. With the right policies and with aggressive leadership, a 
region can increase its stock of skills and create flexible and 
responsive educational institutions that will attract new investment 
and make old investments more efficient.
    Federal policy can make a big difference. I will focus the balance 
of my remarks on suggesting how this committee might craft strategies 
that better support the skill attainment objectives of million of 
working adults. First, I want to explore the problem in more depth and, 
secondly, I want to offer four specific recommendations for attacking 
these problems. Those recommendations include:
    1. modifying eligibility requirements for existing grant and loan 
programs;
    2. developing a new Federal-State partnership in higher education 
for working adults;
    3. making education tax credits more meaningful to working adults; 
and,
    4. reforming adult basic education.

Postsecondary Access and Success for Working Adults: What's the 
                    Problem?

    In 2004 there were about 115 million full-time workers from age 25 
to 64 in the U.S. civilian labor force. Only 40 percent of them have a 
college degree (associate's, bachelor's, or advanced). Another 19 
percent went to college, but never got a degree. While some of this 
last category may have gained a 1-year academic certificate or an 
industry-recognized certification, most probably dropped out of college 
before completing even 1 year.
    We can reasonably conclude that there are at least 60 million adult 
workers in America who have no postsecondary credential of any kind. 
They were not prepared by their education for success in today's 
skills-biased economy and most are struggling. They don't make much 
money; they can't buy a home nor accumulate other assets to pass on to 
their children; and their own children are very unlikely to go to 
college. This isn't just their problem--America's lack of educated and 
skilled workers is the most significant drag on national economic 
growth.
    There is no reason to believe this problem will abate over the next 
generation because more young people recently have completed or will 
attempt college. In fact, the college attainment rate of the workforce 
is increasing only very slowly. While the percentage of young adults 
age 25-35 with some college is much higher than those age 65 plus, it 
is not appreciably higher than those still in the active workforce. 
Nationally, the rate of increase in high school graduation has stalled. 
Only a large recent increase in the number of GEDs awarded has 
prevented an actual decrease in high school completion rates. The 
recent history of depressingly low attainment among the fastest growing 
demographic segments of those young people beginning high school over 
the next 10-20 years points to a further erosion of both high school 
and college completion.
    Conservative projections by the Bureau of Labor Statistics about 
the number of net new jobs that will require some college and 
optimistic projections of net new workers with some college credentials 
suggest a shortfall of about 12 million educated workers over the next 
15 years. The lack of educated workers in the United States already 
threatens the competitiveness of firms in technology, healthcare, 
manufacturing, and most other sectors paying average or above average 
wages. Barring a dramatic, and unlikely, change in U. S. immigration 
policy, the skills gap will get worse. We cannot stop this gap from 
widening, much less begin to close it, until we develop policies that 
will help millions of working adults without college get postsecondary 
credentials.
    Any college matters some, but degrees and credentials matter most. 
According to the Census Bureau, full-time, year-around workers with at 
least 1 year of college and no degree can expect to earn 15-20 percent 
more than those with no college at all, but other research indicates 
the benefits of less than a year's worth of postsecondary courses may 
generally be too small to be significant. Full-time, year-around 
workers with associate's degrees can expect to earn 30 percent more 
than those with no college and those with bachelor's degrees, 50 
percent more. These financial returns to postsecondary education are 
growing every year and, over a lifetime, make a huge difference to 
workers, to their family assets, and to the likelihood of postsecondary 
education for their own children.
    Many working adults understand the importance of further education 
but relatively few are finding success in gaining postsecondary 
credentials. The National Household Education Surveys (NHES) report 
stunning increases over the past decade in adult education enrollment, 
especially among those who have no previous postsecondary credential. 
However, the NHES also reports that few of these adults are enrolled in 
programs leading to degrees, certificates, or certification.
    Unfortunately, efforts by working adults to gain those credentials 
are not well supported by their Federal or State Governments or by the 
institutions of higher education that ought to be encouraging them. 
Notwithstanding the rhetoric of ``lifelong learning,'' higher education 
financing, programming, scheduling, and credentialing policies still 
are skewed narrowly toward traditional students coming directly out of 
high school into higher education. Working adults, because they have 
full-time job and family responsibilities, often lack the time, money, 
and flexibility of schedule to fit into the mode of higher education.
    Many working adults away from school for many years have poor or at 
least very rusty basic skills. Our review of the research literature 
suggests that an astonishing 40 percent of the labor force probably 
lacks the basic literacy skills to be successful in higher education 
(and, of course, this means they also probably do not meet the basic 
skill demands of employers struggling to remain competitive in the 
global economy). In our work with community and technical colleges, we 
hear often that that 50-75 percent of their applicants fail the tests 
designed to predict success in the academic and occupational programs 
to which they seek admission. Some low literacy applicants with skills 
at, say, an eighth grade level are allowed to enroll in the colleges' 
remedial or developmental studies and, if they stick with it, can 
progress over several months to an acceptable level of proficiency. 
But, most of these adults have approached the postsecondary institution 
looking for technical or occupational credentials and they frequently 
lose all interest when diverted into basic skill courses. Few colleges 
have integrated basic skill building curricula into their for-credit, 
credential or degree-oriented courses. Those applicants with literacy 
skills below an eighth grade level are simply turned away or referred 
to adult basic education programs (and seldom are heard from again).
    If they can get past the basic skill threshold problems, working 
adults still face major barriers to postsecondary study (especially 
time, program availability, schedule, and cost). Evidence shows that 
working adults do take courses outside of working hours, but usually on 
an intensive basis only for a short time--4 to 6 weeks or so. 
Sometimes, they are able to take one course at a time for a whole 15-
week semester. However, especially if they have a family (and of course 
most do), they very seldom are able to sustain education and training 
at what colleges and universities consider a half-time pace.
    Less-than-half-time students get little financial support. 
Government direct or guaranteed loans (subsidized and unsubsidized) 
require half time or more attendance. Working adults who must pursue 
college on a less-than-half-time basis receive almost no Pell grant 
money because several eligibility criteria (involving income and cost 
calculations, eligible programs and institutions, and the pace of 
attendance) effectively eliminate them from consideration. State 
programs generally minor Federal limits (although there are some 
innovative state-based practices).
    Education tax credits are not helping. The more generous credit--
the Hope Scholarship Credit--demands half-time or more attendance and 
goes mostly to the middle income parents of traditional students who 
are in their first 2 years of college. The Lifetime Learning Tax 
Credits available to less-than-half-time students are far less generous 
than Hope, they are poorly marketed, and they are not effectively 
targeted to modest income families.
    Recall that the average annual earnings for full-time, full-year 
workers with only a high school degree were only $30,400 in 2000. Even 
if a family has a second wage earner (probably not full-time, full-
year), that family is hard pressed just to cover its basic living 
expenses. Educational expenses of $1,500 to $2,000 per year for a 
family struggling to cover these basic expenses can easily make 
postsecondary study seem out of reach.
    The lack of student aid for working adults squashes demand for 
accessible programs and stifles experimentation and innovation, such as 
creating more digestible modularized programs and sequencing 
credentials. It increases the skepticism of working adults and their 
employers about the support they can get from their government or the 
higher education system.
    But the problem is not just the absence of financing. Few 
institutions of higher education have developed programs and schedules 
that work for working adults. Even at community colleges, programs that 
will lead to degrees and academically recognized credentials are 
frequently campus-bound; even if not, they often have prerequisites 
that are tough to fit in the schedule of adults with full-time work and 
family responsibilities.
    Degree and other credential requirements often seem too daunting 
for a working adult attending part-time. Associate degrees that require 
60 to 75 credit hours can seem an almost insurmountable barrier to a 
student who can take only three of four credits at a time. Most 
programs continue to require seat time in lieu of competency 
demonstration as a chief criterion of credentialing. Extended use of 
evening and weekend programs often requires programming arrangements 
that can raise accreditation problems for the programs and 
institutions. Their response frequently has been to make those 
offerings ``non-credit'' and to deny students shunted off into those 
classes the opportunity to build a pathway of credentials to advance 
their career.
    Few public colleges have successfully integrated preparation for 
industry-based certification into their for-credit, academically 
credentialed programs. Students who choose to pursue such credentials 
(as in information technology fields) are often required to pursue 
these programs in more flexible but also more expensive proprietary 
training schools where they sometimes sacrifice future ability to 
articulate their study into higher-level programs in favor of short-
term credentials. Workers seeking continuing credentialed education as 
they navigate toward higher paid positions in their occupation are 
often frustrated to discover that credentials earned in one institution 
cannot be applied to advanced study at another school.
    Of course, there are important exceptions to this generally dismal 
picture of how higher education systems meet the needs of working 
adults. Notwithstanding a decade of increases in tuition and fees that 
exceed the rate of inflation, many 2-year community colleges are still 
financially accessible for limited income families. There are several 
colleges, 4-year as well as 2-year, that have worked hard to develop 
programs that work well for working adults and are affordable. They 
have organized credentialed programs that generally require 1 or 2 
years of full time study into shorter modules, each with distinct 
credentials that can be ``stacked'' together over time into more 
conventional degrees and certificates.
    Some community colleges are making more extensive use of ``career 
ladders'' in high-growth occupations that enable students to earn 
basic, industry-recognized certification quickly to gain entry to 
higher wage occupations with the option to continue training for more 
advanced credentials. Some program offerings include open-entry/open-
exit classes that allow students to progress at their own pace, classes 
that meet on weekends, and course offerings that combine distance-
learning and on-campus support. Some colleges have created short-term 
intensive programs with curricula and scheduling formats that can 
better accommodate the schedule limitations of working adults.
    Regrettably, however, these are exceptions--best practice, not 
common practice. In terms of cost and programs structure most 
institutions of higher education institutions are not easily accessible 
to working adults and they do not promote success.
    In fact, this is not just a problem facing low-skilled working 
adults. A defining characteristic of the early 21st century economy is 
the emergence of high wage, high skill, occupational clusters not 
generally seen as professional or managerial and requiring sub-
baccalaureate credentials at entry. Jobs in these clusters (like 
advanced manufacturing, biotechnology, logistics, health care) pay well 
and offer opportunities for career advancement. They provide careers 
that can support middle class expectations for producing family 
sustaining earnings and building inter-generationally transferable 
assets.
    However, a central feature of these high performance occupations is 
that they require advanced and credentialed skills on a continuous 
basis. People in these occupations need postsecondary education not 
just to get ready for the job, but also to adapt to the job or 
occupation as skill requirements change and as they pursue better 
opportunities within the occupational cluster.
    The implications of these labor market changes for education and 
training are far more significant than has been generally understood. 
We need demand-side oriented, postsecondary institutions that can help 
pull young people through high schools and pull adult workers back into 
education to build a solid foundation to enter these high performance 
occupations. These market-based institutions then need to stay with the 
workers as they and their employers discover the need for new skills. 
Upwardly mobile workers developing a portfolio of credentialed skills 
must rely on local education and training institutions that can deliver 
programs in short, intensive, and credentialed packages that are 
accessible to people who have full-time jobs and usually full-time 
family responsibilities. The institutions must develop more systemic 
credentialing systems that certify both the strong foundation and the 
addition of new increments of knowledge and capability. In these high 
skills occupations, successful workers and their employers will need 
more comprehensive and more fine-grained credentialing pathways than 
those currently offered by our current system of 1-year certificates 
and 2-year and 4-year degrees.
    In the old economy, postsecondary education helped people prepare 
for their first jobs and the beginning of their careers. In the new 
economy, postsecondary education must help people prepare for lots of 
jobs over their lifetime, building career competencies through 
continuous education and skill development.
    In summary then, there are big economic returns for workers, their 
employers and the national economy to postsecondary education for 
working adults, especially for those with no previous after high school 
credentials. However, there are even bigger barriers to postsecondary 
access and success for working adults. The obvious question is, ``What 
do we do about it?'' Or, more to the point, ``What does this committee 
do about it?"
    This committee can begin now the task of helping postsecondary 
education in America organize itself to deal more effectively with the 
on-going education and skill development needs imposed by the 21st 
century economy. It will take time but there are some things that can 
be done now in re-authorizing the Higher Education Act and some things 
that can be done in the near term through the strategic adjustments of 
closely related Federal policies affecting higher education.

What Can This Committee Do in Reauthorizing the Higher Education Act?

    1.Modify Eligibility Requirements for Existing Grant and Loan 
Programs: This committee might consider some relatively low-cost 
modifications to Title IV of the Higher Education Act that would help 
working adults and promote lifetime learning. Very low-income adults 
could be helped by changing the way that ``Expected Family 
Contribution'' and ``Cost of Attendance'' are calculated to better 
reflect living costs, by permitting Pell grants for summer school to 
allow for year-around attendance, by simplifying access to Pell grants, 
and by more aggressive marketing of their potential eligibility.
    For other working adults who are able to incur education debt, it 
certainly seems appropriate to reconsider the limitation on Federal 
direct and insured loans to less than half-time students. In fact, 
working adults (because they have a credit history and income) are 
probably more able to manage education debt than young people coming 
out of college and looking for their first career job. The returns to 
credentialed learning are dramatic enough to justify this investment. I 
further encourage the committee to investigate how employers might be 
asked to play a supportive role in new adult loan programs, perhaps 
through financial incentives for helping repay worker debt.
    I understand that the President's 2006 budget has proposed a small, 
new loan program, jointly administered by the Departments of Education 
and Labor, to help dislocated, unemployed, transitioning, or older 
workers and students. I have very few details of this budget 
initiative, but to the extent it seems to have merit, this committee 
may which to consider its inclusion in the reauthorization of the 
Higher Education Act.
    However, beyond these modest changes, I don't see much enthusiasm 
among postsecondary institutions themselves for major changes in Pell 
grant or student loan eligibility that might better accommodate the 
financial needs of working adults. Most see Title IV of the HEA as a 
``zero sum game'' where allocating more Federal support to non-
traditional students, like working adults, means diverting it from 
traditional students. Certainly, Federal resources are tight; this 
hardly seems to be the right climate to consider new government 
entitlements for higher education. And it doesn't help low-income 
working adults to set their needs in opposition to the needs of low-
income young people.
    Even more importantly, we are increasingly convinced that squeezing 
a little more money out of title IV will not help much. The problems 
that discourage access and success for working adults seeking 
postsecondary credentials also discourage the continuous learning that 
is required by the new economy. These are historic problems that go 
very deep into the governance and financing of higher education and 
adult education. Solutions must come through broad reforms in how the 
States manage their postsecondary education responsibilities.
    The current title IV programs for traditional students pretty much 
ignore the State role in favor of direct entitlements and institutional 
aid programs. Perhaps the more appropriate Federal role for such non-
traditional students as working adults might be to work directly with 
the States, helping them promote institutional change for student 
access and success.
    2. Develop a New Federal-State Partnership in Higher Education for 
Working Adults: We suggest inclusion in the reauthorization of the HEA 
of a modestly-funded, temporary program of grants to States to promote 
postsecondary access and success for working adults. These grants would 
help States develop and implement a plan to reform higher education 
governance, formula financing, student aid, curricula and program 
development, accreditation, credentialing, and faculty development in 
ways that would promote access and success for working adults seeking 
their first postsecondary credentials as well as those seeking the new 
skills and additional credentials of career advancement.
    This would not create new Federal student financing programs. Nor 
would it seek to divert existing program like the Pell grants and the 
direct and guaranteed student loans away from traditional students 
toward working adults. Rather, this new approach would be focused on 
helping the States--the biggest financial stakeholder in higher 
education--explore how changes in the way they govern and finance 
higher education can create better opportunities for access and success 
for working adults.
    We suggest a time-limited approach (the 6 years of the new 
reauthorization) under which each State would receive a planning grant 
in year 1 followed by annual, formula-based implementation grants in 
years 2 through 6. There would be monitoring, assessment, and 
enforcement mechanisms to keep States on track of the plans they 
develop with incentives for outstanding work and sanctions for poor 
performance. Alternatively, the entire process could be made 
competitive, with grants going only to those States prepared up front 
to make a strong commitment to the postsecondary education of working 
adults. Under any approach, it seems important to make the Federal 
grants annually renewable, subject to performance, rather than 
allocating each State full funding in one large grant.
    Use of the Federal grants would vary from State to State depending 
on their particular diagnosis of problems and opportunities. Some 
States might place a special emphasis on developing new financial aid 
instruments aimed at working adults. Others might choose to focus their 
efforts around the development of new program and credentials that fit 
the scheduling barriers facing many working adults. Some States might 
look chiefly at their community colleges to implement this initiative 
while others might ask their 4-year State colleges to play a major 
role. This diversity of approach would provide a rich learning 
environment and State teams working on these issues could be brought 
together regularly to exchange information and experience.
    This does not have to be a costly program for the Federal 
Government. Giving the States modest discretionary funding to help 
their institutions with careful research and with the design, testing, 
and piloting of new programs will be enormously important to States 
facing serious fiscal constraints. Consider a 6-year Federal 
authorization of just $500 million or $85 million per year, providing 
the States an average of $10 million for this multi-year initiative.
    A scaled-down version of this idea could be piloted with just some 
States (perhaps 10-15 selected through a national competition) who 
commit to assess and improve their State postsecondary education 
policies to increase the number of working adults with postsecondary 
credentials. The participating States would assemble planning teams 
representing the Governor's office, the State higher education 
commission, the postsecondary student aid agency, the State department 
of workforce development, the State human services agency, the State 
finance or budget officer, the community/technical colleges, key 
legislators, and major business associations. With some sort of careful 
annual review, Federal funds would support a 1-year planning process 
and perhaps 3 or 4 years of funding for project implementation. Federal 
resources would also support national technical assistance and 
dissemination.
    We have been working on a small project using this model for the 
past 2 years. With grant support from the Lumina Foundation, we have 
partnered with the National Governors' Association in what we have 
termed the Pathways to Advancement project. Several of the eight 
participating States have made important progress toward improving 
their State's higher education for working adults; however, there is 
much more work to be done. Under this project, there has been no 
funding to support program development and piloting at the State level 
and, in these days of severe fiscal constraints, it is very hard for 
States to change institutional behavior with no new money. However, our 
experience is that States are serious about making these changes. They 
have had strong support from their Governors. They work together and 
learn from each other. Federal leadership and a little Federal money 
could make the difference.
    This new Federal-State program, even at a pilot scale, would be 
both good economics and good politics. This strategy would find 
enthusiastic support from business and labor groups. It does not 
require a large or open-ended financial commitment from the Federal 
Government. It would build a partnership with States and their 
institutions of higher education around the target of working adults as 
a huge new market segment. It would kick-start the systemic 
repositioning toward lifelong learning that is important for 
postsecondary education.

What Other, Closely Related Change Might This Committee Consider?

    In the reauthorization of the HEA, this committee can begin to 
promote changes and reforms in the regulatory and policy frameworks of 
higher education that will help those institutions respond better to 
the needs of the millions of working adults who lack any postsecondary 
credentials and who will fall further behind in this economy.
    However, changing institutional behavior is only one part of the 
challenge. We also have to think of how to change the behavior of 
individual workers and their employers. Adult workers need better 
information about the returns to postsecondary and greater incentives 
to invest their own energy, time, and money into earning postsecondary 
credentials. Employers need more information about the productivity 
returns to investments in workforce skills and how to help their 
workers understand the importance of these investments.
    Strengthening employer commitment to the credentialed postsecondary 
education of their workers is a difficult challenge and the potentially 
effective Federal role is not clear. Employers may need more financial 
incentives as they step up to a higher standard of responsibility for 
helping their employees gain credentialed and portable skills. 
Employers spend a lot now, but most of their spending goes to support 
further education for already highly educated workers in professional 
and managerial occupations. Very little information is available about 
employer education assistance programs permitted under IRC Section 127. 
Anecdotally, tuition reimbursement programs for lower skilled workers 
don't seem to be very effective as employers report extremely low 
takeup rates among their employees and colleges report very little 
tuition and fee income from employers. Perhaps this committee might 
encourage more research and pilot experiments with employers and 
employer associations to help determine how best to encourage a 
stronger employer role in promoting postsecondary access and success 
for adult workers.
    While I understand the committee is focusing this hearing on the 
Higher Education Act, I would like to take this opportunity to 
encourage two very closely related policy initiatives or opportunities 
that could have a big impact on the postsecondary education achievement 
of working adults. The first opportunity lies in changing the Lifetime 
Learning Tax Credit and the second lies in a reform of adult basic 
education as currently promoted through Title II of the Workforce 
Improvement Act.
    1. Making Education Tax Credits More Accessible to Working Adults: 
The Hope Scholarship (Hope) and Lifetime Learning Tax Credits (LLTC) 
were initiated by The Taxpayer Relief Act of 1997 to increase college 
affordability and to encourage lifelong learning. The two credits were 
designed to complement each other by targeting different groups of 
students. While the Hope may be used only for a student's first 2 years 
of postsecondary education, the LLTC is available for unlimited years 
to those taking classes beyond their first 2 years of college, 
including college juniors and seniors, graduate students, and working 
adults pursuing lifelong learning.
    Eligible expenses for each credit include only tuition and required 
fees at an educational institution eligible for aid administered by the 
Federal Department of Education (DOE). Tax filers may claim tuition and 
fee amounts after subtracting grants, scholarships, and other tax-free 
educational assistance including Pell grants, employer-provided 
education assistance, and Veteran's educational assistance. The Hope 
provides a credit equal to 100 percent of the first $1,000 plus 50 
percent of the next $1,000 of net tuition and fees paid during the tax 
year, for a maximum credit of $1,500. The student must be enrolled at 
least half-time (at least 6 credit hours per semester, which typically 
is two classes) and be pursuing a degree or other recognized 
educational credential in order to be eligible.
    In contrast, individuals are not required to enroll at least half-
time or pursue an educational credential in order to be eligible for 
the LLTC. This makes the LLTC available to adults taking an occasional 
college course or to those enrolled in any course aimed at acquiring or 
improving job skills. Note that this could include adult basic 
education, including remediation of basic literacy skills in a college 
setting. Currently, the LLTC is equal to 20 percent of the first 
$10,000 of net tuition and fees, for a maximum credit of $2,000.
    Both credits reduce the amount of taxes filers owe. The Hope credit 
can be claimed for multiple eligible students in a family while the 
LLTC is capped at $2,000 per tax return, no matter the number of 
students in the family or the amount of their combined educational 
expenses. Families are allowed to claim the LLTC for some members and 
the Hope credit for others in the same year. However, the same student 
cannot take both credits.
    The benefits of the tax credits phase out for higher-income 
taxpayers. The phase out begins at an adjusted gross income (AGI) of 
$83,000 for a joint return ($41,000 for single filers) with no benefit 
for families with incomes above $103,000 ($51,000 for single). With 
these relatively high thresholds, tax credits for higher education 
expenses have the most extensive eligibility of any Federal program. 
(In comparison, Pell grants are strictly limited to families with 
incomes below $40,000. Nearly 90 percent of Pell grant funds are 
awarded to families with incomes under $30,000 and 54 percent of those 
families has incomes under $10,000.)
    In 2003-04, FutureWorks investigated the use of the Hope and LLTC 
using three primary data sources: Internal Revenue Service's Statistics 
of Income, the National Household Education Survey, and the National 
Postsecondary Student Aid Survey. We were limited then to 2001 tax 
information (and have not been able to update our research since). Some 
quick highlights from our research include:
     7.2 million filers received $5.2 billion in credits;
     Only 21 percent of adults in the general population had 
heard of the credits;
     44 percent of the filers received a Hope credit only and 
they received 60 percent of the total benefits, 52 percent received a 
LLTC only and they received 31 percent of the benefits, and 5 percent 
received both credits and 9 percent of the benefits;
     The mean credit for Hope recipients was $969 and the mean 
for LLTC was $432.
    Overall, we found that the tax filers who benefited the most from 
these higher education tax credits were those who claimed them on 
behalf of dependent college students. Those who benefited the least 
were students who claimed the credit(s) for their own or their spouse's 
educational expenses and who did not indicate that they were 
``students'' on their income tax return.
    Based on our research findings, we conclude that the Hope and LLTC 
are not working effectively to address the significant education and 
skill shortages in America's workforce. They are not inducing greater 
numbers of working adults who need to upgrade their education and 
skills to earn postsecondary credentials. They are not supporting to 
any significant degree those who are currently enrolled. As a policy 
device to address the employment and economic challenges discussed 
above, the higher education tax credits as currently marketed and 
structured do not work well.
    These conclusions lead us to recommend four major changes to the 
education tax credits to make them more accessible and beneficial for 
working adults who pursue the postsecondary educational credentials 
needed in today's economy:
    1. Raise Awareness of the Credits: Especially, work with employers 
to market and improve the takeup rate of the education tax credits 
among workers. Only 17 percent of working adults without a bachelor's 
degree had heard of them. These percentages decline with lower levels 
of education and income as well as among Hispanic adults and those for 
whom English is not their primary language. Among enrolled college 
students, only one-third of apparently eligible independent students 
actually claimed an education tax credit in the 1999-2000 school year.
    2. Increase the Percentage of Qualified Educational Expenses 
Allowed Under the Lifetime Learning Tax Credit: Specifically, increase 
the percentage from the current 20 percent of the first $10,000 spent 
on qualified expenses (tuition and fees) to 50 percent and cap the 
credit at $2,000. The current structure of the Lifetime Learning Tax 
Credit mostly benefits full-time students who attend higher cost 
institutions and minimally benefits students who attend lower cost 
institutions like community colleges, and who are enrolled less than 
full-time. Working adult students attending community colleges part-
time or less-than-half-time seldom spend over $2,500 in eligible 
expenses (tuition and fees) annually.
    3. Expand the Definition of ``Qualified Expenses'' for Both 
Education Tax Credits: Specifically, include in the definition of 
``qualified expenses'' not only the direct costs of attending school, 
i.e., tuition, fees, and room and board, but also indirect costs, i.e., 
books, supplies, equipment, transportation, child care, and others as 
currently defined by the U.S. Department of Education in Title IV 
student aid formulas. It is important to note that this change will 
benefit only those students who do not already receive financial aid to 
cover these expenses. Both education tax credits already stipulate that 
tax filers can only include in ``qualified expenses'' those amounts 
above and beyond what is. covered by tax-free education assistance and 
refunds, including the tax-free parts of scholarships and fellowships, 
Pell grants, employer-provided educational assistance, Veterans' 
educational assistance, and any other nontaxable payments other than 
gifts or inheritances received as educational assistance.
    4. Make Both the Hope Scholarship and Lifetime Learning Tax Credits 
Refundable: Specifically, using the guidelines for the Earned Income 
Tax Credit, change the Hope and Lifetime Learning Tax Credits to allow 
low-income working adult students to keep their full credit, including 
the portion above any tax liability they have. Many low-skill adults 
working in low-wage jobs have low tax liabilities and without 
refundability will see no benefit from the education tax. With 
refundability, low skill, low income workers could begin to use these 
the credits for literacy and occupational skill development
    These changes in the education tax credits are, of course, not 
without fiscal consequence and it may be necessary to phase them in 
gradually. On the other hand, building demand for accessible 
postsecondary education programs by making these credits more 
responsive to the needs of working adults should work to expand the 
supply of the flexible programming and credentialing arrangements most 
needed in postsecondary education.
    2. Reforming Adult Basic Education: The biggest single barrier to 
postsecondary access and success for many working adults is their low 
literacy proficiencies and there is very little help available to them 
to improve their basic skills. Current adult basic education strategies 
and programs are not working for working adults. Literacy deficits in 
the workforce are on the increase. Current programs enroll only a tiny 
fraction of those who need help, the programs achieve very nominal 
literacy gains for participants, and most program participants are not 
even working adults. Adult basic education needs to be reformed and the 
Federal Government should take the lead through the Adult and Family 
Literacy Act (now Title II of WIA).
    While there is widespread recognition of severe basic skills 
deficits in American workplaces, there is no current statistical 
information that fully and accurately quantifies the extent of the 
problem. The best source of information remains the 1992 National Adult 
Literacy Survey (NALS) of a nationally representative sample of 13,000 
individuals age 16 and over who responded to detailed in-home 
interviews and completed a series of literacy tests.
    The NALS respondents received proficiency scores in three literacy 
scales--prose, document, and quantitative. There is no ``pass-fail'' 
threshold in the NALS; the proficiency scores are grouped in five 
levels--level I being the lowest and level V being the highest. Adults 
in the bottom Level I could perform simple, routine tasks involving 
brief and uncomplicated documents (i.e., total entries on a deposit 
slip and locating the time and place of a meeting on a schedule), but 
they could not locate information in text or make low-level inferences 
using printed materials. They could not integrate easily identifiable 
pieces of information nor perform even one-step arithmetic operations.
    Those with proficiency only at Level II could handle simple one-
step arithmetic (e.g., determining the price difference between two 
tickets) but lacked such written communication skills as the ability to 
write a short letter explaining a billing error. Nor could they use a 
bus schedule to get to a destination by a specific time. Generally, 
employers would understand the middle level III as representing the 
degree of literacy appropriate to successful completion of tasks 
usually associated with front-line production or customer service 
workers; most employers would see this as the minimum standard for 
workplace success.
    In 1992, over 40 percent of labor force participants age 16 and 
above performed below this mid-point standard--they were in the lowest 
two levels of proficiency as defined in the survey. That means that 
about 53-54 million workers probably did not possess the literacy basic 
skills desired by employers. Of these, 21-22 million workers scored 
only in the bottom Level I.
    The 2003 NALS data will soon provide information about changes 
between 1992 and today. However, big changes are unlikely. Over the 
past 10 years, there have been only very modest gains in educational 
attainment of the workforce. In fact, the percentage of 18-24 years 
olds with a high school diploma or its equivalent actually decreased 
from 76.5 percent in 1990 to 74.7 percent in 2000. The immigration of 
poorly educated adults also has heightened the problem.
    In fiscal year 2003, the Federal Adult Education and Family 
Literacy Act (Title II of the Workforce Development Act) allocated 
$491.5 million to the States for all adult literacy programs. The 
States in turn allocate these funds to local providers, usually local 
education agencies and community-based organizations and often to 
correctional institutions. Most States match these Federal grants with 
more than the required 25 percent (total State/local matching funds 
have been about $1 billion annually for the past few years), but 
overall State funding has actually decreased since 2000. Most programs 
fall into three categories: adult basic education; English as a Second 
Language, and adult secondary programs (for GEDs or high school 
diplomas). Basic eligibility requirements are to be 16 or older and be 
without a high school diploma.
    Most adult education provider organizations are public K-12 schools 
offering evening classroom programs to very low proficiency adults or 
young people using adult education to compete high school. These 
providers typically have weak linkages at best to employers. Mostly 
part-time instructors staff the adult education programs; few 
instructors have credentials in adult education and fewer still have 
training in workplace basic skill programs. Not surprisingly, most 
employers know little about these providers or what help they may 
provide.
    During much of the 1990s, enrollment in these publicly supported 
programs was between 3.5 and 4 million people, but in recent years the 
number of participants has slipped to about 2.7 million. Only about one 
third of these 2.7 million people are adult workers.
    The majority is unemployed. A large and rapidly increasing share of 
Federal-State adult basic education program resources is devoted to GED 
preparation for youngsters under the age of 21 who enroll in adult 
education program to prepare for the GED test. While the GED was 
originally designed as a way for older adults who had not completed 
high school to gain equivalency, it has become an alternative pathway 
to high school completion by millions of high school age young people 
who have dropped out of school. GED preparation for high school age or 
slightly older adolescents is now consuming a large portion (perhaps 
40-50 percent) of Federal-State adult basic education programming. Yet, 
evaluation evidence suggests no economic return to GEDs unless they 
lead directly to postsecondary credentials.
    The current systems of adult basic education are supply-side 
approaches focusing around public providers typically offering evening 
courses taught by K-12 teachers who often are not trained as adult 
educators and have little experience with workplace or work oriented 
programs. Postsecondary institutions in most States are rarely involved 
with the design or delivery of adult basic education programs and few 
States set postsecondary access and success as a central objective of 
adult education. There is very little educational infrastructure for 
demand-side strategies where employers and workers themselves might 
take on more responsibilities for developing stronger basic skills.
    I understand that reform of Federal-State approaches to adult basic 
education is a big job and not the immediate subject of this committee. 
On the other hand, I understand that the committee is interested in how 
the different education programs under its jurisdiction work together, 
or don't. Here is a case where policy objectives, as least as they play 
out on the ground, are at cross-purposes with each other. Adult basic 
education as presently implemented in most States does not yield 
economic return to participants and does not support postsecondary 
access for working adults. I urge this committee to begin to assess 
this problem and how to solve it.

    The Chairman. Mr. Shireman.
    Mr. Shireman. Thank you very much, Mr. Chairman and members 
of the committee.
    As a country we need to boost the education levels of our 
population, but at the same time we need to make progress at 
the postsecondary level. We need to come to grips with the fact 
that debt has become the way that Americans pay for college. 
Two-thirds of students at 4-year colleges graduate with an 
average close to $20,000 in debt. This is up 60 percent in just 
7 years.
    Now, on average that is not a problem because on average 
the college graduate will earn $900,000 more over a lifetime 
than the average high school graduate. But as Milton Friedman 
pointed out when he first suggested a Government student loan 
program 50 years ago, there is much variation about that 
average in the income that people have over a lifetime. People 
have different careers that have different levels of earnings, 
even within careers. People live in different parts of the 
country, urban, rural, they specialize in different things 
within their career and earn different amounts, and there is 
even an element of luck that provides some people with greater 
earnings than others.
    This threat of looming student loan payments creates 
problems. One is the disincentive to engage in service 
professions, teaching, a disincentive to go to places where 
salaries are lower, rural areas, for example. It also makes it 
more difficult for people to buy a home, to save for 
retirement, to pay for their health insurance. And now with 
students or borrowers out of school, extending their debt to up 
to 20 or 30 years into their own 40s or 50s, it makes it more 
difficult for them to help pay for their own child's college 
education and increases the amount that that child will end up 
having to borrow for college.
    How do people get around these problems? One way they do it 
is they do not go to college. Kati Haycock mentioned some of 
those data about the number of highly-qualified low-income 
students who end up choosing not to go, and part of the reason 
they choose not to go is they do not want to have to take on 
that much debt. It is scary.
    Another way that people cope is by going to school part 
time. It is wonderful to have the option of going to school 
part time, but a part-time student is much less likely to 
complete their education and get their degree and get those 
increased earnings.
    Another way that people cope is that they work, and they 
work a lot. One-third of full-time dependent students in 
college work more than 20 hours per week. And for most of the 
majors that students are in, that is too much work to be able 
to learn what they need to learn and complete. It is difficult 
to do.
    These behaviors that are in part caused by the structure of 
our financial aid system rob our Nation of the productive 
potential and the creative contributions that these young 
people can provide to society and to the economy. It robs us of 
that brain power that we heard we need for our economy.
    We can do better by college students and potential college 
students without spending more tax dollars. President Bush in 
his budget says that the guaranteed student loan program has 
unnecessary costs for taxpayers that prevent the program from 
achieving the efficiencies the market is designed to provide. 
He suggested $25 billion in savings over 10 years. Senator 
Smith and Senator Kennedy have another approach which the 
Congressional Budget Office said would increase financial aid 
for students by $17 billion over 10 years.
    Now, I suggest two ways that we can invest these savings. 
One is to provide incentives to colleges and States to better 
serve students from lower income families so that they seek 
them out, counsel them, support them when they are in college 
and graduate them from college. I think it is interesting that 
two of the witnesses already have indicated support for the 
idea of support to States.
    Second, one of the things that Milton Friedman suggested in 
his testimony was to make loans hurt less--not in his 
testimony, sorry, what he had to say 50 years ago--to target 
assistance so that payments are not too large a proportion of 
income.
    Mr. Chairman, let me just mention a couple of other items 
that have come up already because I also serve on the Advisory 
Committee for Student Financial Assistance, and there has been 
much discussion of the need to help foster youth as they apply 
to higher education, and there is also an issue with a question 
on the financial aid form regarding drug convictions that 
scares a lot of young people and causes them to not apply for 
financial aid.
    So thank you very much for the opportunity to testify.
    The Chairman. Thank you very much, and you have a strong 
enough voice that none of us realized the microphone was not 
on.
    [The prepared statement of Mr. Shireman follows:]
                Prepared Statement of Robert M. Shireman
    Mr. Chairman and members of the committee: Thank you for allowing 
me the opportunity to testify regarding the Federal role in promoting 
college access and success. Through the Higher Education Act, the 
Federal Government plays a critical role in making postsecondary 
education financially within reach for millions of Americans. But more 
than just serving individual students, the programs help to drive the 
economy. As Federal Reserve Chairman Alan Greenspan said in testimony 
last year, our versatile higher education system serves ``the practical 
needs of the economy by teaching and training and, more significantly, 
by unleashing the creative thinking that moves our economy forward.''
    With some urgency, Chairman Greenspan called for a more aggressive 
effort to expand educational opportunity. ``As history clearly shows, 
our economy is best served by full and vigorous engagement in the 
global economy. Consequently, we need to increase our efforts to ensure 
that as many of our citizens as possible have the opportunity to 
capture the benefits that flow from that engagement . . . [O]ne 
critical element in creating that opportunity is the provision of 
rigorous education and ongoing training to all members of our society. 
This proposal is not novel; it is, in fact, the strategy that we have 
followed successfully for most of the past century and a strategy that 
we now should embrace with renewed commitment.''
    More recently, Chairman Greenspan has also warned of the dangers of 
the large Federal deficit. As I will testify today, this committee has 
the opportunity to address both of these critical economic concerns: to 
significantly expand Americans' opportunities for postsecondary 
education and training, and to do so without adding to the budget 
deficit.
    The Debt Generation
    Over the past 20 years, the way Americans pay for college has 
changed dramatically. A system once based primarily on subsidized 
tuition and need-based grants is now dominated by student loans. For 
students from all socioeconomic backgrounds, debt has become a primary 
method of financing higher education:
     Just 15 years ago, only one in six full-time freshmen at 
4-year public universities took out a Federal student loan; now more 
than half do.
     By the time they graduate, nearly two-thirds of all 
undergraduate students have accumulated debt, up from less than one-
half just 7 years earlier.
     Between 1993 and 2000, the average student debt for recent 
graduates from 4-year colleges increased by 60 percent, to $19,300; the 
proportion of parents taking out loans to help pay for their children's 
education also rose.
     In the baccalaureate graduating class of 2000, more than 
one-fourth had in excess of $25,000 in loans. That is triple the 
proportion just 7 years earlier, when only seven percent carried that 
much debt (adjusted for inflation).
     Borrowers who go to graduate and professional school carry 
even larger debt loads. A 2002 Nellie Mae survey found average debt of 
$45,900; for those who attended law and medical schools, the average is 
$91,700.
    Today's young adults are the first generation in American history 
to experience college debt on such a mass scale. How does this new 
reality affect the educational opportunities and outcomes that we want 
and need in this country?
    At the Institute for College Access & Success, we have been 
exploring the perceptions that students, counselors, teachers, 
financial aid administrators, and education policy experts have about 
borrowing for college. We are finding an enormous amount of confusion 
and anxiety. It shows in the conflicting messages that people hear when 
they are thinking about continuing their education:
    Message 1: Invest in yourself. ``Student loans are a good 
investment. Your education will empower you to earn far more than you 
borrow.''
    Message 2: Protect yourself. ``Student loans can destroy your life. 
If you default, your credit is ruined, and you can't get any more 
student aid. To avoid default, you might have to work two jobs, or 
forego the career you most want, just to keep up with your loan 
payments.''
    So, are student loans good, or bad? The real answer is, ``it 
depends,'' which is why even college financial aid officials struggle 
with how to counsel students about loans. For example, Ohio State 
University has made a valiant effort with its financial counseling web 
site (http://sfa.osu.edu/basic/debt.asp). It provides tools for 
budgeting college costs and offers guidance for figuring out how much 
borrowing is too much.
    The American Council on Education and others recommend that student 
loan repayments not exceed eight percent of a borrower's earnings. They 
call anything higher than 10 percent the ``Red Zone''--the danger zone 
for default, diminished savings, and other risks associated with too 
much student debt.
    But how many high school or even college students can predict with 
any level of certainty what job they are going to have, much less what 
their income is going to be? The only thing they can say for sure is 
that if they don't graduate, or they don't get the kind of job they 
want, or they don't get the salary they expect, then they risk 
defaulting and undermining their own financial future and possibly 
their families' as well.
    Some observers criticize families who are more reluctant to borrow 
for college than to take on other types of debt. After all, 
postsecondary training is an investment that pays off handsomely in 
future earnings. But there are understandable reasons for such 
reluctance. If you have a mortgage, then you have a house. If you have 
an auto loan, then you have a car. But if you have a student loan, you 
do not necessarily have the increased income that you need to pay it 
off. While education does boost earnings in society in general, there 
is much variation around that average. And you can't return your 
education to the store for a refund in order to pay off the loan.
    Student loans do offer real opportunities for millions of students. 
But with the promise comes real peril as well. This reality affects the 
behaviors and attitudes of students and potential students and their 
families--and thus has an impact on our educational outcomes as a 
nation. For Americans from all backgrounds, the looming threat of high 
loan payments--the Red Zone--has potential negative effects well before 
high school and long after a borrower completes--or fails to complete--
a postsecondary program. These effects include:
     Diminished college access and completion. Some students of 
limited means are extremely reluctant to take out loans. This leads 
them to forego college altogether, or to engage in behavior that 
reduces their chances of completing a degree (such as attending part-
time, enrolling at less supportive institutions, or working excessively 
while in school).
     Disincentive for service careers. Recent graduates who 
want to go into teaching, social work, religious service, and other 
helping professions find that their college debt pushes them in other 
directions.
     Delay of marriage, family, and home ownership. Student 
loan debt makes it more difficult for young adults to afford a home 
mortgage. Borrowers also report that it has delayed their plans for 
marriage and children.
     Reduced ability to save for retirement--and for their own 
children's college education. Increasingly, borrowers are extending 
student loan repayment across 20 or even 30 years. This reduces their 
ability to save for their own retirement, and to help pay for their own 
children's higher education expenses.
    In my testimony today I will focus mostly on how college students 
and potential college students and their families think about loans. I 
will touch briefly on some of the other key issues, and then turn to 
what can be done about the problems.

Aid, Loans and College-Going Behavior

    ``I didn't get any financial aid. I got a loan''
        Disappointed Student
    One of the great attributes of our postsecondary education system 
is that there are so many different ways to enroll in so many different 
types of institutions. There are traditional residential colleges, 
commuter campuses, community colleges, career-focused night programs, 
intensive weekend courses, and online courses. This diverse array of 
options is a positive feature of our system. It means that people who 
would not enroll in one type of program have other options to consider. 
The problem is that financial considerations prevent too many students 
from choosing the approach that is the best fit for their 
qualifications, interests, and needs. This reduces their likelihood of 
enrolling in any program; and for those who do enroll, it diminishes 
their likelihood of success.
    In the traditional model, high school graduates who cannot cover 
the full costs of college take loans and other aid, enroll full-time in 
a 4-year school, and keep their work to less than 20 hours a week. By 
focusing on their studies, these students are the most likely to 
graduate and to play productive roles in the economy and as citizens. 
Research consistently shows this is the most certain route to 
significant upward mobility.
    The image we like to have of our system is of the hard-working 
student from a tough background who leaps far beyond his parents' 
educational and income levels. But this American dream doesn't come 
true as often as it should. It is students from high-income families 
who are most likely to take the 4-year-college route.
    Set aside all of the students who drop out of high school, and set 
aside the high school graduates who are not qualified for college--two 
factors that disproportionately affect low-income families. There is 
still a large gap in college-going by family income. Among high school 
graduates who are from higher income families and are college-
qualified, 83 percent enroll in 4-year colleges. But among low-income 
families, only 52 percent enroll in 4-year colleges within 2 years of 
graduating high school.
    Where do the other college-qualified low-income students go? 
Twenty-one percent enroll at community colleges and may be as 
successful as they would have been at a comparable 4-year institution. 
But more of them--22 percent--do not enroll in any type of 
postsecondary program at all. The comparable figure for high-income 
recent high school graduates is only 4 percent. In other words, almost 
every college-qualified, high-income high school graduate enrolls 
within 2 years, while more than one in five qualified low-income 
students does not go at all.
    For lower income students, affordability--perceived and actual--
plays a major role in whether and where they go to college. It also 
affects how they approach their studies and, therefore, how likely they 
are to graduate. Research has found that if a young adult sees herself 
as a student, she is more likely to persist. And it is much more 
difficult to maintain that self-perception as a student if you are 
enrolled part-time while working, a pattern that is more common for 
students of modest means.
    For full-time students, work is a factor, too. Up to around 15 
hours a week, work is a positive contribution to achievement and 
college completion. But much more than that and it becomes an 
impediment. Nearly a third of full-time dependent students work more 
than 20 hours a week on top of their schooling. The lower your income, 
the more likely you are to be in this group. Of these full-time and 
hard-at-work students, 60 percent did not take out a student loan. In 
other words, 60 percent could have reduced their work burden with a 
student loan, but chose not to. Should they be congratulated for their 
commitment? Or pitied because they are more likely to drop out, or 
graduate with lower grades than they are capable of? How many talented 
students turn away from tough majors like science and engineering 
because the courses don't leave enough time for the work hours required 
to pay the bills?
    Financial aid is certainly not the only factor behind these gaps in 
the quality and intensity of enrollment between lower and higher income 
students. But it is a contributing factor. Here is a taste of what we 
are hearing from college officials in interviews conducted for an 
upcoming report by researcher Pamela Burdman:
    ``Parents are very leery about loans. Sometimes it filters down to 
a student . . . For some, it seems that they weren't optimistic about 
their future. It's more acceptable if you were going to borrow money to 
purchase a car. It's more tangible. It can get you back and forth to 
work. They've seen people before them who have cars. Nobody before them 
has borrowed money to go to school.''--Jennifer Roller, GEARUP 
director, Youngstown State University, Ohio
    ``Retention has been a problem at Carbondale. We did quite a few 
studies and we started to see that working over 20 hours a week started 
to disintegrate academic performance. Those students who were working a 
lot just to be able to go to school were not academically successful. 
They were defeating the purpose. There clearly seemed to be an issue 
that finances were affecting academic performance for some students.''
    --Dan Mann, former financial aid director, Southern Illinois 
University at Carbondale.
    ``I have actually had students tell me they aren't going to school 
because they can't get any grant money and they refuse to take on any 
loans.''--Bill Nowlin, Dean of Enrollment Management, Northeastern
    State University, Oklahoma
    ``How can we better explain this process, what it means and why it 
might be good to take out the loan when we all wish they wouldn't have 
to take out the loan? . . . Even though we wish that these students 
weren't having to take out these loans and graduate in debt, lacking 
other choices, we want our students to enroll, and do well and we don't 
want them working 25 hours a week.''
    --Karen Rice, financial aid administrator, University of 
California, Berkeley

After College: Staying Out of the Red Zone

    While in college, the borrower's student loan experience is brief 
and relatively painless. The truly meaningful relationship with a 
student loan begins about 6 months after leaving college. That's when 
the bills start coming in.
    College is an excellent investment. On the average, it pays off in 
additional earnings far more than it costs. But for the graduating 
class of 2000, it certainly didn't feel that way. A year out of 
college, a large proportion--36 percent were making payments that 
represented more than 8 percent of their income. These borrowers are 
not all doomed to a long-term struggle with student debt. Many of them 
will see their incomes rise substantially over time, and they will be 
able to pay off their loans without great difficulty.
    But untold numbers make enormous life and career sacrifices to pay 
their student loan bills. They forego a career as a teacher or 
community health worker. They take a higher-paying job ``for a few 
years to pay off the loans,'' then find themselves stuck in a career 
path that does not represent the best contribution that they can make 
to their community. Or they work two jobs, too tired to excel at 
either, and miss out on promotions that would ease their debt burden, 
or on time with their children during the critical early years. They 
delay buying a home, and then watch as prices rise for the home they 
could have had. They forego adequate health insurance, delay saving for 
retirement, and make other tradeoffs with potentially devastating 
consequences.
    Millions of borrowers have gotten some relief because the recent 
low interest rates in the economy meant lower rates on student loans. 
Hundreds of thousands of them have taken the opportunity to lock in low 
rates through consolidation; more will do so prior to a rate increase 
scheduled for July 1. While some observers are concerned that the rate 
is ``too low,'' it is the only real relief that struggling borrowers 
can currently get.
    In the refinancing frenzy, it is easy to forget that there are many 
borrowers who are currently prisoners of their lenders, stuck with high 
fixed interest rates because of Federal rules that prohibit them from 
consolidating more than once. President Bush proposed granting them the 
right to refinance. Congress should follow up on his recommendation.
    The borrower relief offered by refinancing opportunities is 
important. But there is a dark side of the refinancing boom. Many 
borrowers are being placed in the longest repayment plan for which they 
are eligible. In the first 6 months of 2003, Sallie Mae reported that 
half of the company's new consolidations were for 20 years or longer. 
This reduces the borrower's monthly payments, providing many with the 
help they need. But total interest costs are higher over the life of 
the loan, and extending repayment into most borrowers' 40s interferes 
with the need to save for retirement and for their own kids' college 
education.

Solutions

    Congress can address these problems by using the Federal 
Government's current investments more effectively. It is not necessary 
to spend additional taxpayer dollars or to reduce student benefits as 
long as Congress takes the steps to make the loan program more 
efficient. This section focuses on how to spend the money; the next 
section focuses on where to get it. On the spending side, I recommend 
two strategies: (1) grant aid with accountability; and (2) loans that 
hurt less.
    1. Grant aid with accountability. Elite universities are abandoning 
loans in order to recruit high-achieving students from low-income 
families. In the last few years, Harvard, Princeton, the University of 
North Carolina at Chapel Hill, and the University of Virginia all have 
launched new programs that promise students from low-income families 
that they will not have to take out any loans to pay for college. 
Initial reports indicate that low-income students, and minority 
students in particular, respond favorably to these programs.
    Of course, most colleges and universities cannot afford to make 
blanket no-loan promises. They don't have the large endowments of more 
elite schools, and they enroll many more students from low-income 
families. But the strategy that high-status institutions are using 
suggests that increasing grants may be the most effective way to get 
more low-income students onto the college track.
    What gets measured, gets done, and currently colleges and 
universities do not have enough reason to pay attention to their 
enrollment and retention of students from modest backgrounds. By 
attaching some campus funding to higher levels of Pell grant enrollment 
campuses would be more likely to implement and improve programs to 
increase those numbers all the way through to the baccalaureate. The 
Federal Government should provide some funding for grant aid to 
colleges--either directly or through States--in proportion to the 
number of low-income students that the institutions enroll and/or 
graduate.
    This policy would have different positive effects at two different 
types of colleges. At higher-priced and more selective institutions, it 
would create incentives both to recruit high-achieving students from 
low-income families and to offer the financial aid that they need to 
enroll. To some degree, this has already begun to happen. Three years 
ago, with the help of Don Heller at Pennsylvania State University, I 
wrote articles in the New York Times and the Los Angeles Times that 
pointed out the low proportion of Pell grant recipients at some 
colleges and universities. Others then started drawing the comparisons 
between colleges, and the leaders of elite colleges are now paying 
closer attention to the economic diversity of their student bodies.
    Low-cost institutions have a different problem. Too many of their 
students who likely qualify for aid are not getting it because there is 
no one to tell them that aid is available or to help them fill out the 
application. These are students who, if they had more aid, might attend 
full-time instead of part-time, or might enroll at a different 
institution, or might be able to get the child care they need in order 
to attend class consistently. At low-cost colleges right now, more 
students applying for aid just creates additional administrative work 
for the college. By providing some institutional funding with each Pell 
grant, the campus has an incentive to help all the students who are 
eligible.
    This funding could be provided directly to colleges by the Federal 
Government. Another, probably better, option has been suggested by the 
Advisory Committee on Student Financial Assistance, on which I serve as 
a congressional appointee. This approach would create a Federal-State 
partnership, providing States with matching funds for policies and 
programs that improve college affordability, enrollment, and completion 
for their residents.
    2. Loans that hurt less. Fifty years ago, the economist Milton 
Friedman said that the creation of a government student loan program 
would ``do much to make equality of opportunity a reality, to diminish 
inequalities of income and wealth, and to promote the full use of our 
human resources.'' He suggested income-based repayment so that people 
could more safely take out the loans. Let's finally put his idea into 
meaningful practice.
    Public policy should help hard-working borrowers stay away from Red 
Zone of burdensome debt without forcing them to spend half their 
working lives paying off their student loans. Past approaches, as well 
as the current income-sensitive and income-contingent repayment 
options, fail this test. They are better than nothing, but they provide 
inadequate relief, and they can extend repayment for too long.
    We need a simpler, more effective design for income-based loan 
repayment assistance. This is critically important for two reasons. 
First, we need to be able to provide some assurance to students and 
families that a student loan will not ruin them. Our economy suffers 
when they decide against postsecondary education or when they work 
excessively during school. The purpose of the student loan program, 
after all, is to get people to give postsecondary education the old 
college try.
    Second, we need to minimize the negative life and career effects 
that student debt can have on borrowers. A system that assists 
borrowers who are working but are still facing excessively burdensome 
loan payments will let graduates consider the best use of their skills 
and interests, even if it is not the career choice with the highest 
starting salary. It will make room for homeownership, entrepreneurship, 
retirement savings, and commitment to family, and reduce economic 
insecurity across the spectrum of student loan borrowers.

Improving Efficiency

    There are a variety of ways that Congress could improve the 
efficiency of the student loan programs, and use those savings to ease 
the burdens of student loan debt.
    A. According to President Bush's fiscal year 2006 Budget, ``the 
Federal Government assumes almost all of the risk for the [student] 
loans, while Federal subsidies to intermediaries--lenders and guaranty 
agencies--are set high enough to allow the less efficient ones to 
generate a profit. These problems lead to unnecessary costs for 
taxpayers and prevent the program from achieving the efficiencies the 
market is designed to provide.'' To address this problem, the Bush 
administration identified $25 billion in savings over 10 years. Some of 
those savings negatively affect borrowers. But at least half are 
positive improvements in efficiency, freeing up funds you could use to 
help borrowers when their payments are excessively burdensome.
    B. Colleges have no incentive to keep taxpayers costs down in the 
loan programs; those costs are invisible to the institutions. 
Bipartisan legislation has already been introduced that would address 
this problem. Under the provisions of the Student Aid Rewards Act, the 
Secretary of Education would give colleges a share of the taxpayer 
savings when they utilize the loan program that the Secretary 
determines is ``the most cost-effective for taxpayers.'' By aligning a 
college's incentives with taxpayer costs, this proposal, according to 
the Congressional Budget Office, would generate an additional $17 
billion in grant aid for low-income students over 10 years.
    C. Taxpayers are currently spending $240 million every 3 months to 
subsidize a guaranteed 9.5 percent interest rate for some student 
loans. Congress tried to fix this problem last October, but the 
payments have actually increased. Part of the problem with the new law 
is that it did not ban the ``recycling'' of loans carrying the excess 
subsidies. Recycling allows the loan companies to create new loans 
carrying the 9.5 percent guarantee by using collections and profits 
from prior 9.5 percent loans as capital. The lure of such large, 
taxpayer-assured returns is an invitation to abuse and the reason for 
the ballooning taxpayer costs over the last 2 years. I join with the 
Congressional Budget Office in recommending that this recycling be 
ended.
    D. Congress should take a serious, independent look at all of the 
efficiencies that could be tapped in the government student loan 
programs without harming those the program was designed to help. First 
identify more cost-effective ways of providing students with the same 
loans and terms that they receive today. Then consider any changes in 
the design or distribution of student benefits. Compare them to the 
reforms proposed by President Bush. Compare them to other options. And 
give taxpayers the return they have every right to expect: real 
educational opportunity and a better educated workforce.
    Fighting for efficiency is not easy. Those who benefit from the 
inefficiencies will resist change. Identifying improvements, 
particularly in a program that is financially complex like student loan 
systems, inevitably leads to competing and confusing interpretations of 
the data. Rely on the experts who work for taxpayers: CBO, OMB, GAO, 
the Education Department, and the Treasury Department.
    We have a real opportunity to advance the education and training of 
our population, improving our economic competitiveness and making good 
on the American dream. Thank you for providing me with the opportunity 
to share my views. I look forward to working with you in the months to 
come.

    The Chairman. Mr. Van Horn.
    Mr. Van Horn. Thank you, Mr. Chairman.
    Wyoming Student Loan Corporation is a private non-profit 
corporation founded in 1980 at the request of former Governor 
Ed Herschler, who believed postsecondary education should be 
more accessible for Wyoming students. As a non-profit, Wyoming 
Student Loan Corporation returns its earnings after expenses to 
current, former and future students.
    In its 25 years Wyoming Student Loan Corporation has 
provided more than $900 million of educational loan assistance 
to more than 65,000 students and parents of students, and it 
has provided $130,000 in scholarship assistance to Wyoming 
students attending Wyoming postsecondary institutions. For the 
Federal fiscal year 2002, the most recent year for which the 
Department has calculated default rates, our corporation's 
default rate is 4.9 percent, well below the national average of 
5.2 percent.
    In the past 6 years alone we have returned almost $9 
million to students in the form of reduced origination fees, 
interest rates reductions, loan principal forgiveness for those 
who graduate, and for any soldier in the armed forces including 
those in the Reserves and the National Guard.
    However, our mission is not limited to today's college 
students or those high school juniors and seniors who already 
know that they are college bound. Equally important, if not 
more so, is the imperative to instill in the minds of 
elementary students and their parents the absolute necessity 
for post high school education and training so that as many 
young people as possible have both the vision and the believe 
that college is indeed accessible and affordable.
    Our corporations have placed more than $3.4 million in 
outreach and early awareness activities in the past 5 years, 
including our College for a Day Initiative. Just last week, as 
we have done for the past several years, we hosted Wyoming 6th 
graders, many from low-income families, as they attended Casper 
College and University of Wyoming, experiencing life on a 
college campus. For too many young students in rural States 
such as Wyoming, the word ``college'' simply has no imagery 
attached to it. By getting these younger students to a campus, 
they can have hands-on experience in a science lab or an art 
class, have lunch in the cafeteria, browse the library, and 
hear from college students about the importance of good grades, 
staying in school and setting goals in life.
    The University of Wyoming and the 7 community colleges 
around the State are proactive in developing outreach campuses 
and distance learning curricula in order to meet as many needs 
of our residents as practical. The number of distance education 
courses in the State has grown dramatically in the last several 
years from just a handful in 1995 to more than 300 today. That 
is a sizable increase for Wyoming.
    Yet even with these advancements, access to higher 
education in Wyoming and other rural States remains difficult 
and challenging. The cost of distance education is more 
expensive for the schools simply because there are fewer 
students to enroll in such courses. Not all courses lend 
themselves easily to web-based instruction, and there is still 
no substitute for classroom and laboratory instruction. Greater 
distances to travel to attend classes means greater expenses 
for students of all ages. Median family incomes in rural 
communities trend lower than more populated towns and cities. 
Need-based financial aid is an absolute necessity for moderate- 
and lower-income dependent students and for working adults 
looking to upgrade their education and their skills.
    The fastest growing occupations in Wyoming all require 
postsecondary education. Our population is expected to increase 
by 22 percent by the year 2015, far exceeding the national 
average of 13 percent. Yet during the same period the number of 
high school graduates in Wyoming is expected to decline by 23 
percent. In addition, Mr. Chairman, Wyoming's baby boomers are 
reaching retirement age, and in the next 5 years significant 
numbers of our educators, engineers and business owners will be 
retiring. If these trends continue, half our State's population 
will be retirement age by the year 2020.
    The implications of these figures are dramatic. The demand 
for a highly skilled and educated workforce will be greater 
than ever before, yet the supply of qualified individuals could 
be severely inadequate to sustain let alone grow our economy. 
These implications are the driving force behind our 
corporation's concerted outreach efforts to expand access to 
students who historically have low postsecondary participation 
rates. These include minorities, rural families and 
nontraditional adult students.
    Workforce changes require lifelong learning. Pell grants, 
campus-based aid programs, the Federal student loan programs, 
and State and institutional aid programs all have one goal, to 
increase access to education. Student financial aid programs 
are the key to affording access to higher education and 
developing the Wyoming workforce necessary for the diversity of 
industries and professions.
    Mr. Chairman, I would not have received the education I am 
fortunate to have received without the assistance of grants, 
work study and student loans. That is also true for my wife and 
our two sons.
    Mr. Chairman, I applaud your efforts and the efforts of 
your colleagues to promote access to and affordability of 
higher education. Simplifying the Federal student aid 
application process and form will be an important step toward 
promoting access. I commend the Department of Education for the 
great strides in making the electronic version of the FAFSA 
quite user friendly. I noticed from recent experience.
    But we know from recent studies that almost half of 
enrolled students across the country do not complete the FAFSA. 
Not have these individuals automatically eliminated for 
consideration under the Federal student programs, they miss 
opportunities for local and institutional scholarships. We have 
to ask, why do so many students opt out of the process before 
they even being?
    WSLC has provided countless free FAFSA seminars over the 
years. Parents and students come for help simply to understand 
the instructions. Time and again parents tell us the FAFSA 
process is as complex as filing one's Federal income tax 
return. Surely part of the reason for the complexity in the 
document is the complexity of the underlying need analysis 
formula. Mr. Chairman, we support the recommendations made by 
the Advisory Committee on Student Financial Assistance in their 
January 21, 2005 report to you.
    I thank you, Mr. Chairman, and members of the committee, 
for this opportunity to testify, and I will be happy to answer 
any questions as time is appropriate.
    The Chairman. Thank you.
    [The prepared statement of Mr. Van Horn follows:]
               Prepared Statement of Phillip F. Van Horn
    Mr. Chairman, members of the committee, I am Phil Van Horn, 
chairman of the board and president of Wyoming Student Loan Corporation 
and president and chief executive officer of Western States Learning 
Corporation, which administers the student loan portfolio for Wyoming 
Student Loan Corporation and provides other educational support 
services. I am pleased and honored to have this opportunity to describe 
the importance of student aid programs in the development of Wyoming's 
higher education and workforce development initiatives.
    Wyoming Student Loan Corporation is a private, non-profit 
corporation, founded in 1980 at the request of former Governor Ed 
Herschler who believed postsecondary education should be more 
accessible for Wyoming students. As a non-profit corporation, its 
earnings after expenses are returned to current, former and future 
students.
    In its 25 years of service, Wyoming Student Loan Corporation has 
provided more than $900 million of educational loan assistance to more 
than 65,000 students and parents of students and $130,000 in 
scholarship assistance to Wyoming students attending Wyoming 
postsecondary institutions. Thanks to one of the best employee teams 
I've ever had the pleasure of working with, Wyoming Student Loan 
Corporation's default rate has consistently been among the lowest in 
the Nation. For fiscal year 2002, the most recent year for which the 
Department of Education has calculated, the corporation's default rate 
is 4.9 percent, below the national average of 5.2 percent.
    In the past 6 years alone, the corporation has returned almost nine 
million dollars ($9,000,000) to students in the form of reduced 
origination fees, interest rate reductions and loan principal 
forgiveness for those who graduate and for any soldier in the Armed 
Forces, including those in the Reserves and National Guard.
    However, our mission is not limited to today's college students or 
those high school juniors and seniors who already know they are college 
bound. Equally important, if not more so, is the imperative to instill 
in the minds of elementary students and their parents the absolute 
necessity for post-high school education and training so that as many 
young people as possible have both the vision and the belief that 
college is, indeed, accessible and affordable. Both our corporations 
have placed more than $3.4 million in outreach and early awareness 
activities in the past 5 years including our College For a Day 
initiative. Just last week, as we've done the past several years, WSLC 
sponsored and hosted Wyoming sixth graders, many from low-income 
families, as they attended Casper College and the University of 
Wyoming, experiencing life on a college campus. For too many young 
students in rural States such as Wyoming, the word ``college'' simply 
has no imagery attached to it. By getting these younger students to a 
campus, they can have hands-on experiences in a science lab or an art 
class; have lunch in the cafeteria; browse the library; and hear from 
college students about the importance of good grades and setting goals 
in life.
    Mr. Chairman, you and I certainly know, and I'm confident other 
members of the committee are aware, that Wyoming is the least populated 
State in the country. Providing access to higher education in rural 
States presents unique challenges in terms of distance and 
technological infrastructure. The State's only baccalaureate and 
advanced degree institution is the University of Wyoming in Laramie. 
The University and the seven community colleges around the State are 
proactive in developing outreach campuses and distance learning 
curricula in order to meet as many needs of our residents as practical. 
The number of distance education courses in the State has grown 
dramatically in the last several years, from just a handful in 1995 to 
more than 300 today. Adult learners have greater opportunities for 
embarking on a new career path or upgrading their current skills.
    Yet, even with these advancements, access to higher education in 
Wyoming and other rural States remains difficult. The cost of distance 
education is more expensive for the schools simply because there are 
fewer students to enroll in such courses. Not all courses lend 
themselves easily to web-based instruction and there is still no 
substitute for classroom and laboratory instruction. Greater distances 
to travel to attend classes mean greater expenses for students of all 
ages. Median family incomes in rural communities trend lower than more 
populated towns and cities. Need-based financial aid is an absolute 
necessity for moderate and lower-income dependent students and for 
working adults looking to upgrade their education and skills.
    The fastest growing occupations in Wyoming are in the fields of 
medicine and allied health, dentistry, engineering, communications, 
pharmacy, extraction, and education. All of these require postsecondary 
education. Our population is expected to increase by 22 percent by the 
year 2015, far exceeding the national average rate of 13 percent. Yet, 
during the same period the number of high school graduates in Wyoming 
is expected to decline by 23 percent. In addition, Wyoming's baby 
boomers are reaching retirement age and in the next 5 years significant 
numbers of our educators, engineers, and business owners will be 
retiring. If certain demographic trends continue, half our State's 
population will be retirement age by the year 2020.
    The implications of these figures are dramatic: The demand for a 
highly skilled and educated workforce will be greater than ever before, 
yet the supply of qualified individuals could be severely inadequate to 
sustain, let alone grow, our economy. Even greater demands will be 
placed upon our institutions of higher education to provide education, 
training and retraining. These implications are the driving force 
behind our corporations' concerted outreach efforts to expand access to 
students with historically low postsecondary participation rates: 
minorities, rural families and non-traditional adult students.
    Workforce changes require lifelong learning. As the workforce needs 
create demand for more courses, more instructors and more facilities, 
the cost of education and training will increase. Pell grants, campus-
based aid programs, the Federal student loan programs, and State and 
institutional aid programs all have one goal: to increase access to 
education for all. Student financial aid programs are the key to 
affording access to higher education and developing the Wyoming 
workforce necessary for a diversity of industries and professions. Mr. 
Chairman, I would not have received the education I am fortunate to 
have received without the assistance of grants, work-study and student 
loans. That is also true for my wife and our two sons. We know first-
hand the difference that Federal student aid dollars can make in access 
and affordability in higher education.
    Mr. Chairman, I applaud your efforts and the efforts of your 
colleagues to promote access to and affordability of higher education. 
Simplifying the Federal student aid application process will be an 
important step toward promoting access. I commend the Department of 
Education for the great strides made in making the electronic version 
of the Free Application for Federal Student Aid (FAFSA) quite user 
friendly. I know this from first hand and recent experience. But I've 
also been in the student aid profession for 30 years.
    We know from recent studies that almost half of enrolled students 
across the country do not complete the FAFSA. Not only are these 
individuals automatically eliminated for consideration under the 
Federal student aid programs, they may miss opportunities for local and 
institutional scholarships. We have to ask: Why do so many students opt 
out of the process before they even begin? WSLC has provided countless 
free FAFSA seminars over the years. Parents and students come for help 
simply to understand the instructions. Time and again parents tell us 
the FAFSA process is as complex as filing one's Federal income tax 
return. Surely part of the reason for the complexity in the document is 
the complexity of the underlying need analysis formula. Mr. Chairman, 
we support the recommendations made by the Advisory Committee on 
Student Financial Assistance in their January 21, 2005 report to you.
    I thank the committee for this opportunity to testify and I will be 
happy to answer any questions you may have at the appropriate time. 
Thank you Mr. Chairman.

    The Chairman. And again, I would mention that your full 
statements will be a part of the record, and I appreciate the 
additional information that is contained in that text as well.
    We will now have a round of questions, and I get to start.
    Mr. Van Horn, we know that rural students face many 
challenges getting to school and especially postsecondary 
school, and I congratulate you on the tour that you give for 
the 6th graders to finally get an image of what college is and 
think that could help across the country. Are there any best 
practices from Wyoming or other States you can suggest for 
Congress to look at as we amend it in regard to the rural 
students, and could you touch just a little bit on what impact 
the 50 percent rules had on access to higher education in our 
area?
    Mr. Van Horn. Mr. Chairman, rural communities do have their 
unique challenges and distance education, while the university 
and the community college have made great strides, it still is 
an expensive proposition for the schools within a State. In 
terms of the 50 percent rule and the practices within the 
State, because of Wyoming's uniqueness, Mr. Chairman, I do not 
feel confident to address that at this time.
    The Chairman. OK. Then as I mentioned, we will be putting 
some of these questions in writing so that we can get an 
opinion from all of you on it, and also so that you can help us 
to get some additional expertise on it.
    Ms. Thorpe, I really appreciate your impassioned testimony, 
and your ability to persist in spite of the tremendous odds is 
just outstanding. I congratulate on all of your 
accomplishments.
    In your testimony you mentioned that after-school tutoring 
and guidance and encouragement are what allowed you to work 
through the Upward Bound and to even consider college. Can you 
tell us what factors were important in your ability to complete 
high school and succeed in college? Are there any things in 
particular?
    Ms. Thorpe. There were a lot of things in particular, but I 
believe the most important thing was my skills at math. When 
you miss the critical periods in math, you kind of miss out on 
a lot of things, and since math was a big part of school you 
had to take math every single year. I had no knowledge of how 
to do algebra, really of how to do fractions. I could not 
divide. And Upward Bound really took the time out to help me to 
be able to learn fractions. They would pay for me to go to 
extra tutoring sessions. When I was a senior in high school 
they actually paid for me to take a course at the University of 
Wyoming to help me out in math as well. So that was really 
helpful. And I am taking math now in college too.
    The Chairman. Oh, good.
    Ms. Thorpe. So there you go.
    The Chairman. Math and science is something that is 
disappearing a little bit among American born students. We are 
having a lot of foreign students that are doing that.
    Something that we are really concerned about is the 
availability of information about student financial aid as well 
as the availability of the student aid, and ways to simplify 
the process. How can we get information sooner to people to 
might be encouraged to go to college, and any ideas on how we 
might simplify that application process? This is a question for 
the whole panel, but I will start with Ms. Thorpe.
    Ms. Thorpe. I think perhaps providing some sort of a 
session maybe inside the high school or a class. I know at my 
high school in particular they had a class dedicated for 
basically a study hall and it was mandatory, so maybe perhaps 
during one of those sessions. In other high schools as well, to 
have a class where you actually learn how to fill it out, 
because a lot of parents do not know. I was fortunate to have 
people who were helping me out with these applications such as 
the Upward Bound coordinator and the director of the program 
and my foster parents, but a lot of the kids that I was going 
to school alongside who were not in the Upward Bound program 
had no way or no knowledge of how to fill these things out even 
though they were eligible. So, perhaps having classes, sort of 
like taking the LSAT or something like that.
    The Chairman. Anyone else? Mr. Shireman.
    Mr. Shireman. Thank you. I would say that the GEAR UP and 
TRIO type programs that can provide early counseling and 
information, as early as middle school, to parents and to 
students are critically important. Also Congress asked the 
Advisory Committee on Student Financial Assistance a year ago 
to look at simplification and issues of earlier application. 
And the Advisory Committee a few months ago, on which I serve, 
came out with a number of recommendations. Some of those were 
eliminating some questions and simplifying for everyone. We did 
find that because this is all an effort to try to ration a 
particular amount of money that is available, that you cannot 
eliminate as many questions as might be--as people would like 
you to eliminate. However, there are people who are very low 
income where complicated issues about assets probably do not 
need to be asked, and the Advisory Committee recommended that 
they be provided with an easy type form for families with 
income of under $25,000 and some other recommendations like 
that. So that not everyone has to fill out an application with 
100 questions on it.
    Also on the question of earlier application, we are in the 
situation where now the traditional college student, in October 
of their senior year, fills out an application to go to a 4-
year university, and then 2 months later on January 1st, they 
can fill out the form to figure out what their financial aid 
might be. For a lot of people getting a sense of what your 
financial aid might be has a lot to do with where you might 
apply to college, and the Advisory Committee suggested that 
people be allowed to apply and get their estimate of financial 
aid earlier, like they could apply in September or they could 
apply at the same time that they are applying to the college. 
There has been a lot of interest in that recommendation and it 
is not something that would cost the Government any more than 
the way the process works now.
    So there are some steps that can be taken that could 
improve the process for students and families.
    The Chairman. Thank you. My time has expired.
    Senator Murray.
    Senator Murray. Thank you very much, Mr. Chairman, for 
having this hearing.
    And thank you to all of our witnesses for being here. I 
think the reauthorization of the Higher Ed Act is one of the 
most important things we can do to make sure that our students, 
especially low-income, minority have access to higher 
education. It is key to our country's economy, so I appreciate 
everybody being here.
    Mr. Shireman, let me start with you. As you probably know, 
Senator Kennedy and I have been working on a complete closure 
of the 9.5 percent loan loophole. Last year we were successful 
in closing part of that, but we still know these loans are 
being recycled. In fact I saw in the New York Times recently 
that the Federal Government is still, what they said, 
hemorrhaging money to lenders who figured out how to abuse some 
of these loans.
    You mentioned in your testimony that taxpayers are 
currently spending $240 million every 3 months to subsidize 
these loans. Can you talk to us today about how some lenders 
are figuring out how to continue to manipulate these and how 
much it is costing us?
    Mr. Shireman. A little bit of background on this issue. 
Some years ago the Government decided that student loans made 
from the proceeds of tax exempt bonds needed to have some 
different subsidy rules than other loans. And during a period 
of high interests rates, we, the Federal Government, guaranteed 
that holders of those loans would never have to receive less 
than 9.5 percent interest on those loans even if students are 
paying less. Now, of course for the past few years students 
have been paying, borrowers have been paying much less than 9.5 
percent, and so these loans--and this is a rule from 1980--
started looking to be quite the money maker. And some of them 
had moved from non-profit organizations into for-profit 
lenders, so that the proceeds from making more money would just 
go to shareholders' pockets with no risk, rather than to the 
good uses that might go from a non-profit organization.
    Some of those lenders made the case that they had this 
limited pot of funds that was supposed to be for 9.5 percent 
loans. And they said, well, if we put a loan in there for a day 
and take it out, we think it still should get the 9.5 percent 
for the life of that loan. And they started dipping these loans 
into this pot and taking them out. And over the last 2 years 
the amount, the dollar amount, a volume of these loans 
increased from $11 billion to $18 billion, costing the Federal 
Government to subsidize those.
    Congress said no more, except when people pay off these 
loans you can take those proceeds and make new loans with those 
proceeds. Now, that essentially means it will go on for many 
years to come, and now we are seeing that actually the costs 
are increasing even after Congress stopped the provision.
    What I think is happening is that you have this pot that 
pays 9.5 percent and you have other loans that lenders have, 
and that they are figuring out how to switch loans, because 
they can take proceeds here and use them to make new loans. 
They can move a loan from one pot to another to figure out how 
they can maximize the amount that taxpayers are paying, and 
that is what this recycling provision allows. It is something 
that in their----
    Senator Murray. So we still have a problem that needs to be 
fixed, and it is costing us.
    Mr. Shireman. So we still have a problem and this could 
just go on for years and years.
    Senator Murray. Right. I very much appreciate that.
    Trinity, thank you very much for your testimony today. You 
certainly are a compelling witness for TRIO and GEAR UP and 
programs like that that really allow students without who do 
not think they have a chance, to have a chance.
    I actually was with Bill Gates this morning. I wish I had 
have met you before because I could have told him what a 
difference he is making in the world. So I am delighted that 
you have been able to take advantage of that.
    You talked a little bit in your testimony about being a 
foster child.
    Ms. Thorpe. Yes.
    Senator Murray. Senator DeWine and I have worked for a long 
time together on making sure we decrease barriers especially 
for foster kids. One of the things that I have heard repeatedly 
from students who are foster students is the particular 
barriers they have in going to college because once you are 18 
you are no longer in the foster system. You do not have that 
parent support network. You are very lucky to have your foster 
mother still here with you. But financially it makes a 
difference. But for this committee, could you talk a little bit 
about what the particular challenges are for a foster student 
in applying to college and financial aid?
    Ms. Thorpe. I think I was an exceptional case for a foster 
kid because I did have very supportive parents, foster parents, 
and my biological mother and I are actually still very close. 
So in that I might not be able to speak on behalf of all foster 
kids.
    But in particular some of the challenges that I faced were 
just self-esteem challenges. As a foster child I often was not 
wanting to tell other people that I was a foster child or that 
I was poor, that I had grown up at a certain situation. So the 
biggest challenge that I faced was being able to write that in 
applications or write that on my FAFSA, you know, check the 
little box for ward of State. It kind of makes you feel like 
you do not really have a home or that you do not really belong 
anywhere, that you actually belong to the State instead of to a 
family. So just the self-esteem issues really posed a problem 
for me, and thinking about going to college especially.
    My mother did go to college for a little while and she 
still has dreams that she wants to go back. This is my 
biological mother. But the truth of the matter is she will not 
ever be able to go back because she will not have the 
opportunities to do that. That also posed some problems for me 
because my mother did not have an education. She does not see 
the value of an education, and actually not very long ago she 
asked me why I was not pregnant yet and why I was not married. 
So this is the kind of background I grew up in, you know, with 
people kind of telling you other things.
    My freshman year I met my birth father for the first time, 
my freshman year in college. When I went to go and tell him 
about my accomplishments he completely did not understand it 
because he does not have a college education. He is a bus 
driver in Mexico, just completely cannot comprehend the 
challenges or the struggles that I faced and what I have 
overcome to be where I am.
    Senator Murray. You have done well and we are all very 
proud of you and delighted to look at you here in front of us 
today.
    Ms. Thorpe. Thank you.
    Senator Murray. You are a role model for many other young 
kids in your same circumstances, so thanks for being here.
    Ms. Thorpe. Thank you.
    Senator Murray. Mr. Chairman, I know my time is up, and I 
do have to go to another committee hearing. I do want to submit 
some questions for the record in particular to Ms. Haycock 
because I have been working on some of the realignment issues 
between high school and college which I think are very critical 
for this committee to look at as we try and encourage States to 
make sure that high school graduation and college entrance 
exams work together, and how we as the Federal Government can 
help encourage that. So I will submit those for the record, and 
look forward to your response.
    Thank you.
    The Chairman. Thank you.
    Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.
    I want to thank the witnesses and say to Ms. Thorpe how 
impressive she is, and I thank you very much for being here.
    I want to make two or three quick comments in my time and 
then ask a question of any of the panel members who may want to 
comment. One, I want to commend the Department of Education and 
the Advisory Committee that has been mentioned in the testimony 
for its work on simplification of student forms. I mean they 
have really done some good work, Senator Enzi, as you well 
know, and really at the request of this committee, and 8 of 
their 10 recommendations do not cost anything. Some of them are 
complete common sense. I mean a large part of the complication 
of the form had to do with questions California insists on 
knowing the answer to. If you just take those out you simplify 
it for everybody else in the country.
    My humble suggestion is to change the name of the thing, 
because why would anyone go to conference on FAFSA who had 
never heard of FAFSA. They would not know what you were talking 
about, and I am quite serious about that. It needs a name that 
someone who is not from Washington would understand.
    Second, another contribution I think we can make in this 
bill has to do with the testimony on loan eligibility and 
limits on loan to better fit the traditional student, I mean 
the students who are actually in higher education today. We 
have impediments to what we are talking about here which we are 
causing by our limits on loans and grants, and we can afford to 
do those changes. That could happen.
    A third thing I would like to mention, I am all for the 
college/high school articulation as they say, but I am very 
leery of doing it from here. Our colleges and universities did 
not get to be the best in the world because somebody in 
Washington made them that way. So I think we have to be very 
careful with our well-intentioned orders from Washington not to 
actually over regulate colleges and universities and in effect 
make them worse while we are trying to make them better.
    I am sensitive to the point you made about the question 
about drugs. I mean Congress gets excited about things. We are 
all excited about drug use and so we order it stopped from 
here, while what we may be doing in an unintended way is adding 
to the complexity of an application form and discouraging low-
income students from applying for loans. I am working on 
legislation--I have talked to Senator Enzi about it--about 
actually looking to deregulate in some ways colleges and 
universities.
    Here is my question. Cost is very important. It was 20 
years ago, it is today. Its always hard to pay for college even 
today. But I think it is important to keep this in perspective 
and understand what we are talking about. Community colleges 
are $2,000 or so, at least where I come from, a year for 
tuition, and there are multiple scholarship opportunities for 
students to go there. When I was at the University of Tennessee 
we used to encourage students to go there and then come to the 
University of Tennessee. We would save places for them after 
their first 2 years. But the big change it seems to me is lack 
of State support for higher education, and I think we need to 
talk about that. I mean Federal funding for higher education 
between 2000 and 2005 went up nearly 50 percent. We are 
actually spending 50 percent more dollars on higher education 
from here than we were 5 years ago.
    Now, what was happening in the States during that time? 
According to the American Association of State Colleges and 
Universities--and I mention them because this seems so low that 
I am going to go back and double check it--in 2001 State 
spending was up 3.4 percent. In 2002 and 2003 it was actually 
down, it was down. In 2004 it was up 3.8 percent. If my math on 
the back of my page here is correct, Mr. Chairman, that means 
that over the last 4 or 5 years Federal funding for higher 
education was up 14 or 15 times more than State funding, and I 
think I know why. I think it is because we failed to give 
States the ability to restrain the growth of health care 
spending and it is soaking up all the dollars, and as a result 
there is no money left for higher education because it is the 
one that gets cut first when money goes to health care.
    I wonder if there are any comments on that from any of the 
panel members about how we keep this in perspective as we 
reauthorize higher education?
    Mr. Shireman. Senator Alexander, thank you. I think you 
were right on target in terms of the number one reason that we 
have seen significant increases in tuition has been the lack 
of, the declines in State support. We are in a situation now 
where we have more students graduating from high school and 
therefore more students going to college, and less State 
support at the same time. The $2,000 price of a community 
college can be $2,000 because of that State support, because 
the actual cost of providing that education is of course much 
higher than that $2,000. So the natural result, even if there 
is no increase in the actual cost of providing the education, 
the lack of State support has to drive up those tuitions in 
order to maintain the provision of the education to the 
students.
    So, absolutely, the issue of health care costs in addition 
to being an issue for States to the extent that costs are 
increasing for colleges and universities. They also are paying 
health care costs that are getting difficult for them. So that 
is right on target.
    Senator Alexander. Thank you, Mr. Chairman.
    The Chairman. Thank you. I am going to ask a few more 
questions because I have some of a general nature that more 
than one of you may want to comment on. I am pretty sure this 
one Ms. Haycock and Mr. Bosworth would want to comment. We are 
interested in finding out what Congress can do to develop a 
system that holds institutions accountable for the persistence, 
for the completion, for the graduation rates of the students 
while still recognizing that institutions have varied missions 
and serve students with different needs and responsibilities. 
What kind of ideas could you share with us?
    Ms. Haycock. Thank you, Mr. Chairman. As I indicated 
before, one of the basic problems that we have now is that a 
lot of folks within higher education think that their current 
success rates are about as good as they can do, and we will 
certainly find, when we visit a college or university, we ask 
about their 6-year graduation rates, and they will say, you 
know, 28 percent. We will say, what is with that? And the 
answer typically is, well, that is about what you get for 
students like ours.
    As I indicated earlier, it is actually quite clear that 
that is not the case. Yes, student preparation matters, and 
yes, student financial aid matters. But even when you take 
institutions that serve very similar kids with very similar 
resources, they have quite different results. So the question 
is: how you sort of break through the mindset that says, we are 
doing about as well as we can, and begin to get some energy 
into student success.
    At the moment there are not real incentives to do that. 
What happens now is if you look at 4-year colleges, for 
example, of those who enter as full-time freshmen about a 
quarter do not even make it to the sophomore year, but frankly, 
it does not matter much to the institution because there is 
another wave of entering freshmen to take their places.
    Mike Kirst at Stanford University says it is a little bit 
like French warfare in World War I; a set of soldiers comes up 
out of the trenches, gets mowed down, but that does not really 
much matter, right, because there is another set right behind 
them, and that is essentially how the economics work. And those 
freshmen, who are cheap to educate by comparison, actually 
subsidize the upper division students who are more expensive. 
So the question is how to turn those incentives around.
    Our sense, as we look at the data, is that what you really 
want to do at this point--because from a national level it does 
not make sense to mandate a particular one, sort of one 
approach--is to ask States to design systems that make sense in 
their State, to say to institutions, here is a set of stretch 
goals on the access side, and here is a set of stretch goals on 
the success side, and we are going to monitor your progress, 
provide rewards for those that improve their access and 
success, and some penalties for those who do not, and some 
support for institutions that frankly have rates that are 
unacceptably low.
    Again, I think that if you ask States to do that, then 6 
years from now we will know something more as a country about 
what works and what does not. We do not know that now because 
virtually nobody is trying.
    The Chairman. Mr. Bosworth.
    Mr. Bosworth. Just a couple of observations focusing 
perhaps more on 2-year schools than on 4-year schools with 
these. Schools are paid for enrollment, not for success. Most 
community colleges, if you show up on the campus the 11th day 
after the semester has begun, you will notice a sharp drop-off 
from the 10th day because it is the 10-day count that 
determines how much money a school is going to get in its next 
year budget. So it is all about building enrollment. It is not 
all about building completion. Colleges are not rewarded for 
degrees or other credentials that they provide to their 
students. They are rewarded for boosting enrollment. It should 
not come as a great shock to us to realize then that that is 
what we get.
    I think it is useful to look at some examples in the 
proprietary postsecondary arena where proprietary schools, 
particularly those dealing with technical and professional 
credentials, are not paid for enrollment, they are paid for 
success. There are some behavioral differences between those 
schools, the private 2-years and the public 2-years in how they 
manage enrollment and the kind of flexibility that they offer. 
I am not suggesting that we just go out and try to emulate the 
2-year private college system. It is extraordinarily expensive. 
People are paying $10,000 to $20,000 in a private 2-year 
technical school, but they are getting success. As the head of 
one such institution said to me, ``We cannot attract students 
if we cannot demonstrate to them that if they come here and 
spend that much money, $10,000, $15,000, $20,000, they are 
going to get the credential they thought they were paying for. 
It is going to be there. So success is really important to 
us.''
    Imagine if that were the attitude in public postsecondary 
education.
    I also want to note that in the community college arena, I 
think it is essential to be a very fine-grained approach to 
these accountability measures. When a student enters a 
community college with the intention of gaining a 4-year degree 
but starting at a community college, the objective is transfer, 
it is not an associate degree. And so the community college 
should not be held accountable for whether or not it awards an 
associate degree after 2 years to that individual. What it 
should be held accountable to is, have we successfully 
transferred this individual after 6 months, 1 year, 18 months, 
2 years, however long it takes, to a 4-year institution because 
that is their objective, the 4-year degree.
    On the other hand, if they are entering the labor market 
and they are looking for a credential that has labor market 
consequence that means something out there to employers, they 
should be held accountable for providing that particular 
credential. It is difficult when all the credential in the 
academic arena are--you have to cram them into a 4-year or a 2-
year associate degree. A lot of the labor market credentials 
that would be very useful do not require a 4-year or a 2-year 
degree. Some might require a 3-year degree, some might require 
a 1-year certificate, but we are trapped in an environment 
where the educational institutions have packages, and some of 
these packages have no labor market consequence.
    The Chairman. Thank you. My time has expired again.
    Senator Alexander.
    Senator Alexander. Thank you, Senator Enzi.
    I appreciate the issue the witnesses were just discussing 
and I notice that they are being I think appropriately 
restrained in recommending a heavy Washington hand and figuring 
out how to do it. One might argue that some of it has taken 
care of itself. We have in higher education, which we do not 
really have very much in K through 12, a big marketplace out 
there. The fastest growing part of the Pell grants is not in 
the public sector, it is in the for-profit sector. Maybe it is 
because there are some schedules and rigor and credentials 
being offered in the for-profit sector that are more 
attractive, more meaningful, more convenient than people are 
finding in the public sector, and fortunately we have a market-
based system where the money follows the student to an 
institution which may include a for-profit institution or a 
private institution or in many cases a distant learning 
institution. So in that sense the entrepreneurial spirit of the 
marketplace is putting some pressure on the more hide-bound 
public institutions.
    I would argue too that in my experience the community 
colleges and technical institutes, the 2-year schools, are a 
big part of that marketplace. They are very entrepreneurial, 
enterprising, often operating in effect year round, constantly 
changing their curricula to meet the needs of the market.
    The other things I think have to be considered are that 
many students go to higher education not to get a degree. They 
go to learn something and then to go on to a job or go back and 
live a better life, and we have to be careful in the way we 
count all this to make sure we do not penalize that. I mean the 
typical student now is not a high school graduate, it is 
somebody who is a working mom going from this job hopefully to 
a better job, and she may not need a degree to get there. She 
just may need a course or two, or three or four, and that is 
somewhere in the statistics.
    Just a couple of other points on that. And so many of these 
students who need so-called remedial help getting into college 
are not the high school graduates. They are, as has been 
mentioned, the adults who are going to go back again and back 
again and back again, that we need to recognize that most of us 
when we go out of school for a while and then go back to school 
are going to need a little ramp up to that even if we are 
pretty smart and pretty well educated. It is not easy just to 
get right back into a rigorous algebra course or statistics 
course, which is what you have to have if you want to work in 
the Saturn plant today. You have to know these things.
    So I was wondering, listening to your suggestions, whether 
maybe a grant to encourage our big market-based higher 
education system to pay more attention to getting people 
through more rapidly where appropriate, I mean two ways to look 
at it would be one for us to get out of the way. We can do that 
with our limits on loans and changing Pells and loans so year-
round students can do that. We have some actual impediments to 
what you are talking about. We should certainly look for those. 
And rather than tell States what to do, maybe we could make 
some large grants to States who are interested in doing this. I 
have had more confidence in a State gathering of institutions, 
public, private, non-profit, and say, how are we going to 
approach this, rather than a group of people in the Department 
of Education or on the congressional staff here trying to think 
of ways to do it, because I have been both those places and I 
did not get any smarter when I flew up here at the beginning of 
the week than I was when I was back in Tennessee. [Laughter.]
    So I ask you. Let me start with Ms. Haycock. What about a 
large grant to two or three or four States to say, figure this 
out as best you can in your State and let us see what you come 
up with and see if we learn anything there that might affect 
Federal policy?
    Ms. Haycock. You could certainly do that, Senator. I would 
argue, however, that the problem is much more serious. While 
the phenomenon you talked about may well be putting some 
pressure on institutions here and there around the country to 
get better results, when you stand back and you look at higher 
ed output in the country as a whole, we are stuck. As I said 
earlier----
    Senator Alexander. Output measured by what?
    Ms. Haycock. As measured by the proportion of young people 
getting a college education. We are no longer first in the 
world. We are 7th in college going. We are not first in college 
education. We need more students with baccalaureate degrees. 
And you are putting a lot of public dollars into students who 
are going on to institutions with every expectation of getting 
a degree, and those institutions are not taking responsibility 
for helping them get through.
    You could again, not by telling States what to do in every 
detail, but by asking States to put into place a system that 
will measure student success, will set some stretch goals for 
institutions, and monitor their progress in getting there.
    Senator Alexander. That sounds like No Child Left Behind 
for colleges to me. [Laughter.]
    Ms. Haycock. That is actually not at all like No Child Left 
Behind. It is simply saying----
    Senator Alexander. All it does is ask States to adopt 
standards and measure progress toward standards.
    Ms. Haycock. Right, but there is a fixed way for measuring 
progress, as you know, which given the differences among the 
States in terms of data systems, in terms of the capacity to do 
this, does not make sense to do at the higher education level. 
That does not mean, however, that you ought not to ask them to 
do something.
    Let me just give you a couple of statistics. There are 
about 771 institutions in this country, 4-year colleges where 
at least 5 percent of the students are black. In like 271 of 
those institutions, the 6-year graduation rate for black 
students is less than 30 percent. In 160 of those institutions, 
the 6-year graduation rate for black students is less than 20 
percent. In about 70 of those institutions, the 6-year 
graduation rate for black students is less than 10 percent. We 
can do better than that.
    And if we were willing simply to say institutions, you need 
to take that seriously, you need to set some stretch goals, 
that is not suggesting that a very nonselective college needs 
to have a graduation rate like Harvard's which happens to be 
best in the world. It does suggest that 10 percent of your 
students getting through in 6 years is not as good as you could 
be doing.
    What I am simply suggesting is our stake as a country, both 
in having more college graduates, and in particular in making 
sure that higher education continues to be a route out of 
poverty, our stake in that is huge. We have said since our 
beginning that we will provide to talented young people the 
opportunity to continue their education regardless of their 
family income. That route is essentially closed now. Seven out 
of 100 low-income students now gets a college degree, compared 
to 60 out of 100 middle-income kids.
    Senator Alexander. Mr. Chairman, my time is up. I would 
just observe I agree with all the factors. My fear is that in 
devising a Federal plan to deal with that limited number of 
examples you mentioned, it would then apply to everybody and 
create one more big level of Federal regulation, one big more 
thick book that college presidents would have to do. You would 
not suggest just applying it to the schools that have black 
students because that would not seem fair.
    I think the better solution would be either to ask States 
to do it or I would create a Pell grant for kids. The reason 
these children are not succeeding in college is because they 
are not prepared when they get there, and if we gave them a 
scholarship to go to a good school when they are a kindergarten 
student or in first grade or second grade of third grade, that 
I think would be more of an appropriate Federal response.
    Ms. Haycock. I actually think we do not disagree, Senator. 
I did not suggest one Federal approach. What I did suggest is 
that you ask the States to take this on.
    The Chairman. I want to thank all of the panel for their 
outstanding testimony, their presentation, their answers to 
questions. One of the joys of this job is that we get an 
education almost every day. I think we probably get the 
equivalent of a college course every month, and it is all 
helpful. Hopefully we are able to turn that into legislation 
that makes a difference. That is what we are always counting 
on. These panels never give us the opportunity to really get 
into some details that you have suggested in your testimony 
that we need to explore a little bit further so that we can 
come up with some logical answers.
    I really appreciate all of you being willing to testify. I 
know that we made the request on a very short notice, and we 
are appreciative that you complied with that and were here. 
What you have said was stimulating and thoughtful. I am an 
accountant so I do have some more detailed questions that I 
have learned not to ask when we are at these kind of 
gatherings. [Laughter.] And particularly for Mr. Van Horn, 
because I am fascinated the how your organization has a lower 
default rate than others, and want to explore a little bit how 
you might perceive that that comes about.
    So we will be submitting questions to all of you and would 
hope that you would respond. We will leave the testimony open 
for 10 days. You can also expand on anything that you have 
said. We appreciate it.
    The hearing is adjourned.
    [Additional material follows:]

                          Additional Material

         Response to Questions of Senator Enzi by Kati Haycock

Remedial Education

    Question 1. The need for remedial education has important 
connotations for today's students. How can the HEA be shaped to reduce 
the need for remediation, and what changes should Congress make in the 
TRIO and GEAR UP programs to focus more on academic preparation?
    Answer 1. The need for remedial education can be minimized (1) by 
making sure that higher education clearly articulates the level of 
knowledge and skills students need to successfully complete college-
level work, and (2) ensuring more students are prepared to meet these 
standards.
    Students should know whether they are being prepared to succeed in 
college. With more and more students entering college, it is imperative 
that we have clear, public statements about the knowledge and skills 
college freshman need to be successful in credit-bearing courses. For 
too long, this information has been treated as proprietary information 
by institutions and systems of higher education. Students, their 
families, and their schools need to know what higher education expects 
of college freshman when they arrive on campus. Community colleges must 
be involved in this process, so their students also know where they 
stand in terms of preparation; our experience working on articulation 
projects in higher education suggests that the standards for credit-
bearing work are quite similar across 2-year and 4-year institutions.
    Some places are making sure high school students have this 
information. The California State University system, for example, 
offers its placement exams as an add-on to the assessment taken by 
every California 11th grader. With these results, students know whether 
they are ready for college-level work, and have a chance to focus on 
their weak areas before entering college. Congress could support 
alignment and articulation activities, and could expand programs that 
seek to align high school assessments with college-readiness standards. 
These activities would ensure that more students know where they stand 
in academic preparation as they aspire to enter and succeed in higher 
education, and minimize the need to remediate students once they have 
arrived in postsecondary education.
    In addition, we know that the courses students take in high school 
are the single best predictor of whether they succeed in college. 
Congress can minimize the need for remedial education by (1) supporting 
States that are willing to make an academically rigorous, college-prep 
curriculum the default curriculum for all students and (2) by boosting 
Pell grants for students who complete this college prep curriculum. 
This should not substitute for restoring Pell grants to their 
historical buying power, but should be seen as a complementary strategy 
that could entice more students from low-income families to complete 
the curriculum that is most often associated with success in college.

Transfer of Credit

    Question 2. Given that a growing percentage of students will attend 
more than one postsecondary school or college during their academic 
career, what changes can we make in the Higher Education Act so that 
students do not have to duplicate coursework unnecessarily?
    Answer 2. The most efficient way for Congress to ensure that 
students do not have to duplicate coursework unnecessarily is to 
support articulation agreements between 2-year and 4-year systems and 
institutions. For instance, it should be clear to students in community 
colleges whether the courses in which they are enrolling have been 
certified by the State's 4-year college system as courses for which 
transfer credits will be accepted. If not already required, Congress 
could ask States to ensure that a system is in place for institutions 
to work together to certify courses that will be accepted for credit at 
other institutions (and to clearly indicate which institutions), and to 
require that courses are clearly tagged with this information in course 
registration materials.

Integration of Programs with Higher Education

    Question 3. At our April 14 hearing on lifelong learning, we 
learned a lot about education silos and programs that are not as 
effective as they could be because they are not coordinated or well 
integrated. What can Congress do during reauthorization of the Higher 
Education Act to facilitate better coordination among the TRIO and GEAR 
UP programs so they provide comprehensive services to help students get 
ready for college? How can non-traditional students who have the same 
kinds of needs be identified and served?
    Answer 3. Both TRIO and GEAR UP play critical roles in exposing 
students to college aspirations and in helping students navigate the 
complicated college application process. The success of both programs 
could be extended by the kinds of activities described in response to 
Question 1.
    If higher education were more clear about the level of reading, 
writing, and mathematics that incoming freshmen need, then high 
schools, and those that administer TRIO and GEAR UP programs, would 
have clearer targets for making sure their students were on-track to 
succeed once they arrived at college.
    Too many students who aspire to college are not taking the 
challenging, rigorous courses that will prepare them to succeed--and 
this problem is most prevalent among the low-income students and 
students of color who are the primary beneficiaries of the TRIO and 
GEAR UP programs. Congress could bolster programs that increase college 
access by making sure that States provide schools, counseling programs, 
and students themselves with better information on the benefits and 
importance of taking the college-prep curriculum. Congress could also 
provide incentives for students from low-income families to complete 
the college-prep curriculum.
    In addition, Congress could encourage TRIO and GEAR UP programs to 
utilize federally collected data on institutional graduation rates. 
Using disaggregated college graduation rates, TRIO and GEAR UP programs 
could counsel students to evaluate colleges in part on the 
institution's track record of helping students stay in school and earn 
diplomas.
    Each of these proposed activities would build on the good work 
being done in TRIO and GEAR UP to ensure more students are prepared for 
and succeed in college.
                                 ______
                                 
        Response to Questions of Senator Enzi by Trinity Thorpe

Transfer of Credit

    I don't have any suggestions to offer.

Parental Involvement in the Financial Aid Process

    Question 1. What role should parents play in helping students (with 
success in education)?
    Answer 1. Parents should play the role as supporter but one of the 
largest problems with this for low-income families is that there is a 
lack of information concerning education. Most low-income parents feel 
that continuing education is going to be a burden; they do not realize 
that there are many opportunities for their children to attend an 
institution for higher education such as scholarships and financial 
aid. Once low-income parents realize there are ways for their children 
to go on to college and carry little debt while their, parents will 
probably be more supportive. Many parents discourage their children 
from even the thought of going on to college based on their financial 
situations.

    Question 2. Awareness activities for students with limited or no 
parental involvement.
    Answer 2. I believe that if programs such as the TRIO programs are 
eliminated from the budget than financial aid awareness for students 
might never take place. I feel that increasing these programs by 
bringing them into more high schools can aid more students by offering 
the activities for financial aid awareness, which are already present, 
to a larger population. Often times school counselors have too many 
students to be able to reach each one, but through the TRIO programs 
more students, who might not otherwise be made aware of their financial 
options, will be made aware through their increased involvement in 
programs that already exist.
                                 ______
                                 
        Response to Questions of Senator Enzi by Brian Bosworth
    Question 1. Transfer of Credit.
    Answer 1. Out of area of expertise.

    Question 2. TRIO and GEAR UP programs.
    Answer 2. Out of area of expertise.

    Question 3. What works for persistence and completion for non-
traditional students?
    Answer 3.
                  title x of the higher education act
a new federal-state partnership in higher education to meet the skills 
            challenge of the 21st century knowledge economy

Quick Summary

    This short policy brief outlines a new Federal strategy for helping 
working adults gain the postsecondary educational credentials they need 
for success in the 21st century economy, and which America needs to 
strengthen our global competitiveness. This brief suggests embodying 
this strategy in a new ``Title X'' of the Higher Education Act that 
would be focused explicitly on working adults and aimed at helping the 
States make those changes in their higher education governance, 
financing, and programs that would promote access and success for 
working adults.

Problem Statement

    The 2000 census revealed that of 110.5 million adults in the U.S. 
workforce, only about 40 percent had any postsecondary degree 
(associate's, bachelor's, or advanced). About 10 percent of all adult 
workers had not even finished high school, and 31 percent had not 
attempted college after high school graduation. An additional 19 
percent had ``some college, but no degree.'' Some of these may hold 
certificates from programs shorter than 2 years (or hold industry 
recognized credentials), but most probably attended college briefly 
after high school and dropped out before achieving any credential.\1\
---------------------------------------------------------------------------
    \1\ Over the past decade, more high school graduates (almost 75 
percent) are going on to college but a third fail to return after their 
first year and only one-half of the rest earn any degree.
---------------------------------------------------------------------------
    We can conclude that about 60-65 million working Americans have no 
postsecondary educational degree or credential of any kind. Without it, 
they are at risk of slipping into the bottom ranks of the economy, or 
never climbing out of them. Just a few decades ago, a high school 
degree, a strong back, and a good attitude may have been adequate to 
guarantee entry to middle class occupations. But this is no longer 
true. Over the last 20 years, men with only a high school degree have 
seen their wages fall by nearly one-fifth (from $679 per week to 
$559).\2\
---------------------------------------------------------------------------
    \2\ U.S. Department of Labor. 1999. Futurework: Trends and 
Challenges for Work in the 21st Century.
---------------------------------------------------------------------------
    Additionally, the wage premium for skills and credentials has 
grown. Average earnings for associate degree recipients are nearly 1/3 
higher than are earnings for workers with merely a high school degree. 
Earnings for those with a 4-year degree are nearly 2/3 higher than high 
school graduates with no college. Moreover, the earnings gap between 
those with college credentials and those without is growing at an 
accelerating pace. The Bureau of Labor Statistics estimates that the 
real wages of men in the bottom 10 percent of full-time workers fell by 
22 percent from the late 1970's through the mid-1990's. In the late 
1990's, these workers earned an average of $275 per week, compared to 
$1200 per week for the top 10 percent of workers.\3\
---------------------------------------------------------------------------
    \3\ Ibid.
---------------------------------------------------------------------------
    Over a lifetime, these huge gaps in annual earnings translate to 
crushing disparities in the lifetime accumulation of assets. The Census 
Bureau estimates that individuals with a bachelor's degree will earn on 
average $2.1 million over their work-life (40 years of full-time, full-
year work). This is about a third more than workers with only some 
college education and nearly twice as much as those with only a high 
school diploma.\4\ Consigned to low-wage labor markets, few of these 
non-college-educated workers will be able to buy their own homes or 
send their children to college.
---------------------------------------------------------------------------
    \4\ Cheeseman Day, Jennifer and Eric C. Newburger. 2002. ``The Big 
Payoff: Educational Attainment and Synthetic Estimates of Work-Life 
Earnings.'' U.S. Census Bureau Special Study # P23-210. U.S. Department 
of Commerce: Washington, DC.
---------------------------------------------------------------------------
    This is a serious economic problem for America. The next few 
decades will see growing skill gaps that will not be closed with the 
small increases in the numbers of high school students entering and 
graduating from college. Simply, the percent of high school graduates 
gaining postsecondary credentials is edging up very slowly--too slowly 
to meet the growing skill demands of employers and the American 
economy. Moreover, the size of the graduating high school cohorts is 
much smaller than the older baby boomer cohorts now making their way 
through the work force toward retirement.
    Even if more high school students graduate from college, they will 
add only a net gain of perhaps 3 million workers with college 
credentials to the workforce by 2020.\5\ At the same time, the skill-
based economy will continue to shift inexorably toward occupations 
requiring postsecondary skills. For example, the BLS projects a 22 
percent increase by 2008 in jobs that will require at least some 
college. As Anthony Carnevale of ETS points out, the continuation of 
that trend until 2020 will produce about 15 million new jobs requiring 
college preparation and will result in a huge deficit of workers with 
postsecondary credentials.\6\ This estimated gap of 12 million college-
educated workers will have a crippling impact on the U.S. economy. It 
can be filled only by a new commitment to helping adults already in the 
workforce get access to postsecondary education and gain the 
credentials associated with economic success.
---------------------------------------------------------------------------
    \5\ Judy, Richard and Carol D'Amico, 1997. Workforce 2020: Work and 
Workers in the 21st Century. Indianapolis IN: Hudson Institute.
    \6\ Carnevale, Anthony and Richard Fry, 2001. The Economic and 
Demographic Roots of Education and Training. Washington D.C.: National 
Association of Manufacturers.
---------------------------------------------------------------------------
    Millions of working Americans know that they need these additional 
skills and that the economy will produce good jobs for those with good 
skills. According to the National Household Education Survey, 90 
million adults were in some form of adult education in 1999, a stunning 
increase from just 58 million in 1991. Almost half of these were 
enrolled in work-related education and 18 million were seeking a 
postsecondary credential. About 3.5 million were seeking their first 
postsecondary credential.
    Unfortunately, their efforts to gain those credentials are not well 
supported by their Federal or State Governments nor by the institutions 
of higher education that ought to encourage them. Notwithstanding the 
rhetoric of ``lifelong learning,'' higher education financing, 
credentialing, and governance policies still are skewed narrowly toward 
traditional students coming directly out of high school into higher 
education. Working adults, because they have full-time job and family 
responsibilities, often lack the time, money, and flexibility of 
schedule to fit into this traditional mode of higher education.
    Recent studies by FutureWorks and MDRC discovered that working 
adults get very little financial aid from Federal or State sources. 
First, those that hold full-time jobs are typically able to attend 
school only on a less -than-half-time basis, which renders them 
ineligible for most aid. Loan programs authorized by Title IV of the 
Higher Education Act are available only for those attending accredited 
institutions at least half time. Eligibility guidelines and 
institutional practices preclude Pell grants to all but a tiny group of 
less-than-half-time working adult students.\7\ Most State financial aid 
programs follow Federal eligibility guidelines.
---------------------------------------------------------------------------
    \7\ FutureWorks discovered that of 270,000 working adults with 
children and with family income of less than 200 percent of the poverty 
level who were enrolled at title IV eligible institutions in title IV 
eligible programs, only 7.7 percent got any form of aid--Federal, 
State, private, institutional, grant or loan. Only 3.5 percent of 
these, 34.000 families, got any Pell grant aid.
---------------------------------------------------------------------------
    Education tax credits are not helping. The more generous credit--
the Hope Scholarship Credit--demands half-time or more attendance and 
goes mostly to the middle income parents of traditional students who 
are in their first 2 years of college. The Lifetime Learning Tax 
Credits available to less-than-half-time students are far less generous 
than Hope, they are poorly marketed, and they are not effectively 
targeted to modest income families. Moreover, because they are not 
refundable, they do not benefit low-income families.
    The average annual earnings for full-time, full-year workers with 
only a high school degree was only $30,400 in 2000. However, not all 
workers are in full-time, year-round employment; this is especially 
true of lesser-educated workers. The average earnings for high school 
graduates across the workforce was only $25,900. Women in the workforce 
with only a high school diploma earned an average of only $19,156, just 
over the poverty level for a family of four. Non-white workers with 
limited credentials had similarly lower earnings.\8\ Even if a family 
has a second wage earner (probably not full-time, full-year), it is 
hard pressed just to cover its basic living expenses. Educational 
expenses of $1,500 to $2,000 per year \9\ for a family struggling to 
cover these basic expenses can easily make postsecondary study seem out 
of reach.
---------------------------------------------------------------------------
    \8\ Cheeseman Day, Jennifer and Eric C. Newburger, 2002.
    \9\ FutureWorks found no reliable summary data of college costs for 
less-than-half-time working adult students and estimates that tuition 
and fees might average in the range of $750-$1000 (much higher for 
those pursuing highly targeted, certification-focused programs at 
proprietary institutions) with other expenses of a similar magnitude.
---------------------------------------------------------------------------
    But the problem is not just the absence of financing. Few 
institutions of higher education have developed programs and schedules 
that work for working adults. Programs that will lead to degrees and 
academically recognized credentials are frequently campus-bound; even 
if not, they often they have prerequisites that are tough to fit in the 
schedule of adults with full-time work and family responsibilities.
    Degree and other credential requirements often seem too daunting 
for a working adult attending part-time. Associate degrees that require 
60 to 75 credit hours can seem an almost insurmountable barrier to a 
student who can take only three of four credits at a time. Adults who 
have been out of school for several years often require developmental 
or remedial courses and few colleges have integrated such basic skill 
building curricula into their for-credit, credential or degree-oriented 
courses. Many programs continue to require seat time in lieu of 
competency demonstration as a chief criterion of credentialing. 
Extended use of evening and weekend programs often requires programming 
arrangements that can raise accreditation problems for the programs and 
institutions. Their response frequently has been to make those 
offerings ``non-credit'' and to deny these students the opportunity to 
build a pathway of credentials to advance their career.
    Few public colleges have successfully integrated preparation for 
industry-based certification into their for-credit, academically 
credentialed programs. Students who choose to pursue such credentials 
(as in information technology fields) are often required to pursue 
these programs in more flexible but also more expensive proprietary 
training schools where they sometimes sacrifice future ability to 
articulate their study into higher level programs in favor of short-
term credentials. Workers seeking continuing credentialed education as 
they navigate toward higher paid positions in their occupation often 
are frustrated to discover that credentials earned in one institution 
cannot be applied to advanced study at another school.
    There are important exceptions in the higher education system. 
Notwithstanding a decade of increases in tuition and fees that exceed 
the rate of inflation, some institutions, especially 2-year community 
colleges, are more financially accessible for limited income families. 
There are several colleges, 4-year as well as 2-year, that have worked 
hard to develop affordable programs that work well for working adults. 
They have organized credentialed programs that typically required one 
or 2 years of full time study into shorter modules, each with distinct 
credentials that can be ``stacked'' together over time into more 
conventional degrees and certificates. These schools are making more 
extensive use of ``career ladders'' in high-growth occupations that 
enable students to earn basic, industry-recognized certification 
quickly to gain entry to higher wage occupations with the option to 
continue training for more advanced credentials.
    Additionally, some program offerings include open-entry/open-exit 
classes that allow students to progress at their own pace, classes that 
meet on weekends, and course offerings that combine distance-learning 
and on-campus support. Some colleges have created short-term intensive 
programs with curricula and scheduling formats that can better 
accommodate the schedule limitations of working adults.
    Regrettably, however, these are exceptions--best practice, not 
common practice. In terms of cost and program structure, most 
institutions of higher education institutions are not easily accessible 
to working adults and they do not promote success.

Searching for Solutions

    There appears to be little enthusiasm in the Congress or the 
Administration--or for that matter among postsecondary institutions--
for changes in Pell grant or student loan eligibility that might better 
accommodate the financing needs of working adults. Concerns about the 
deficit probably will preclude any authorization changes that would 
lead to big increases in available funding. Groups representing the 
higher education institutions see Title IV of the HEA as a zero sum 
game and will oppose any efforts to ``divert'' Federal support from 
traditional to non-traditional students.
    Even more importantly, we are increasingly convinced that squeezing 
a little more money out of title IV will not help much. The problems 
that discourage access and success for working adults seeking 
postsecondary credentials go very deep into the governance and 
financing of higher education. Solutions must come through reforms in 
how the States manage their higher education responsibilities.
    For these reasons we have shifted our strategy toward the concept 
of a new title in the HEA aimed explicitly and exclusively at working 
adults. This new ``Title X'' would provide formula-driven grants (with 
incentive kickers) to States. These grants would help develop and 
implement a plan to change systems of governance, formula financing, 
student aid, curricula and program development, accreditation, 
credentialing, and faculty development in ways that would promote 
access and success for working adults seeking postsecondary 
credentials.
    The proposed Title X of the HEA would not create new Federal 
student financing programs. Nor would it seek to divert existing 
program like the Pell Grants and the direct and guaranteed student 
loans away from traditional students toward working adults. Rather, 
this new approach would be focused on helping the States--the biggest 
financial stakeholder in higher education--explore how changes in the 
way they govern and finance higher education can create better 
opportunities for access and success for working adults. Title X would 
provide modest formula-based grants and incentive funding to support 
States who choose to make these changes.

Basic Features of a New ``Title X''

    The Federal initiative embodied in title X would be time-limited 
(the 6 years of the new reauthorization). Under this program, each 
State would receive a planning grant in year one followed by annual, 
formula-based implementation grants in years 2 through 6. There would 
be monitoring, assessment, and enforcement mechanisms to keep States on 
track in their plans. Grants could include incentives for States to 
make linkages through the higher education system to other parts of the 
workforce and economic development systems, i.e., the Workforce 
Investment Boards and TANF agencies. These linkages are currently 
encouraged through the Workforce Investment Act and TANF legislation, 
but not reinforced through higher education legislation. In addition to 
the State grants, there might be some resources set aside for 
competitively awarded research grants and some demonstration grants 
directly to colleges and universities.
    We would recommend the creation of a reserve for additional 
allocations to high performance States, providing incentives for 
outstanding work as well as sanctions for poor performance. 
Alternatively, the entire process could be made competitive, with 
grants going only to those States prepared up front to make a strong 
commitment to the postsecondary education of working adults. Under any 
approach, it seems important to make the Federal grants annually 
renewable, subject to performance, rather than allocating each State 
full funding in one large grant.
    This concept is loosely modeled after the State Systemic Initiative 
(SSI) for math and science education carried out in the 1990s by the 
National Science Foundation, a program that was viewed favorably by the 
Congress, by the States, and by the State K-12 education establishments 
that were its beneficiary. First, SSI was explicitly ``systemic'' in 
its orientation. It gave the State grantees wide authority and 
discretion to deal comprehensively with all aspects of the multiple 
challenges of improving the student performance in math and science. 
Second, it was not financially open-ended. SSI had a fixed duration and 
the budget was planned in advance and known to all the key 
organizations in the process. Third, it had a mechanism to hold States 
accountable to their own performance objectives. SSI was not heavy-
handed but it did monitor performance, assess results, and enforce 
corrective action as necessary.
    Such a process lends itself well to this new initiative. Use of the 
Federal grants would vary from State to State depending on their 
particular diagnosis of problems and opportunities. Some States might 
place a special emphasis on developing new financial aid instruments 
aimed at working adults. Others might choose to focus their efforts 
around the development of new program and credentials that fit the 
scheduling barriers facing many working adults. Some States might look 
chiefly at their community colleges to implement this new act while 
others might ask their 4-year State colleges to play a major role. This 
diversity of approach would provide a rich learning environment and 
State teams working on these issues could be brought together regularly 
to exchange information and experience.
    While this new legislation should avoid prescription and support 
flexible responses by the States, it should insist, like the SSI, on a 
systemic approach. Barriers to access and success for working adults 
are not just financial or curricular or schedule; they are all of these 
and more. States should be encouraged to examine a wide range of 
problems and solutions. The first year planning grant will be an 
especially important device to encourage the States to look widely at 
how their system of postsecondary education could better meet the needs 
of working adults.
    The Department of Education would administer this program. Both the 
Office of Vocational and Adult Education and the Office of 
Postsecondary Education should be directly involved in its design and 
management. The Department may find it useful to establish an external 
authority to help monitor and assess the work of the States. An 
independent authority such as a commission may find it easier to make 
critical assessments when necessary and to enforce rigorous performance 
standards.
    Additionally, coordination with the Workforce Investment Act, 
Temporary Aid to Needy Families, and Perkins Vocational Education 
programs will be important to the success of any State efforts to 
assist working adults in their educational pursuits. Representatives 
from these programs should be part of each State's planning and 
implementation process.
    This does not have to be a costly program for the Federal 
Government. Giving the States modest discretionary funding to help 
their institutions with careful research and with the design, testing, 
and piloting of new programs will be enormously important to States 
facing serious fiscal constraints. For example, a 6-year Federal budget 
of just $750 million ($125 million per year) would provide the States 
an average of $15 million for this multi-year initiative. (Of course 
the grants would be actually allocated on a population-adjusted 
formula.)

Success

    The objective of this program is not simply getting adults to 
pursue continuing studies while they work; they are doing that in huge 
numbers, especially those that already have some postsecondary 
attainment. Rather, the challenge is to help significantly larger 
numbers of working adults with only high school degrees gain recognized 
postsecondary credentials. The objective is to get them into and 
through programs leading to a degree, certificate, or other credential 
that can help them improve their standard of living and that can 
improve the productivity rate and the U.S. economy.
    This new Federal-State program would be both good economics and 
good politics. It does not require a large or open-ended financial 
commitment from the Federal Government. It would build a partnership 
with States and their institutions of higher education, which already 
see working adults as a huge new market segment. This strategy would 
find enthusiastic support from business groups as well as labor 
organizations. Facilitating the entry of adults to postsecondary 
education would send an important message to their children about the 
value of education and lifelong learning. As our economy continues to 
shift toward education and skills as the basis of competitive success, 
we cannot afford, economically or politically, to ignore the 
postsecondary educational needs and aspirations of millions of adults 
already in the work force.
                                 ______
                                 
  Response to Questions of Senator Enzi and Senator Murray by Robert 
                                Shireman
       TICAS, The Institute for College Access and 
                                     Success, Inc.,
                                                      May 19, 2005.
Hon. Mike Enzi,
Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, D.C. 20510-6300.

    Dear Chairman Enzi: Thank you for providing me with the opportunity 
to testify at the April 28 hearing on access and accountability in 
higher education. I am honored to have been included. I hope the 
hearing provided you and the members of the committee with a helpful 
introduction to many of the critical issues that the Nation faces as we 
attempt to improve postsecondary educational attainment.
    A theme that was repeated throughout the hearing was the important 
role States play in college access, and the need for a more thoughtful 
and productive connection between Federal- and State-level 
postsecondary policies. The approach that I would recommend is Federal 
encouragement for States and institutions to pay attention to their 
enrollment of students from the lower half of the economic spectrum. 
This could be accomplished through block grants to States, which the 
States would then use to provide modest incentives for campuses to 
enroll students who do not come from high-income families.
    For example, a State could use its Federal funds to provide each 
campus, public and private, with a small amount of additional funding 
for each student who qualifies for a Federal Pell grant. The campus 
could use the funds for financial aid or for pre-college outreach to 
disadvantaged communities, or to provide assistance to families in 
completing the financial aid application. This would have several 
effects. First, selective universities that enroll few low-income 
students would have a reason to review their policies and practices to 
determine if there are ways that their numbers could be increased. 
Second, all colleges would have greater incentives to retain their 
lower-income students through to graduation. In fact, a State may 
decide to link its incentive to low- and moderate-income students who 
transfer or graduate. (As Brian Bosworth said at the hearing, colleges 
get paid for enrollment, not for the degrees they confer.) In addition, 
campuses would have a small incentive to ensure that low-income 
students are aware of the financial aid available, and that they have 
assistance in completing the paperwork.
    There are a variety of ways that such a Federal program could be 
designed, and ways that States might implement it. Given the number of 
times that the State's role was mentioned at the hearing, I would 
encourage you to explore possible approaches, or to ask the Advisory 
Committee on Student Financial Assistance, on which I serve, to seek 
input from researchers, State officials, and the higher education 
community.
    Below I respond to each of the written questions that you provided 
last week.

    Question 1. Transfer of Credit. Given that a growing percentage of 
students will attend more than one postsecondary school or college 
during their academic career, what changes can we make in the Higher 
Education Act so that students do not have to duplicate coursework 
unnecessarily?
    Answer 1. The U.S. higher education system is revered worldwide for 
its excellence and its diversity. That is, not only the diversity in 
ethnicity, gender, age and socioeconomic background of the students, 
but the enormous variety--and level of rigor--of the course offerings 
and majors. Even courses with the same names--introductory 
microeconomics, biology, or political science, for example--are often 
not alike at all. Part of the strength of our higher education system 
is the independence of each institution. This includes the prerogative 
of each college and university to determine what courses from other 
institutions will count toward a degree. In the college marketplace, 
students who don't like those decisions can go elsewhere, putting 
competitive pressure on the institutions to reconsider their denials of 
credit.
    That said, there is a problem when students take courses they 
believe will transfer, only to discover later that they do not. The 
issue seems to be poor information, or, in some cases, misleading 
claims by a school. It would be worth exploring whether there is a role 
that the Federal Government could play in improving the information 
that students have about the portability of credits from any particular 
institution. The American Association of Collegiate Registrars and 
Admissions Officers has made some recommendations in that regard.

    Question 2. Parental Involvement in the Financial Aid Process. 
Parental involvement is one of the strongest indicators of success in 
education, regardless of whether it is early, elementary, or 
postsecondary education. What role can and should parents play in 
helping students? When there is limited or no parental involvement, 
what kinds of early awareness activities can help low-income students 
understand their options to continue their education and learn about 
available support?
    Answer 2. From stimulating early brain development to planning and 
saving for college, there are many efforts around the country to 
encourage parents to get more involved in the education process and to 
help children who lack parental support. A growing number of States, 
schools, and community-based programs are trying to raise awareness 
about college: why it's important, what it takes to get there, and how 
to pay for it. They create online resources, develop and distribute 
pamphlets, workbooks, and posters, and use various marketing 
techniques. Some deliver direct services such as workshops, 
scholarships, hands-on assistance with financial aid and college 
application forms, counseling and mentoring.
    Here are just four examples of the many current programs and 
resources aimed at increasing college awareness and educational 
success:

     Indiana's Learn More Resource Center (http://
www.learnmoreindiana.org) offers checklists, tips, and planning tools 
for parents of children at different stages of development, from 
infancy through high school. Its resources for students range from a 
learning-style assessment tool to college profiles, cost comparisons, 
and financial aid information. It also provides a range of material for 
elementary, middle, and high school counselors.
     College for Texans (http://www.collegefortexans.com) is a 
wide-ranging statewide program with elements such as a theater troupe 
that performs motivational, student-developed plays at high schools; a 
storybook for elementary students with a companion teaching curriculum; 
radio and television advertisements; and online resources about how to 
choose a college and explanations of the different tests that are 
important for high school graduation and college admission.
     California Cash for College (http://
www.californiacashforcollege.org) raises awareness of available 
financial aid resources and holds workshops to help students and 
parents fill out the application forms.
     Cleveland Scholarship Programs (http://www.cspohio.org/) 
offers scholarships and other services, such as one-on-one help through 
online mentoring and placing advisors in schools and neighborhood 
sites.
    While awareness efforts may try to reach children and families as 
early as preschool or as late as senior year, the one thing successful 
programs have in common is recognizing that awareness is only the first 
step. In fact, surveys consistently find that a large majority of 
students across the income spectrum already think college is a good 
idea and say they hope to attend. Most parents would like to see their 
children go to college, including parents with no college experience 
themselves. The real challenge is to help translate these aspirations 
into actions, such as taking higher level courses and studying hard in 
school, visiting a college campus, applying for financial aid, or 
registering for the SAT.
    To try to increase college preparedness and participation, more and 
more national, State, and local college access campaigns are using 
marketing techniques aimed at students, parents, teachers, and others 
who play important roles in the education process. Some campaigns are 
built on a strong understanding of how to use marketing to change 
behavior, not just awareness, while others are still making that 
connection.
    Working with a coalition of State agencies and national non-profit 
organizations, TICAS has developed an extensive web-based resource to 
support effective marketing and outreach practices in the college 
access field. The site, to be launched later this year, provides a 
forum for college access professionals to share effective strategies, 
avoid common mistakes, and find creative ideas. It includes a step-by-
step guide, a multimedia gallery of materials, campaign profiles, and 
helpful tools and resources. The site's sponsor, the Pathways to 
College Network (www.pathwaystocollege.net), also maintains a database 
of the latest research on pre-college outreach and family involvement, 
as well as a searchable list of pre-college programs around the 
country.
    As the college access field expands and evolves, and we learn from 
the results of current efforts, policymakers and others will have many 
opportunities to advance best practices for young people who need more 
help preparing for college than their parents can provide.

    Question 3. Non-traditional Students and Financial Aid. Today's 
college students are very different from a decade ago. Working adults 
and independent students with dependents have different challenges and 
needs. How might Congress help to personalize student aid packages to 
address individual circumstances to better assist disadvantaged 
students and workers who are returning to school because they need 
additional training?
    Answer 3. In order to be more successful in postsecondary education 
and training programs, the students you describe need adequate 
financial aid, so that they can invest more time in the learning 
process. By doing so, they are more likely to emerge with knowledge, 
skills, and credentials that will help them secure a higher-paying job. 
The Advisory Committee on Student Financial Assistance recommended some 
changes to the Federal need analysis process that would help working 
adults and independent students with dependents, including:

     Allow dislocated workers to report their projected current 
year income. The prior-year income that is used by most applicants is 
not relevant when a worker has lost a job.
     To reduce the work penalty and encourage savings, increase 
the Income Protection Allowance by at least $1,000 for all students. 
This would allow students to earn more during the year without it 
affecting their aid eligibility for the following year.
     Reduce the assessment rate on student earnings for 
independent students without dependents from 50 percent to 40 percent 
(for those with dependents, the rate is already as low as 22 percent, 
depending on their income and other factors). This would protect more 
of their earnings above the Income Protection Allowance from need 
analysis.
     Automatically provide the maximum Federal aid (i.e., 
assume zero expected family income) for independent students with 
dependents whose income is below $25,000. (This auto-zero threshold is 
currently $15,000.)

    I would also suggest carefully exploring the role of loans for non-
traditional students. Borrowing money is not likely to be a welcome 
prospect for a dislocated worker or a low-income parent. The dangers, 
and the competing demands, are too great. Congress needs to address 
this problem, either by providing greater grant aid, or by reducing the 
hazards of loans by protecting vulnerable borrowers from the prospect 
of excessively burdensome payments.

    Question 4. Student Loan Programs. In your testimony you suggest 
that Congress could create some more efficiencies within the student 
financial aid system by encouraging schools to participate in what you 
call ``the most cost effective'' student loan program, and using the 
assumed savings for additional Pell grant funds for the schools that 
participate. I am concerned, and I know many of my colleagues here are 
concerned, that such an approach would create a clear inequity in the 
student financial aid process. But my larger concern is how small, 
rural States like Wyoming would be affected by such an approach. Since 
many of our financial aid offices are very small, the schools in my 
home State of Wyoming are poorly equipped to run a student loan program 
themselves, and are much better served by allowing a private lender to 
provide services to students. If your approach were adopted, it seems 
to me the result would be a discriminatory policy between schools in 
smaller, rural settings and larger schools in more urban areas. Can you 
explain to me how the approach you recommend would be fair to students 
in States like mine?
    Answer 4. I will address your question in three parts:
    A. School duties in the Federal loan programs.
    B. Inefficiency and inequity in the Federal loan programs.
    C. The options for the committee.

    A. School duties in the Federal loan programs. It does seem logical 
that there would be a lot of duties that lenders perform in the 
government-guarantee program (FFEL) that would become school 
responsibilities under direct lending. But that is not the case. Even 
in FFEL, schools already do most of the work, including:

     determining borrower eligibility;
     calculating the loan amount;
     determining the disbursement schedule;
     certifying loan eligibility;
     performing entrance counseling;
     accepting the loan proceeds from the lender;
     delivering the loan proceeds to the student;
     monitoring student enrollment; and
     providing exit counseling before students enter repayment.

    What's left to be done by the lender? One duty that schools don't 
perform in FFEL is generating the promissory note. In direct lending, 
schools may choose to take on this extra duty. But they are also 
offered an alternative originator (a private contractor hired through a 
competitive contract by the Department of Education) that can perform 
the function.
    In a report last year, the Government Accountability Office did not 
find significant added burdens on direct loan schools. Instead, GAO 
found that the direct loan program offers schools several 
administrative advantages, including: ``(1) streamlined loan delivery, 
(2) greater control over loan processes, (3) timely delivery of money 
to students, and (4) ease of tracking loans over time.'' (GAO-04-107).
    So why do some schools complain of extra work in direct lending? 
GAO did find one duty that some schools found difficult, and 
contributed to some of them moving back into FFEL. These schools had 
trouble reconciling their records of the loan funds they received with 
the amount of funds actually provided to students. In the FFEL program, 
there is no attempt to reconcile the amount of loans that lenders claim 
at a school with the amounts the school actually delivers to students. 
In other words, some schools prefer the guarantee program because there 
is less accountability for the funds.
    Schools of all types participate in the Direct Loan Program: big, 
small, urban, rural, public, non-profit, for-profit, 2-year, 4-year, 
graduate, certificate. To be sure, some of the responsibilities and 
processes in direct lending are different than in FFEL, and school 
officials do need training when they switch from one loan program to 
the other. These differences are not significant enough to justify 
billions of dollars of additional taxpayer spending. Also, the added 
accountability protects taxpayers from fraud, abuse and costly errors.
    B. Inefficiency and inequity in the Federal loan programs. Since 
the creation of the Direct Loan Program, FFEL lenders and 
intermediaries--many of them, ironically, at State government 
agencies--have attempted to create the impression that FFEL is a more 
``private sector'' program. But, as President Bush pointed out in his 
latest budget, the guaranteed student loan program specifically fails 
to make use of market competition to reduce program costs for 
taxpayers. The President's budget singles out FFEL for criticism, 
saying its problems ``lead to unnecessary costs for taxpayers and 
prevent the program from achieving the efficiencies the market is 
designed to provide.''
    The Department of Education has no mandate or authority to use 
market competition to keep costs down in the FFEL Program. Instead, the 
program operates through a long list of subsidies set at arbitrary 
levels by Congress. When circumstances change, or when providers do not 
perform as they should, the Secretary of Education can do little about 
it. Often, the committee-drafted provisions are vague and subject to 
abuse. The recent experience with loans carrying a 9.5 percent interest 
rate guarantee is a case in point. Another example is the enormous 
future taxpayer costs of the current low-rate consolidation loans. The 
same low rates could be provided at lower taxpayer cost if the lender 
subsidies were set by a market process rather at rates set in statute.
    There is no market-based explanation for any of the FFEL fee and 
subsidy entitlements, which are cemented into the law by congressional 
action, requiring the government to pay high fixed prices regardless of 
actual market costs. A sampling of the federally guaranteed payments to 
FFEL lenders and intermediaries includes:
     Thirty-six federally-backed ``guaranty agencies'' are 
entitled to a .4 percent ``loan processing and issuance fee,'' paid by 
the Federal Government.
     These agencies are also entitled to a .1 percent ``account 
maintenance fee,'' paid by the Federal Government, and they have the 
legal authority to charge students a 1 percent ``guarantee fee.''
     Thousands of banks, as well as secondary market entities 
that purchase loans from banks, are entitled to quarterly returns equal 
to the rates on commercial paper plus 2.34 percentage points during 
repayment and plus 1.74 percentage points during the in-school and 
grace period, assured by the Federal Government. And some are entitled 
to payments that are much higher than that.
     If a borrower's payments are late, the guaranty agency has 
an opportunity to encourage the borrower to make a payment. If 
successful, the agency is entitled to a 1 percent ``default aversion 
fee.''
     If the borrower defaults, the lender or secondary market 
is entitled to receive a minimum payment of 98 percent of the principal 
and interest.
     If a loan defaults, the guarantee agency is entitled to 
keep 28 percent of any amounts it is able to collect.

    In contrast to all of the above, the only obligation in the Direct 
Loan Program is to students. The program's costs are determined using 
market competition by private sector providers of capital and private 
contractors that do loan servicing and collection. The most recent 
servicing contract was very competitive, resulting in a billion-dollar 
reduction in administrative costs. Many of the companies that work at 
competitive rates for the Direct Loan Program are simultaneously 
working for FFEL lenders who are paid excessive subsidies for the very 
same kinds of work.





    You asked about inequities associated with a college's choice of 
loan programs. The answer is that while campus administrators may 
prefer one program to another, they are able to administer either loan 
program without serious difficulty. The real inequity in the Federal 
student loan system is shown in the chart above: the large costs paid 
by taxpayers over the past 10 years to support the FFEL program. If the 
goal is to have two loan programs that compete on a ``level playing 
field,'' then the programs as currently designed do not approach that 
goal. The taxpayer costs of FFEL--no matter how you add them up--are 
huge compared to the Direct Loan Program. This inequity has been 
documented repeatedly by highly respected budget analysts and 
accountants, including OMB, GAO and CBO.
    C. The options for the committee. There is an enormous need for 
increased investment in higher education and other postsecondary 
training. A good case can be made for increased public investment, 
given the economic and social returns to education. But another way to 
increase the Federal investment is to make the current funds go 
further, by making aid programs more efficient.
    The Student Aid Rewards Act is an important approach to consider. 
But as the chairman of the committee, you do not need to accept it as 
written. I would recommend you consider its salient points separately, 
rather than as a package, and develop your own approach. The key 
questions raised by the proposal are:

     Should the Federal student loan system be as efficient as 
possible, without imposing unreasonable administrative or risk burdens 
on institutions of higher education?
     How should efficiency be measured?
     How can efficiencies be achieved?
    And most importantly:
     How should the resources freed up through improved 
efficiency be used?

    Efficiency generates new investments that can help students, and 
expansion of the Direct Loan Program is one way to achieve 
efficiencies. The program was proudly developed by a number of 
officials in the first Bush Administration. A group of them, including 
a chairman of the Republican National Committee, wrote:
        Over the years, the guaranteed student loan program has 
        developed a degree of regulatory and administrative complexity 
        that now undermines its fundamental integrity and 
        effectiveness. Replacing the GSL structure with a streamlined 
        structure will mean not only enhanced accountability and budget 
        savings, but also a more rational delivery system that will 
        particularly benefit students and educational institutions. In 
        particular, we believe direct loans will also ensure greater 
        responsibility and accountability by participating educational 
        institutions.
        A direct loan program will mean replacing the role currently 
        played by many banks, guarantee agencies, and secondary markets 
        with a more competitive approach. The intent is not to harm 
        these participants in the existing program but rather to 
        recognize that more competitive, efficient, and practical ways 
        exist to provide student loans. We hope that as the Congress 
        considers direct loans it will look beyond the misleading 
        information that is being spread by representatives of those 
        entities who have a direct financial stake in preserving the 
        status quo.
    By making better use of competition and markets, the Direct Loan 
Program has produced the efficiencies its designers hoped it would 
achieve. But neither it nor the details of the FFEL Program are 
immutable. There are certainly other designs, should you choose to 
explore them, that could serve students equally well while reducing 
costs and risks to taxpayers. The resulting savings could still be 
invested in reforms to assist dislocated workers, improve enrollment 
and graduation of low- and moderate-income students, or provide early 
information about college to children in high-poverty schools.
    Many people will oppose improvements in efficiency. Listen to them, 
but then seek independent advice from experts and accountants who do 
not have a conflict of interest. Then make up your own mind.

    Question 5. 9.5 percent loans--Response to Senator Murray. In your 
response to Senator Murray's question, you mentioned the increase over 
the last 2 years in the volume of 9.5 floor loans. It appears that this 
was overwhelmingly the result of the transferring and refunding 
opportunities that were closed off under the Taxpayer-Teacher 
Protection Act. My understanding is that the volume of 9.5 floor loans 
has gone down since passage of that Act--the intended result of the 
statute. You also said that the 9.5 percent subsidy payments may 
actually be increasing because recycling allows lenders to ``take 
proceeds from one pot and move them to another.'' Could you explain in 
detail the process by which you believe lenders can increase floor loan 
billings via recycling alone? Also, could you explain why this process, 
if it is indeed occurring, has not resulted in growth in the volume of 
loans being billed at the 9.5 floor rate?
    Answer 5. Under the recycling provision, loan companies can create 
new loans carrying the 9.5 percent guarantee by using proceeds from 
prior 9.5 percent loans as capital. Specifically, the law that Congress 
passed last fall gives the favorable interest rate treatment to new 
loans made from ``collections or default reimbursements on, or interest 
or other income pertaining to'' prior loans carrying the 9.5 percent 
guarantee. This allows a lender to maintain or even increase the total 
volume of 9.5 percent loans, even as borrowers repay the old loans.
    The most recent data on lender billings (``Closed Loophole Hasn't 
Cut Subsidies for Student Loans: Payments to Lenders Are as High as 
Ever,'' New York Times, April 10, 2005) raised the further question of 
how billings could increase if volume was unchanged or reduced. The 
example that I described at the hearing works like this:
    Assume a simplified portfolio in which a loan company has two pots 
of loans, one guaranteeing the 9.5 percent return, and the other 
carrying the interest rate guarantee that applies to other Federal 
loans. In period 1, the two portfolios contain the same mix of loans, 
simplified here as just two fixed-rate consolidation loans each:




    In this scenario, under today's interest rates, the loan company 
would receive little or no special allowance payments from the 
Department of Education for Loans A and B in the regular pot. In the 
9.5 percent pot, the Department of Education would be required to pay 
the loan company the difference between the 9.5 percent rate and the 
borrower rate, a subsidy that would equal $250 for Loan C and $650 for 
Loan D, for a total government payment of $900. On the $40,000 in 
loans, the loan company would take in a total of $2,000 in interest 
paid by the borrowers and the additional $900 from taxpayers, for an 
average return of 7.25 percent.
    But it makes sense for loan companies to do everything they can to 
maximize their returns. How might they improve upon the 7.25 percent 
return? The recycling language allows the company to use any ``income 
pertaining to'' a 9.5 percent loan to make a new loan. This means that 
a company could ``sell'' Loan C to the Regular Pot, and use the 
proceeds to ``buy'' Loan B into the 9.5 Percent Pot. In other words, 
Loans B and C switch places. The result would be as follows:




    With the same number of loans and same amount of loan volume in 
each pot, and with the borrowers paying the same rates as in year 1, 
the loan company is able to increase the special allowance payments, 
which the Department of Education is contractually obligated to pay 
under Federal law, by more than 40 percent through recycling. With the 
volume of loans unchanged, the borrowers still pay $2,000. But the 
total taxpayer subsidy increases to $1,300. The company's average 
return jumps to 8.25 percent, a nearly 14 percent increase.
    The use of statutory entitlements, rather than market competition, 
to determine loan subsidies is an invitation to abuse and the reason 
for the ballooning payments to student loan companies over the last 2 
years. Instead of analyzing and fixing each problem as it surfaces, 
Congress would be wise to authorize market-based approaches that keep 
program costs down.
    I have heard that part of the reason for maintaining the 9.5 
percent payments and other excess subsidies is that some non-profit 
organizations use their proceeds for good works. One could achieve the 
same end far more efficiently by ending the subsidies and using the 
savings to provide such groups with as much or more direct aid.
    Ending recycling is not the only way to reduce the costs of the 
abuse of the 9.5 percent provision. In addition to stopping recycling, 
Congress could further reduce Federal payments by authorizing a program 
to offer repayment incentives or re-consolidation opportunities to 
borrowers with 9.5 percent loans. By paying off their loans quicker, or 
shifting to capital providers whose returns are set competitively, 
voluntary borrower actions would significantly reduce taxpayer costs. 
Congress could apply those savings to increased student aid.
    Again, I really appreciate the honor of testifying before the 
committee. Please do not hesitate to contact me if you have any further 
questions, or if any of my answers require clarification.
            Sincerely,
                                           Robert Shireman,
                                             Director, TICAS, Inc.,
                                                  Visiting Scholar,
              U.C. Berkeley Center for Studies in Higher Education.
                                 ______
                                 
   Response to Questions of Senator Mike Enzi by Phillip F. Van Horn
    Question 1. Rural Access to Postsecondary Education. We know rural 
students face many challenges getting to school, and especially 
postsecondary school. Are there any best practices from Wyoming or 
other States you can suggest Congress look to as we amend the Higher 
Education Act to address the needs of rural students, and what impact 
has the 50 percent rule had on access to higher education in rural 
areas?
    Answer 1. While Wyoming Schools have done an admirable job in 
balancing workforce training demands placed on them by employers and 
all stakeholders in their communities, the 50 percent rule means 
schools are forced to limit the number of students and the number and 
kinds of courses that can be offered through distance-learning methods. 
The decades-old regulation has a greater negative impact on rural 
students and particularly older working adult students who desire to 
upgrade their workforce skills, but who can't find the time within 
their family and work obligations to travel to a classroom.

    Question 2. Transfer of Credit. Given that a growing percentage of 
students will attend more than one postsecondary school or college 
during their academic career, what changes can we make in the Higher 
Education Act so that students do not have to duplicate coursework 
unnecessarily?
    Answer 2. Respectfully, the matter of unnecessary duplication of 
coursework is almost non-existent in Wyoming. There may be anecdotal 
exceptions, but the community colleges and the University of Wyoming, 
have collaborated to make transfer of credit a relatively seamless 
process for students. Our recommendation is that institutions across 
the country look at the Wyoming model.

    Question 3. Parental Involvement in the Financial Aid Process. 
Parental involvement is one of the strongest indicators of success in 
education, regardless of whether it is early, elementary, or 
postsecondary education. What role can and should parents play in 
helping students? When there is limited or no parental involvement, 
what kinds of early awareness activities can help low-income students 
understand their options to continue their education learn about 
available support?
    Answer 3. Countless research studies and initiatives over the years 
all agree on at least one common variable: Parental encouragement and 
intervention is the key to a young person's ambition to pursue higher 
education. Parents should talk about college as a reality as soon as a 
child can read.
    Absent parental involvement, encouragement and intervention by a 
significant mentor is critical. Federal programs such as the TRIO and 
GEAR UP are notable programs, but are inherently limited by the Federal 
budgetary and reauthorization processes. Private initiatives provided 
by the student loan industry are significantly contributing to early 
awareness efforts. As I stated in my oral testimony 3 weeks ago, our 
job goes beyond working with students who are already college bound. 
WSLC early-awareness programs include taking 6th graders to college 
campuses under our College For a Day program and sponsoring the Women 
In Science program that encourages elementary and secondary female and 
male students to explore education and a career in the sciences. We are 
working with the Hispanic Organization for Progress and Education 
(HOPE) and Latina and Latino leaders in communities to instill the 
confidence among young Hispanic students that post secondary education 
is accessible, affordable and imperative. Successful early awareness 
efforts will include private sector involvement, similar to what WSLC 
and other members in the FFELP community are doing.

    Question 4. Non-traditional Students and Financial Aid. Today's 
college students are very different from a decade ago. Working adults 
and independent students with dependents have different challenges and 
needs. How might Congress help to personalize student aid packages to 
address individual circumstances to better assist disadvantaged 
students and workers who are returning to school because they need 
additional training?
    Answer 4. Frankly and respectfully, personalization of student aid 
packages is best founded with school financial aid professionals. These 
men and women have one overriding commitment: To serve all students in 
need and to the extent practical they will individualize each student's 
aid package. Congressional assistance should come in the form of 
simplifying the Federal student aid process and the underlying student 
aid formula as recommended by the Advisory Committee on Student 
Financial Assistance in January 2005 and allowing financial aid 
professionals on campuses the greatest flexibility possible to address 
individual needs.

    Question 5. Student Loans. When Congress made the decision to 
establish a 9.5 percent return on certain tax-exempt bonds, would you 
say that the intent of Congress was to increase or decrease the 
subsidies to holders of these bonds and was the initial effect of this 
differential treatment an increase or a decrease in the subsidy to 
these bond-holders?
    Answer 5. For clarification purposes: subsidies do not go to the 
bondholders. Bondholders are the creditors, providing the capital used 
by the issuers who make and acquire student loans. We assume your 
question is meant to be directed to the loan holder.
    As for the Congressional intent for creating the 9.5 percent floor 
return, it was neither to increase nor to decrease the return to the 
lender or loan holder. Rather, it was to provide stability for tax-
exempt issuers and holders of student loans so that there would 
continue to be a reliable source of funding for educational loans and 
was applicable only to bonds originally issued prior to October 1993. 
Bond interest rates were significantly higher at that time.
    Less than one-quarter of Wyoming Student Loan Corporation's 
portfolio is eligible for the 9.5 percent floor. These earnings allow 
the corporation to invest in early awareness programs. The corporation 
will experience a 28 percent reduction in its 9.5 percent floor-
eligible portfolio by December 31, 2006. Another 31 percent of the 
remaining portfolio will begin amortizing in May of 2007. Other 
outstanding bond issues, refinanced under the intent and letter of the 
law, will amortize over the next 25 years. We have not increased our 
9.5 percent holdings; contrary to those who would have us believe all 
student loan lenders are taking advantage of the program.

    Question 6. Also, what would be the impact on the ability of loan 
providers, and financial markets in general, to originate additional 
student loans if the Federal Government took a position that the terms 
and conditions of bond issues or other asset-backed securities could be 
changed after the original issue? Would the savings to the Federal 
Government be worth the market instability that such a change could 
trigger?
    Answer 6. The potential adverse effects of the scenario described 
in #2 above are so numerous; I cannot contemplate them all. At a 
minimum, the following would occur:
    For Wyoming Student Loan Corporation: The underlying economics of 
ALL outstanding debt financings, not just the 9.5 percent portfolios, 
as well as future financings, would no longer be valid, triggering a 
likely downgrade of our bonds, with a corresponding increase in the 
rates we would have to pay. The end result would be the corporation's 
inability to meet its contractual commitments to bondholders and our 
ability to meet the need of Wyoming's students. This scenario would be 
played out across the country.
    One of the great strengths of the FFELP for the past 40 years has 
been the elasticity of the private financial markets to expand or 
contract with the demand for student loans. Any retroactive change 
would have a broad impact because it would raise the possibility of 
future retroactive changes and would disrupt markets so significantly 
that many FFELP providers could no longer operate.
    Mr. Chairman, Wyoming Student Loan Corporation and the other non-
profit student loan providers across the country are in a unique 
business: We are constrained by laws that permit us to offer one 
product at a price mandated by Congress and we are regulated by our 
competitor (the Department of Education and the direct loan program) to 
whom we pay fees.
    The only efficiencies the corporation can achieve come through 
controlling our liabilities and overhead, including executive 
compensation, in order to continue to provide low-cost loans so that 
more students have access to higher education.
    Beyond just the student loan financing markets, the imposition of a 
retroactive change would have a much greater impact than simply the 
cost of the change. The message to all financial markets would be 
clear: the reality that the Federal Government would change laws 
retroactively would destroy the full faith and credit principle. Any 
debt financing, including municipal bond issues for streets, water, 
sewer and other needs would come to a halt, or, at the very least, 
would carry a risk premium, forcing municipalities to pay higher rates 
to attract bondholders, resulting in higher local taxes.
    Mr. Chairman, I can see no scenario in which purported ``savings'' 
to the Federal Government would be worth the risk of eliminating 
private capital from the student loan program and destabilizing the 
financial market for municipal securities.
    Thank you for the Opportunity to respond to these questions. On 
behalf of Western States Learning Corporation and Wyoming Student Loan 
Corporation, we look forward to providing any additional information we 
can to assist you and the committee.

    [Whereupon, at 11:34 a.m., the committee was adjourned.]

                                    

      
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