[Senate Hearing 113-545]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-545

                   LESS STUDENT DEBT FROM THE START: 
                 WHAT ROLE SHOULD THE TAX SYSTEM PLAY?

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 24, 2014

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance


                                  ______
                                  
                       U.S. GOVERNMENT PUBLISHING OFFICE 

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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                               WITNESSES

Lee, Amber, graduate, Willamette High School, Eugene, OR.........     6
Mazur, Hon. Mark J., Assistant Secretary for Tax Policy, 
  Department of the Treasury, Washington, DC.....................     9
Fonash, Jayne Caflin, director of school counseling, Loudoun 
  Academy of Science, Sterling, VA...............................    11
Zerbe, Dean, national managing director, alliantgroup, 
  Washington, DC.................................................    13
Hodge, Scott A., president, Tax Foundation, Washington, DC.......    15

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Cornyn, Hon. John:
    Prepared statement...........................................    35
Fonash, Jayne Caflin:
    Testimony....................................................    11
    Prepared statement...........................................    37
    Responses to questions from committee members................    42
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    46
Hodge, Scott A.:
    Testimony....................................................    15
    Prepared statement...........................................    49
    Responses to questions from committee members................    61
Lee, Amber:
    Testimony....................................................     6
    Prepared statement...........................................    65
    Responses to questions from committee members................    68
Mazur, Hon. Mark J.:
    Testimony....................................................     9
    Prepared statement...........................................    70
    Responses to questions from committee members................    83
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    93
Zerbe, Dean:
    Testimony....................................................    13
    Prepared statement...........................................    96
    Responses to questions from committee members................   105

                             Communications

American Council on Education (ACE)..............................   111
College Savings Foundation (CSF).................................   121
Council of Graduate Schools......................................   127
Education Finance Council (EFC)..................................   130

                                 (iii)

 
LESS STUDENT DEBT FROM THE START: WHAT ROLE SHOULD THE TAX SYSTEM PLAY?

                              ----------                              


                         TUESDAY, JUNE 24, 2014

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:07 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Schumer, Stabenow, Carper, Brown, Bennet, 
Casey, Hatch, Grassley, Thune, and Isakson.
    Also present: Democratic Staff: Tiffany Smith, Senior Tax 
Counsel; Adam Carasso, Senior Tax and Economic Advisor; Todd 
Metcalf, Chief Tax Counsel; and Laura Berntsen, Senior Human 
Services Advisor. Republican Staff: Chris Hanna, Senior Tax 
Policy Advisor; Shawn Novak, Senior Accountant and Tax Advisor; 
Jim Lyons, Tax Counsel; and Chris Campbell, Staff Director.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Today the Finance Committee turns its attention to the U.S. 
tax code, an anticompetitive, mindlessly complicated tar pit 
that makes it harder to create good jobs, succeed in global 
markets, and nurture innovation.
    My view is, it is long past time to drain this swamp. 
Because the tax code is like an ecosystem, changes in one area 
almost always have big effects on others. That is why tax 
reform has to be comprehensive. It has to include both 
individual and business policy.
    As the Finance Committee continues to drill down with 
hearings on tax reform, the committee today focuses on one 
particularly byzantine part of the tax code that is ripe for 
improvement. That is, how the tax code incentivizes higher 
education.
    Now, everyone understands that getting a college education 
is one of the surest ways to climb the economic ladder. But the 
skyrocketing cost of college leads to smothering loads of 
student loan debt and, in fact, as we will learn, even has the 
effect of reinforcing inequality in America.
    In its debate over education costs, the Congress has put a 
good deal of focus on how to make students' enormous debts more 
manageable. Today the Finance Committee is going to come at 
this from a different angle, one that is central to any effort 
to help struggling families and reinvigorate the middle class.
    I want to focus today on policies that will mean students 
have less debt from the start. The crazy quilt of tax benefits 
and aid programs on the books today does not get that job done. 
As a result, there are millions of Americans who want to get a 
college degree, but cannot.
    It now takes at least 36 calculations for a family to 
navigate the overwhelming web of tax incentives for higher 
education in the tax code today. Each of those tax incentives 
has its own definition of qualified expenses, student 
eligibility, and income thresholds. Students and parents should 
not be expected to wade through a mess like this in America.
    The Finance Committee can make the menu simple, get it down 
to three credits or deductions that are user-friendly, and get 
our students the help they need. The improved system ought to 
be based on a handful of key goals: saving, covering costs, and 
easing the burden of loans.
    For one, education tax incentives cannot be allowed to 
drive inequality the way they do in today's flawed tax code. In 
2011, families with incomes under $25,000 got an average of 
$930 in education tax credits, but families with much higher 
incomes can get a benefit nearly 3 times that size. For 
education to be the great equalizer in our society, access to 
higher education cannot be unequal.
    A recent paper from the nonprofit Corporation for 
Enterprise Development showed that the government's tax 
spending on higher education is greater than the entire 
discretionary budget of nine separate Federal agencies. Let us 
retool, colleagues, that big investment, get more value out of 
those dollars, and encourage more saving early in a child's 
life.
    Now, with so many families struggling to cover basics like 
rent and groceries, just repeating ``save, save, save'' may not 
be constructive. Families that start saving within a few months 
of a child's birth could be made eligible for an ``Early 
Savers'' break that would compliment a parent's contribution, 
so as to promote lifelong saving.
    Working parents of modest means who manage to save could 
have their savings matched through the Earned Income Tax 
Credit. And there are also ways to wring more value out of the 
tuition savings vehicle that we know as ``529 plans.'' And 
auto-enrolling employees into saving plans for a youngster's 
college is another idea that should be examined.
    The fact is, there are a variety of ideas on offer to 
promote lifelong savings. Our colleague, Senator Schumer, has 
done terrific work putting a number of proposals together. 
Senator Grassley has had an interest in this, as well as 
Senator Santorum, Senator Gregg, Senator Dodd, and, of course, 
President Clinton.
    So, colleagues, we have on record a variety of approaches 
that are bipartisan, to deal with promoting childhood savings. 
In fact, I think it is fair to say that you do not often see an 
idea that has this kind of support across the political 
spectrum. So we ought to come together and get it done.
    I also want to make mention of the fact that we ought to 
clean out the barriers that punish many families when they 
save. For example, if you are of modest income, one of the 
things you are going to do is bump up against these ``asset 
limits,'' and a struggling family risks losing, for example, 
anti-hunger assistance when they manage to put aside a little 
bit of money for their kids' education. Families in America 
should not face going hungry or foregoing necessary medical 
care in order to help build that ethic of lifetime saving.
    Finally, it is important to do a better job of getting the 
word out about the education tax incentives. There is not a 
simple college savings guide for new parents. The Higher 
Education Act says schools have to provide current and 
prospective students with a host of information on student aid 
programs, but nowhere does it talk about private saving or tax 
credits. Schools do not have to relay this information to 
students. So it is no wonder that a lot of students--and we are 
thrilled to have Amber Lee here from Oregon, who is going to 
tell us a very compelling story--are not aware of what all of 
the opportunities are for a stellar student like herself.
    Colleagues, the incentives are out of whack, and, on a 
bipartisan basis, we can change that.
    Finally, let me make mention of the fact that Senator 
Warner of this committee, Senator Rubio, and I have introduced 
the Student Right to Know Before You Go Act, which would also 
complement reforms in the area of tax incentives, so that 
students would have a chance--again, students and parents--to 
be informed investors about what kinds of opportunities are 
ahead of them.
    We understand that some student loan debt may be 
unavoidable. But leaving students with significantly less debt 
is something this committee can accomplish. Simplifying the tax 
code and making education incentives more user-friendly is not 
just possible, it is essential.
    So the steps that I have outlined this morning, in my view, 
are common-sense ones. They are ones that I believe the 
committee can pursue on a bipartisan basis to help students 
avoid taking on paralyzing amounts of debt.
    Today's hearing is just one of our committee's challenges 
in the bipartisan effort to fix America's flawed tax code. But 
this is an especially important one, and I am determined to 
work with colleagues on both sides of the aisle on a bipartisan 
basis to get this right.*
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    * For more information, see also, ``Background and Present Law 
Related to Tax Benefits for Education,''Joint Committee on Taxation 
staff report, June 20, 2014 (JCX-70-14),https://www.jct.gov/
publications.html?func=startdown&id=4621.
----------------------------------------------------------------------
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Hatch?

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Thank you, Mr. Chairman. I appreciate 
today's hearing. I appreciate the witnesses who are here. We 
are happy to welcome you back, Dean Zerbe. You have played a 
very important role on this committee for so many years. I am 
happy to see you doing well in the private sector.
    Today's hearing has a narrow, but very important focus: the 
role of education incentives in our tax code. Traditionally, 
the Federal Government has supported millions of individuals 
seeking higher education through grants and loans. Over the 
last 20 years, however, Federal support for higher education 
has increasingly relied on incentives in the tax code.
    These education tax incentives can generally be classified 
into one of three categories. The first category includes tax 
incentives for current expenditures on higher education. These 
incentives include the Hope, American Opportunity, and Lifetime 
Learning credits. The second category includes tax incentives 
for student loans, including the deduction for interest paid on 
student loans. The third category includes tax incentives for 
savings for college, which includes qualified tuition plans, 
usually referred to as 529 plans, as the distinguished chairman 
has said.
    Generally, two reasons have been given for the various 
education tax incentives. First, college education costs are 
increasing and are a barrier to entry for those who cannot 
afford them. Second, college education is a good investment 
that produces external benefits.
    According to the National Center for Educational 
Statistics, the costs of college education for the 2011-2012 
academic year were estimated to be $14,300 at public 
institutions and $37,800 at private nonprofit institutions. 
Between 2001 and 2011, the costs for undergraduate tuition, 
along with room and board, at public institutions rose 40 
percent, and the costs of private institutions rose 28 percent. 
That is after adjusting for inflation.
    The high cost of a college education does indeed create a 
barrier to entry. However, some portion of the barrier is 
alleviated by the U.S. Department of Education's direct loan 
program, which includes Stafford loans, Federal Perkins loans, 
Federal Work Study, Federal Supplemental Educational 
Opportunity grants, and things like Pell grants, for lower-
income students.
    In fact, in 2013, the Department of Education disbursed 
$32.3 billion in Pell grants to more than 9 million students. 
However, at the same time, approximately 71 percent of college 
seniors have student loan debt, with an average of $29,400 per 
borrower. From 2008 to 2012, debt at graduation increased an 
average of 6 percent per year.
    As I mentioned, in addition to the cost barrier, there are 
external benefits related to higher education, many of which 
benefit not only the individual student in the form of higher 
wages and mobility, but also society as a whole. Since these 
external benefits may not be considered by individual students 
when considering higher education, individuals may invest less 
in higher education than is optimal for our society. Providing 
educational tax incentives may induce potential students to 
enroll in higher education, increasing investment in education, 
and thereby creating these important external benefits.
    Now, frank conversation about these incentives must also 
include whether Congress is encouraging a higher-education 
bubble. There are many questions that need to be answered in 
this conversation. For example, are these incentives 
encouraging students to take on more debt and degrees than is 
warranted by the economic and professional gains they are 
likely to realize? Are there increasing cases in which the 
private and social benefits are outweighed by the costs? Also, 
we need to determine once and for all whether Federal 
subsidization of higher education is good policy and whether a 
tax subsidy would be provided more efficiently by direct 
spending.
    In 1987, then Secretary of Education William Bennett stated 
that, in the long run, Federal financial aid programs lead to 
higher tuition as colleges capture some of the Federal aid to 
students. I do not think anybody can deny that he was right.
    Some studies have shown some evidence favorable to 
Secretary Bennett's hypothesis. I would be interested to hear 
from witnesses if they believe the Bennett hypothesis applies 
to Federal student aid that comes in the form of education 
incentives in the tax code itself. In other words, I would like 
to know whether colleges and universities capture the financial 
benefits of education tax incentives at the expense of eligible 
students and families.
    Finally, I believe we need to consider simplicity, 
something that is far too often missing in our tax discussions. 
One noted tax scholar has written, ``The education tax 
incentives represent the greatest increase in Federal funding 
for higher education since the GI bill, but no one can tell you 
what they are, how they work, or how they interact. Planning to 
pay for college around these tax breaks is essentially 
impossible for middle-income families.''
    I think there is a lot of agreement that the education tax 
incentives are very complex and, at a minimum, should be 
consolidated and reformed.
    We have a very distinguished panel with us today, and I 
look forward to hearing what they have to say.
    I want to thank you, Mr. Chairman, for setting this up.
    The Chairman. Senator Hatch, thank you. As you could tell, 
I feel very strongly about making this inquiry in tax reform 
bipartisan. I look forward to working with you and all our 
colleagues.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. We have a terrific panel. I want to tell 
colleagues we have votes that will start at 11 o'clock. So to 
our guests, it is going to be a little hectic. You will see 
Senators look a little bit like trolley cars just going back 
and forth and back and forth. But we very much appreciate your 
being here.
    I would like to give a brief introduction for each of our 
witnesses--and, of course, we are just thrilled to have an 
Oregonian here, Amber Lee, who is really the face, colleagues, 
of this challenge. She is a stellar student. She wants to be a 
physician. She has off-the-chart grades and scores, and she is 
looking at getting a degree and, in effect, being up to her 
eyeballs in debt.
    She is the daughter of a single parent. She is working at 
Dairy Queen, I guess, 36 hours a week. Basically, all the money 
is going to go to just trying to figure out how to get an 
education, and it seems to me her story is really 
representative of what we are trying to do--to set in place 
policies so that someone like Amber Lee and her mom, who have 
always lived paycheck to paycheck, will have a very different 
set of options in the future. So we are very glad you are here, 
Amber.
    Jayne Fonash is a guidance counselor in Loudoun County, VA, 
and she is responsible for trying to help these students and 
the parents get through the briar patch and try to figure out 
how to make sense of all of this. Ms. Fonash, we are glad that 
you are here.
    Of course, Dean Zerbe is a welcome face here, an alum of 
the Finance Committee whom we have worked closely with before, 
and we welcome him. He has assisted us on a variety of matters 
already, research and development credits and others, and we 
appreciate that.
    Mark Mazur, Assistant Secretary for Tax Policy at the 
Department of the Treasury, is also with us, and we appreciate 
his leadership.
    Of course, Scott Hodge has been very helpful to this 
committee and to me personally in terms of putting together the 
bipartisan bills over the years with Senator Gregg and Senator 
Coats. So we welcome Mr. Hodge as well.
    So with that, Ms. Lee, welcome. You will be the kickoff. 
How appropriate it is to have an Oregonian be the launch of 
what I hope will be a very different approach to this, which is 
to make sure that, in the future, fewer students are having to 
unpack thousands and thousands of dollars worth of debt because 
we figured out a way to get them out of the gate with more 
savings at the start.
    So, if you would, we will make your full statement a part 
of what we call the full record here. And if you want to just 
talk to us for a while, you can, and we will each have 5 
minutes or so. We just so appreciate your being here, and I 
very much admire what you are trying to do, given the 
challenges you and your mom face.

               STATEMENT OF AMBER LEE, GRADUATE, 
               WILLAMETTE HIGH SCHOOL, EUGENE, OR

    Ms. Lee. Chairman Wyden, Ranking Member Hatch, and members 
of the committee, thank you so much for allowing me the 
opportunity to testify today.
    I grew up in a very violent, unstable home. My father 
abused crystal meth on a regular basis, which often resulted in 
wild outbursts of rage towards my mother or me. During a 
crucial time of life when children should be learning and 
developing, I was fending for the well-being of my mother and 
myself. In my first 9 years of life, my family and I were 
evicted from 12 different homes due to my father's drug 
addiction, as well as his love for gambling.
    There were many times we were evicted and had no place to 
stay, and the only solution was to take refuge in our car and 
pray it would offer us enough shelter until we could get back 
on our feet. I was a miserable child who had to grow up 
prematurely due to my circumstances.
    Though my home life was complex, school always kept me 
going. It was a way to escape from the stress I experienced at 
home. At the age of 7, I decided I wanted to become a doctor 
due to the fact that I was and still am fascinated with the 
healing power of medicine.
    I can clearly recall the instant I realized that I could be 
free from the vicious cycle of poverty and violence through 
education. I found it daunting that through my hard work I 
could potentially liberate myself by accomplishing what my 
parents could not.
    I do not regret anything from my upbringing, because it has 
molded me into the strong, motivated woman I am today. My past 
has kept me focused on my educational and career goals by 
providing me with the drive to become the best form of myself.
    As I got older and advanced to middle school and high 
school, I was extremely diligent with my school work and 
extracurricular activities, for I knew that consistent academic 
success was the key to future opportunities. During my junior 
and senior years at Willamette High School, I carefully 
considered various universities to attend in the fall of 2014, 
including Oregon State University, Portland State University, 
the University of Oregon, and Oregon Institute of Technology.
    Originating from a low-income household of a single mother, 
I knew that paying for college on my own would be nearly 
impossible. However, I was extremely optimistic of the 
opportunities available through grants and scholarships that 
could potentially aid me in pursuing a higher education.
    Due to the overwhelming cost of tuition, books, fees, and 
room and board associated with 4-year universities, I 
considered attending community college in order to complete my 
prerequisites before transferring to a university. After some 
career counseling, research, and serious thought, I was 
discouraged from attending community college, mostly because of 
the negative stigma it has with medical school admission 
committees.
    The prerequisite courses students must complete act as a 
critical foundation that students must build upon during their 
preclinical years in medical schools, and I was afraid that the 
decisions I made could potentially delay or negatively impact 
my future goals.
    I also strongly considered attending the University of 
Oregon, because it would give me the choice to reside at my 
mother's house, saving me the cost of room and board. However, 
the University of Oregon is considered a strong liberal arts 
college, and I found it important to attend a university with a 
strong math and science program in order to prepare me for the 
challenges of medical school.
    After many months of consideration, I decided to attend 
Portland State University, and I was extremely attracted to the 
job as well as the internship opportunities available through 
the institution. I was also pleased to learn that Portland 
State has the lowest public college estimated cost of 
attendance in the State of Oregon.
    I have always considered myself familiar with the 
overwhelming cost of college, but, unfortunately, it was not 
until I received my financial aid offering in March of 2014 
that I realized exactly how hard it would be to afford a higher 
education.
    I received both the Oregon opportunity grant, as well as 
the Pell grant, which are providing me with $7,730 worth of aid 
for the fall of 2014, and act as a blessing. However, combined 
with scholarships and the government loans I have already 
accepted, I still need to pay Portland State University $9,822 
per year.
    It was extremely discouraging to learn that my academic 
rigor was not enough to help me get to school, but I decided 
that I could support my dream by becoming the first in my 
family to continue my education. I work 35 hours a week at a 
local Dairy Queen in Eugene in order to save funds for college. 
But a frugal summer spent serving ice cream can hardly put a 
dent in what I owe to PSU. In order to attend college, I am 
relying greatly on many private student loans, as well as the 
Federal subsidized and unsubsidized loans I have already 
accepted.
    Unfortunately, I am not receiving any sort of family 
contribution towards my college education. For many years, my 
mother and I have struggled without any kind of support from my 
absent father and have not had the means to save for the 
future. Due to my circumstances, my family has absolutely 
nothing put aside for me to pursue a higher education. 
Therefore, it is my responsibility to settle financial matters 
on my own.
    Because of my choice to enroll in rigorous classes and to 
be active in extracurricular activities, I have not had the 
time to be employed for very long in order to save substantial 
funds for myself. It is absolutely appalling to me that 
students experience so many disheartening financial setbacks 
just for trying to further their post-high school education.
    We are immersed in a culture that supports freedom to 
challenge ourselves, to search for new knowledge, and to gain 
meaningful careers, but we are constantly refused the 
opportunity to do so through the lack of options we have when 
it comes to paying for education. The idea of a college 
education has become possible only for the privileged, and that 
needs to change now.
    Senators, I humbly ask that you consider the power you hold 
over decisions that could potentially aid aspiring students in 
pursuing their dreams and life opportunities. It is truly 
troubling that students with different socioeconomic 
backgrounds such as myself can work their hardest to educate 
themselves and yet still come up short, despite all of their 
efforts.
    With the amount of total student debt in the United States 
reaching $1.2 trillion, it is more than apparent that students 
need more outlets for assistance regarding college funding, 
including extension and loan forgiveness programs, affordable 
interest rates, expanded Federal student aid, plus knowledge of 
tax benefits available for attending college.
    Personally, my mother and I were unaware of the potential 
aid offered through tax benefits regarding post-high school 
education, and I know if these benefits were made more apparent 
to the many low-income families in the United States, college 
could be a more realistic, obtainable goal. I also believe if 
every family were given the gentle encouragement to open a 
college savings fund, it could make long-term college savings 
more convenient for families who struggle to stay afloat.
    Thank you, Chairman Wyden and members of the committee, for 
allowing me the opportunity to share my story today.
    The Chairman. Ms. Lee, thank you for a really inspiring 
statement, and for doing this. I so enjoyed visiting with you 
yesterday when you told me what it was like making your first 
plane flight of your life and seeing the Monument and the 
Capitol.
    [The prepared statement of Ms. Lee appears in the 
appendix.]
    The Chairman. I want you to know that we are going to do 
more than provide a little gentle encouragement here on this 
whole effort. We are going to see if we can put in place a very 
different set of policies so that young people like yourself 
who have done everything right--and have done everything right 
for essentially years and years and years--would not be looking 
at this Himalayas of debt, trying to figure out how to get 
around it and have it shape your life because you have to carry 
around this virtual boulder on your back.
    So, it has been inspiring to have you, and we will have 
some questions in a moment.
    Mr. Mazur, welcome.

 STATEMENT OF HON. MARK J. MAZUR, ASSISTANT SECRETARY FOR TAX 
       POLICY, DEPARTMENT OF THE TREASURY, WASHINGTON, DC

    Mr. Mazur. Senator Wyden, Ranking Member Hatch, members of 
the committee, thanks for having me here today to talk about 
the role of the tax system in helping students and their 
families finance higher education.
    The Federal Government provides a substantial amount of 
resources to support post-secondary education, and this support 
helps individuals acquire the knowledge and skills required to 
obtain good jobs and achieve a secure economic future.
    Higher education has clear financial benefits for 
individuals. On average, college graduates earn hundreds of 
thousands of dollars of lifetime income more than high school 
graduates do, and there are spillover benefits of a highly 
skilled and educated workforce that enhance the productivity 
and wages of other workers.
    Today what I would like to do is provide some background on 
tax incentives that support higher education. I want to 
summarize the existing tax programs that help students and 
families defray the cost of attending college. Then I want to 
talk briefly about some proposals from the administration to 
improve policy in this area. Finally, I want to discuss briefly 
some of the challenges that the issue of financing post-
secondary education poses.
    There is an overview of tax benefits that I think each of 
the Senators has on their table in front of them. It is a list 
of tables attached to the written testimony. I am going to go 
through it very, very briefly.
    The first tax benefit I want to talk about is the American 
Opportunity Tax Credit, the largest single tax benefit that is 
provided through the Federal tax code--a $2,500 maximum per 
year, partially refundable tax credit. It is available for up 
to 4 years, so $10,000 in total, and it covers about 80 percent 
of the cost of attendance at a public 2-year college or about 
30 percent of the in-State cost at a 4-year State school.
    There is also a Lifetime Learning credit that is up to a 
$2,000 nonrefundable tax credit, computed as 20 percent times 
the tuition payments up to $10,000. Taxpayers can only claim 
one of these credits per year.
    There is a tuition deduction that expired at the end of 
2013. It is one of the expiring provisions that I know your 
committee has been looking at. It allowed an above-the-line 
deduction for up to $4,000 of tuition.
    All of these programs have income limits.
    There is a dependent exemption and eligibility for a 
qualifying child for the Earned Income Tax Credit for full-time 
students up to age 23, where the typical age for non-full-time 
students is 18, so, another benefit for attending post-
secondary education.
    Taxpayers can exclude the value of scholarships, grants, 
including Pell grants, from taxable income. Taxpayers can also 
exclude up to $5,250 of employer-provided tuition benefits.
    There are section 529 plans to help encourage savings. 
Here, taxpayers get to exclude earnings on amounts in these 
accounts if used for post-secondary education expenses. They 
can cover graduate or undergraduate expenses. States put income 
limits on them, but, since taxpayers can have multiple accounts 
in multiple States, there are effectively no Federal limits on 
how much can be accumulated in a section 529 account.
    Coverdell education accounts exist. They allow taxpayers to 
contribute $2,000 per year for education expenses. The earnings 
on these accounts are tax-free if used for education expenses, 
either post-secondary or K-through-12 education.
    There is a student loan interest deduction of up to $2,500 
a year, subject to income limits, and an exclusion for 
discharge of indebtedness on certain types of student loans.
    Then, in the area of what the tax code provides for 
educational institutions, there are itemized deductions for 
charitable contributions to educational institutions; tax-
exempt investment income for charitable educational 
institutions and their endowments; and tax-preferred financing 
for educational institutions, either the use of tax-exempt 
bonds or certain types of tax credit bonds. And there are a 
couple other miscellaneous provisions that are in the tables 
that you have in front of you.
    The administration proposes a few policies to improve 
education finance. One is to permanently extend the American 
Opportunity Tax Credit. Right now it is set to expire after 
2017. It is more generous than the Hope scholarship that it 
replaced. It is partially refundable. It is available for 4 
years. Really it is a tax benefit that would help millions of 
families afford college.
    The second proposal in the administration's budget is to 
exclude Pell grants from taxable income, regardless of how 
these are used; for instance, if they are used for living 
expenses. Pending enactment of this proposal, Treasury recently 
put out a fact sheet to help tax preparers, software providers, 
and taxpayers navigate through the complexity of figuring out 
how to maximize tax benefits when you are a recipient of a Pell 
grant and you want to claim theAmerican Opportunity Tax Credit. 
We expect the results of this fact sheet to begin to show up 
next filing season.
    Then we also, in the budget, propose to improve the 
reporting of education expenses under the form 1098-T, which 
education institutions use to report to taxpayers and to the 
IRS what types of expenditures have been made for tuition and 
other fees. We propose to make this reporting for tuition paid, 
not tuition billed or tuition paid, and also to require 
reporting of scholarships and grants of more than $500. This 
would allow taxpayers to essentially take the information from 
the 1098-T and use that information directly to claim their 
American Opportunity Tax Credit or other tax credits.
    These would all help improve compliance.
    I see my time is up. I will finish here and await some 
questions.
    The Chairman. We will have some questions momentarily. 
Thank you very much, Mr. Mazur.
    [The prepared statement of Mr. Mazur appears in the 
appendix.]
    The Chairman. Ms. Fonash?

     STATEMENT OF JAYNE CAFLIN FONASH, DIRECTOR OF SCHOOL 
      COUNSELING, LOUDOUN ACADEMY OF SCIENCE, STERLING, VA

    Ms. Fonash. Chairman Wyden, Ranking Member Hatch, members 
of the committee, thank you for inviting me to testify at this 
hearing this morning.
    I currently serve as the Director of School Counseling at 
the Loudoun Academy of Science, a public magnet school in 
Loudoun County, VA. I am also a member of the National 
Association for College Admission Counseling and the Potomac 
and Chesapeake Association for College Admission Counseling, 
which represent more than 13,000 college admission 
professionals from around the world who work with students and 
families to navigate the pathway to higher education. My 
service and leadership roles in these organizations have 
afforded me the opportunity to collaborate with these 
professionals and to advocate for students and their families 
in the transition to higher education.
    My objective today is to share my perspective as a school 
counselor on constraints that, in all likelihood, limit the 
effectiveness of Federal initiatives such as tax credits for 
higher education in broadening access to and reducing the price 
of college.
    For many students and families, obtaining the information 
needed to navigate this complex and potentially confusing 
process begins with the school counselor. Consider, however, 
that the average student-to-counselor ratio for public schools 
in the United States is 471-to-1 and that access to school 
counselors is often most limited for students who are most 
likely to be underrepresented in higher education.
    Parents and students have become far more cautious with 
their education dollars. Each year I see students in Virginia 
choosing to matriculate in-State, some taking advantage of the 
articulation agreements to begin their college studies at 
community college. When families are faced with the opportunity 
to finance their student's education debt-free in-State, they 
are increasingly opting for the financially cautious path.
    Despite these constraints, school counselors can be 
catalysts for disseminating information about resources that 
can help students and families. Three recurring challenges 
limit the school counselor's ability to provide students and 
their families with information about potentially useful 
Federal resources for higher education.
    First, there is limited awareness of Federal resources for 
higher education in general. Federal resources for higher 
education need much more dissemination effort than is presently 
offered. Easy access to up-to-date information would make the 
limited time that we have with students more productive.
    Students and parents who can rely on a trusted relationship 
with the school counselor are more likely to consult with that 
counselor when questions arise about information available in 
the massive market for higher education and financial aid 
advice. A larger government presence in that space could 
capture the attention of students, families, and professionals 
and would provide an additional trusted source.
    Second, there is little awareness among students and 
families about tax credits. Many families may be unaware of the 
tax benefits available to them to help mitigate the cost of 
post-secondary education. I myself have never engaged in a 
conversation with a student about the potential impact of 
future tax credits on the affordability of attendance----
    The Chairman. Can I make sure everybody heard that?
    Ms. Fonash. Yes. Do you want me to repeat it?
    The Chairman. You have never talked to a student about any 
of these tax benefits, the sum of which is greater than a whole 
host of Federal agencies?
    Ms. Fonash. Yes, sir.
    The Chairman. They have never asked.
    Ms. Fonash. In addition, parents have never asked.
    The Chairman. Thank you.
    Ms. Fonash. I am not alone in that regard as I speak to my 
colleagues around the country. College financial aid night 
presentations do not include information on tax benefits. 
Rather, the presenters shy away from giving any information 
that could be construed as tax advice.
    A concise 1-page document to share with parents and 
families on the availability of tax benefits and resources to 
consult for additional information would open the door for 
counselors to have conversations in that area with families 
that are often reticent to discuss their personal financial 
situation.
    Third, there is a disconnect between direct student aid and 
tax benefits. Unlike direct student aid, tax credits are not 
necessarily well-placed in the sequence of paying for college. 
Student financial aid award letters include information on 
direct student aid. However, tax benefits are not part of this 
process and, as such, may not factor into student decisions.
    Families need to be better-informed of the rules that 
govern tax credits. Under the current system, tax benefits add 
steps to getting aid, which is counter to the current 
congressional efforts to simplify the financial aid process. 
That does not mean that tax benefits are not worthwhile and 
very helpful for families making that investment, but as it is, 
it may not make the difference at the time of making a decision 
to enroll.
    Based on what I have observed in my work with students and 
families, there are three recommendations that I would submit 
to committee members for their consideration.
    First, disseminate educational resources more broadly. 
Given the current low level of awareness of Federal tax 
benefits for higher education and the constraints on school 
counselors, providing resources for professionals, students, 
and families is essential if these programs are to succeed. 
Students and families have to navigate a thicket of 
information, and they may be misled by unscrupulous players in 
the market. Ensuring that they receive trusted information from 
the Federal Government, whether directly or by way of a school 
counselor, is critical.
    Number two, utilize regular school communications to convey 
eligibility. Schools and colleges communicate regularly with 
their students and families about federally supported programs, 
such as the annual application for free and reduced lunch at 
the K-12 level and financial aid award letters at post-
secondary level. Incorporating information about Federal tax 
benefits for higher education into these communications would, 
at a minimum, ensure that students and families receive this 
information annually. It may have the added effects of raising 
awareness of these important benefits and potentially 
increasing participation over the long term.
    Third, address the indirect effect of tax benefits. Since 
tax benefits accrue on a different schedule than college 
enrollment and may not affect the amount of money a student 
must pay to enroll, how much they may have to borrow, and what 
their loan repayment amount may be, consider ways to ensure 
that tax benefits for higher education can be brought to bear 
when the money is most needed.
    Thank you again for inviting me to testify before you 
today, and I will be glad to respond to your questions later.
    The Chairman. Thank you. And I know we will have a number 
of them.
    [The prepared statement of Ms. Fonash appears in the 
appendix.]
    The Chairman. Mr. Zerbe, welcome, graduate of the Finance 
Committee.

     STATEMENT OF DEAN ZERBE, NATIONAL MANAGING DIRECTOR, 
                  ALLIANTGROUP, WASHINGTON, DC

    Mr. Zerbe. Thank you very much, Mr. Chairman. It is 
wonderful to be back. I greatly appreciate it, and I thank you 
very much for having me at this important hearing on this 
important topic.
    I think your hearing asks exactly the right question. What 
can we do right from the beginning to keep debt down, to keep 
tuition down for students? And I think the reality is, there is 
a great deal that the committee can do in that regard.
    What I want the committee to do is focus on two areas: one, 
looking at the billions of dollars that the committee provides 
directly through the tax code to colleges and universities and 
at standards in that area; and second, looking at that bundle 
of dollars that you provide to see if we can do better. Can we 
take that money, that is basically $10 billion a year, and 
target that money better?
    So let us first talk about standards for the moneys we 
provide directly to universities. Assistant Secretary Mazur 
pointed out, well, there are basically four pots. There are 
tax-exempt bonds, there are tax re-endowments, there is 
generous treatment of business activities, and then there are 
charitable donations. Basically, roughly estimated, it is about 
$10 billion a year.
    Currently, we do not require anything regarding controlling 
tuition, debt, and loans from universities in return for that 
$10 billion. So we have no requirements right now. We do, for 
instance, as an alternative, looking at nonprofit hospitals, 
have standards there. The committee, in the Affordable Care 
Act, on a bipartisan basis, put in standards for nonprofit 
hospitals. Those standards provided good benefits to low-income 
individuals.
    So then you would say, all right, standards, but what could 
those standards be? Standards you could look at--I would 
suggest three. One is, you could have a standard that says we 
are not going to see tuition growing more than the rate of 
inflation, both real and net. The second standard I suggest you 
might want to look at is a 6-year graduation rate. You want to 
make certain that students graduate. We are having a real 
problem with people dropping out. Therefore, they are left with 
the problem of having huge debt, but not the benefit of the 
college education. The third standard I think you want to look 
at is debt, exactly that. Are they paying off their debt? The 
reason for that is, it is a good indicator of whether the 
university is providing value in terms of the education they 
are giving, preparing young people for the workforce, and 
helping them come into the workforce.
    So I think if you looked at those three standards--you can 
look at others, obviously, as well--this will start to focus 
and prioritize for the committee the tax dollars it is giving, 
the $10 billion a year, to universities, getting their 
priorities where the committee wants them to be. That is one 
piece.
    The second piece is, look at that $10 billion, and that $10 
billion--I would tell you the committee knows very little about 
those expenditures. Mr. Mazur laid out the main ones, but there 
are a number of other smaller ones. I think the committee would 
want to ask Treasury and Joint Tax to give them a detailed 
understanding of where those dollars go, how much those 
expenditures are, and what those policies are on those dollars.
    But then here is the second key point. In a sense, you want 
a distribution table. Tell me where those dollars are going. 
What institutions are getting that $10 billion? Are those the 
institutions that are helping Amber Lee? Are they helping folks 
in terms of going forward? Are they helping them in terms of 
their costs? But you get the idea. Where are these dollars 
going? Are they going to the right folks? Are they doing what 
we want as a committee in terms of policies?
    I think it will be informative for the committee to 
understand the dollars and then where the dollars are going, 
and I think it may cause the committee to revisit their 
priorities in terms of where they want to be sending dollars so 
they meet the goals that the committee wants.
    Let me touch briefly on two last things. Endowments--there 
are over $400 billion in endowments right now out there. We 
have no requirements on payout for endowments. We have a 5-
percent required payout for private foundations. We have zero 
for endowments. Endowments have seen a 7.1-percent growth over 
the last 10 years. That includes the downturn. Most recently, 
they had an 11.7-percent growth.
    The committee engaged in a very bipartisan review of 
endowments under Chairman Baucus and Senator Grassley. What we 
found is that the payouts are usually very much below 5 
percent, and it is clear that, Mr. Chairman, you could turn the 
world upside down if you required a 5-percent payout. The 
amount of money going out to folks to help students paying for 
tuition would be enormous. So I encourage you to look at the 
endowment policy as a possibility of helping students going 
forward.
    The last part is the for-profits. I have talked about the 
nonprofits and standards. You should have standards for the 
for-profits as well. I think the same standards should apply. 
You may want to tie them to the AOTC and to the Lifetime 
Learning Credit, but the same idea. You have to control 
tuition. You have to graduate people. We are not going to let 
you just put people through a churning mill and not graduate 
them. And you have to see where they are in terms of their jobs 
and where they are going.
    I would consider for both institutions, both private and 
nonprofit, that you look at them having skin in the game. If 
their students are not making their debt, have these 
institutions also have a percentage ownership of that debt they 
are not paying. Making them feel an ownership for what is going 
on in terms of their students and their debt would be something 
the committee could consider.
    I think if you step back, set in standards, refocus and 
reprioritize the $10 billion a year that the committee is 
moving toward colleges and universities, you could do a world 
of good. You could have change that will help students, you 
will have change that will help families, and you will have 
change that will protect the taxpayers, and that is a key 
thing, Mr. Chairman.
    We have talked about this. Everything I propose will not 
cost one more dime from the taxpayer, will not cost one more 
dime for you to accomplish, and it will get you to where you 
want to be, which is to start talking about keeping tuition low 
right at the get-go.
    Thank you very much, Mr. Chairman.
    The Chairman. Mr. Zerbe, thank you. There is no question it 
is possible to wring more value out of these existing 
expenditures, particularly when people like Ms. Fonash and, as 
we will hear in questions from Ms. Lee, basically, nobody ever 
even talked about it. There was no discussion about it, and 
that is what we have to change.
    [The prepared statement of Mr. Zerbe appears in the 
appendix.]
    The Chairman. Mr. Hodge, welcome. Again, our thanks. You 
all have been very helpful in working with us on tax reform.

            STATEMENT OF SCOTT A. HODGE, PRESIDENT, 
                 TAX FOUNDATION, WASHINGTON, DC

    Mr. Hodge. Thank you, Chairman Wyden and Ranking Member 
Hatch, members of the committee.
    I think it is fair to say that college affordability is 
really one of the hottest topics in the news these days for 
families, and, over the past 15 years or so, we have 
increasingly turned to the tax code to try to help students 
with affordability of higher education.
    Since the first education credit was enacted in 1997, the 
number of taxpayers taking advantage of these credits has grown 
by nearly 400 percent, while the cost, after adjusting for 
inflation, has also increased by about 400 percent during the 
same period of time.
    Now, ironically, as these tax credit programs have grown 
over the years, so too has the student loan debt load. So now, 
as lawmakers are looking for ways to relieve that debt, 
including various programs to relieve the debt or have debt 
forgiveness, the question is, should we be using the tax code 
at all to access the cost of higher education, make college 
more affordable, or address this rising student loan debt? And 
I think the answer should be ``no.''
    If you want less student loan debt, you have to address the 
factors that are leading to higher college costs, and I think 
the fact is that there is strong evidence that education tax 
credits may actually be one of those causes of higher tuition 
costs and have simply become a windfall for colleges and not 
students.
    Now, why is that? Well, it is because the market for higher 
education is unlike any in the private sector. Colleges are 
what economists call pure price discriminators, because they 
can maximize the price that each student will pay.
    Here is how it works. Because of the Federal student aid 
form--officially the Free Application for Federal Student Aid 
or FAFSA--the college has intimate knowledge of each student's 
or family's income and assets and, therefore, knows to what 
extent a family can afford college and if they are eligible for 
tax credits, loans, or other financial aid, and this 
information allows the college to simply adjust their financial 
aid package in order to capture the maximum value of that tax 
credit. So, not only can universities choose which buyer or 
student they prefer to admit, they can also select a different 
price or funding mix for each of those particular buyers.
    Imagine if, before buying a toaster on Amazon, you had to 
fill out a FAFSA, and Amazon was allowed to charge you a 
different price based on your family's income, your assets, or 
your credit score. Something tells me that the Federal Trade 
Commission would not look too kindly on that.
    Now, let us look at the economics. As we think about tax 
reform, which generally means broadening the tax base while 
lowering tax rates, it is reasonable to consider the economic 
effects of trading the elimination of these tax credits for 
lower tax rates for all Americans. And with that spirit in 
mind, Tax Foundation economists used our dynamic macroeconomic 
tax model to measure the long-term effects of eliminating 
education credits and exchanging them for lower marginal rates 
across the board. And our model suggests that such a tradeoff 
would be quite substantial. It would allow for an across-the-
board rate cut of nearly 1 percent for everyone. It would boost 
GDP by about $19 billion a year. It would boost Federal 
revenues by about $4.5 billion a year on a dynamic basis, and 
it would increase employment by the equivalent of roughly 
121,000 full-time jobs.
    So, in addition to reducing the complexity and simplifying 
the code, such a tradeoff would actually be good for GDP, jobs, 
and the Federal Treasury. That is a pretty good tradeoff.
    So now, how do we help affordability? Well, I think, in the 
spirit of tax reform, we need to look at simplifying all the 
various savings mechanisms that are available to taxpayers and 
families. Through the years, we have created all these buckets 
that taxpayers have to put their savings in, and that, in some 
ways, loses then the benefit of compound interest and forces 
them to follow Federal rules rather than their own dictates. We 
should simplify all of those savings mechanisms to make savings 
so much easier for families.
    But that does not solve the cost question. The mechanisms 
that can really effectively control costs are the various 
prepaid 529 plans that are already in place that allow parents, 
grandparents, or students to lock in those college costs 
through these prepayment arrangements. And not only do those 
plans provide families with certainty, but they require 
colleges to think 18 years ahead about what those costs ought 
to be in order to live up to those agreements. And that is the 
kind of market mechanism that could work very effectively if we 
require more and more universities and colleges to take part in 
these prepayment plans.
    I think we could also have other options, such as a futures 
market in which people could go out and buy units of college, 
whether it is a semester, a quarter, or an entire year, and 
then be able to trade that on the open market, depending on 
where their children would like to go.
    Well, let me wrap up by saying that it is very clear that, 
instead of being a helping hand for students, tax credits have 
turned into a windfall for universities, and, as long as these 
tax credits continue, colleges will reap the benefits and 
student loan debt will continue to climb.
    It is time we consider other solutions that do not require 
us to use the IRS as a spending agency, especially as we 
prepare for a comprehensive overhaul of the Federal tax code.
    Thank you very much, Mr. Chairman. I appreciate the 
opportunity and look forward to any questions.
    The Chairman. Thank you, Mr. Hodge. Thanks to all of you.
    [The prepared statement of Mr. Hodge appears in the 
appendix.]
    The Chairman. Ms. Lee, let me, if I might, start with you, 
because what I have been struck by is, you are obviously a very 
intelligent, very enterprising young woman, and, as I listened 
to your account, it was clear that so much of the fundamental 
information that you would benefit from in terms of making 
informed choices, just nobody told you about, and nobody even 
really told you what to look for.
    So I want to ask a couple of questions about that. My 
understanding is that you went to the library--you did not want 
to rely just on the Internet--but nobody, not a guidance 
counselor or anybody else, told you that there would be this 
big gap between the grants and loans and what you really needed 
to know to deal with the facts you would be talking about--
$10,000 a year in terms of private loans.
    Nobody ever told you anything about that as you kind of 
journeyed as an enterprising person into this area. Nobody told 
you about that.
    Ms. Lee. Well, I relied mostly on my school's guidance 
counselor, and I was expecting to take out some loans in order 
to attend school, but I really had no idea the extent of loans 
I would have to take out. And I was not aware of the tax 
benefits that were available, and I just feel like my guidance 
counselor or maybe the career center could have done maybe a 
better job informing all of the students of their options for 
paying for college.
    The Chairman. So, as you went through this odyssey of 
trying to figure out how you were going to put together the 
resources, nobody told you about something like the American 
Opportunity Tax Credit or any others, because this was 
something that was really designed for people like yourself, 
and nobody ever told you about that?
    Ms. Lee. No. No, they did not.
    The Chairman. And you and your mom obviously sat down and 
tried to figure out how to proceed. What, out of those 
conversations, did you do? You went to the library. You went to 
the Internet. But I assume that it really was not clear what to 
even look for, based on the fact that you were not hearing 
about some of these resources from guidance counselors and 
others.
    So, when you went to the library and you went to the 
Internet, you did not find out about things like the American 
Opportunity Tax Credit?
    Ms. Lee. For me and my mom, the whole idea of college, and 
applying for and attending college, is very new to us, because 
I am the first to go to college in my family or at least strive 
to go to college, and we tried to do some research.
    It was mostly--we focused on applying for scholarships--and 
we were kind of left in the dark. We did not know what kind of 
financial aid I would be getting back or what grants were 
available. And so we mostly focused on scholarships and relying 
on what kind of aid we would get back.
    The Chairman. You focused on scholarships, but nobody 
really told you about the difference between the loans and the 
grants and what you would be ending up with in the end, and 
that is why you are staring at the prospect of something like 
$40,000 worth of debt as you go to college.
    Let me ask you about kind of the alternative. Now, you and 
your mom obviously were walking an economic tightrope every 
single month, balancing food costs, medical costs, rent and 
energy, and the like. So I am sure you have listened to me talk 
about this, and I enjoyed talking with you yesterday.
    If somebody had created a saving account in your name when 
you were a young child, it seems to me you would not be able to 
put huge sums into it, because your family was just really 
challenged every month to pay the bills, but do you think you 
would have been able, with your mom, to put even a little bit 
into it each month, and particularly if it was matched along 
the lines of what I have been talking about today, so it might 
grow over time? Is that something that might have been feasible 
for you and your mom?
    Ms. Lee. Absolutely. Through my whole life, we kind of 
saved pennies or whatever change or any extra money that we had 
towards my higher education, but I definitely think if there 
was an outlet for families to save over a long time period, it 
could be really beneficial.
    Personally, I know my mother and I were not able to have a 
bank account on our own just because she did not have the best 
credit. And so it was really difficult for us to even get an 
account. But after a trial period, we eventually got one. But 
it is just barriers like that that people do not really think 
of, and it really limits students.
    The Chairman. I just want to follow up on that, because 
that is particularly important. Here you are, you are trying to 
do everything right and plan and save, and your mom, 
particularly, given the abusive situation that you were faced 
with when you were 7, there you are, you are starting over, and 
it was hard for your mom to open up a checking account. And yet 
you have told us that, if there was something like a savings 
account where she was able to put in even a little bit and we 
had a match from the Federal Government, in effect, it was 
automatic when you were able to set aside a little bit of 
money, you and your mom would have tried to do that.
    Ms. Lee. Of course. I mean, anything to help pay for this 
would be really beneficial, and even if it was like $5 a month, 
I am sure that was something me and my mom would strive to do.
    The Chairman. Great. And let me just tell you, you are an 
inspiration to me, Amber, and I am so glad, so glad that you 
made that trek across the country. And I know my colleagues are 
going to have some questions too.
    We will start with, at this point, Senator Grassley, and 
then Senator Stabenow, and then Senator Isakson.
    Senator Grassley?
    Senator Grassley. Let me apologize to the panel, because I 
did not hear your testimony. I have had a chance to read it, 
but I was down the hall at the Judiciary Committee meeting.
    I am going to start with Mr. Zerbe. Your testimony hits on 
the topic of large college endowments. I have long been 
concerned that colleges and universities are not doing enough 
with their endowments to assist students with financial needs.
    I believe your testimony embraced sort of a mandatory 5-
percent payout rate, similar to what is currently required of 
private foundations. I happen to be somewhat sympathetic to 
that idea, but I also have some concerns that it might become a 
ceiling.
    The tax reform draft put out by Chairman Camp takes a 
different approach that would essentially impose a 1-percent 
excise tax on certain university endowments. So I have this 
question for you. In your view, why is an explicit payout rate 
preferable to taxing endowments?
    Mr. Zerbe. Thank you, Senator, very much for that question. 
I think the way I look at it is, first of all, I have no fear 
of a ceiling. As we saw with supporting organizations and we 
see with endowments, where we do not have a requirement of a 
payout, they are consistently below 5 percent. It would be a 
happy problem if that was going to create a ceiling.
    The problem is, they are way underpaying at 3 percent, 3.5 
percent, 4.5 percent is typical, what we are seeing in 
endowments. So that is not going to be a problem.
    I think the right way to maybe think about it--you are 
right, Chairman Camp has the tax proposal--is to perhaps impose 
that tax, maybe dedicating the funds to something that Chairman 
Wyden was just talking about in terms of a scholarship and 
savings accounts, but using that tax basically to force some 
giddy-up from them, saying, look, if you do not pay out, we are 
going to impose the tax. I think that would be a way to do it. 
But that way, they can escape that tax if, in fact, they are 
paying at 5 percent or more, say, a higher figure, something 
like 6 percent as well.
    So I think all that would bring billions into the system to 
help students meet college costs and be a real game changer, 
Senator.
    Senator Grassley. Also, Mr. Zerbe, I think transparency 
brings accountability. In 2008, at the urging of this Senator 
and Senator Baucus, who was then chairman of the committee, the 
IRS reformed its form 990 to require greater disclosure of tax-
exempt entities, including adding a new section 8 for nonprofit 
hospitals.
    Do you think nonprofit colleges should similarly be 
required to show that they are going the extra mile to control 
costs and provide financial support to students as part of 
their annual 990 disclosures?
    Mr. Zerbe. Yes. Senator Grassley, I think the work that you 
and Chairman Baucus had done on that and getting the schedule H 
for hospitals has done an extraordinary amount of good, getting 
better transparency, greater openness in hospitals. It has been 
terrifically helpful.
    I think the same would be true with schools and 
universities. The IRS just completed a detailed report on 
Unrelated Business Income Tax issues and other business-related 
issues. I think now is the time for a review to see whether it 
makes sense to have a schedule.
    I think there is a lot of information out there regarding 
colleges that would be useful for transparency, bringing better 
understanding of the workings of the colleges, and would help 
shed light on this and get to the goals of trying to understand 
better where taxpayer dollars are and getting tuition down. 
Yes, sir.
    Senator Grassley. My last question would be to Secretary 
Mazur.
    Requesting specific information such as endowment practices 
and payout rates of colleges and universities on form 990 is 
something that Treasury and the IRS could do immediately to 
increase accountability. Is this something that you could 
support, your agency could support, or the administration could 
support? Would you be willing to consider it, and why or why 
not?
    Mr. Mazur. Well, Senator Grassley, it is certainly 
something that we would be happy to look into to see what could 
or should be done in this area. I think that you have a 
situation here where you have some benefits--and you have 
outlined potential benefits of getting this information. 
Obviously, there would be some cost involved in collecting and 
processing that information.
    Really what you want to do is compare the costs and 
benefits and see which are larger.
    Senator Grassley. Is it something that the administration 
would be willing to consider?
    Mr. Mazur. At least take a look at it, yes.
    Senator Grassley. Well, I appreciate that, and I think 
maybe I will write to you and ask you to give me an update on 
how you are coming on that.
    Thank you, Mr. Chairman. I yield back my time.
    The Chairman. Thank you, Senator Grassley.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman. And thank you very 
much for doing this hearing.
    Ms. Lee, thank you for coming, using us for your first 
plane flight. Thank you for that. And I appreciate the 
testimony of all of you.
    The goals of tax incentives for higher education, I 
believe, should be twofold. First, they should be used to 
mitigate or lessen the need to borrow and thus defer some of 
the impact of increases in higher education costs. Second, they 
should be used as another tool to get more low-income families 
to attend college.
    My wife, who graduated from Kent State, an important State 
university in my State, was the first in her family to go to 
college. Her dad carried a union card for 35 years, and that is 
how she was able to go. But she faced huge challenges--the 
difficulty of being first-generation and the difficulty of kind 
of navigating her way--not just the financial challenges. But 
she graduated 35 years ago with about $1,200 in student debt, 
and that is the disservice this generation has done to yours, 
Ms. Lee, in giving people that opportunity.
    But let me ask a couple of questions of Dr. Mazur, if I 
could, and talk about the size of the incentives we have in 
place. Student loan interest is deductible for the first $2,500 
a year, starts to phase out at $60,000, and is phased out 
completely at $75,000, is my understanding.
    Compare that to the mortgage interest deduction, where 
there is no limit on the amount of interest that can be 
deducted on the first $1.1 million in mortgage debt. Whether 
that is too large--and we give tax breaks that way to, 
obviously, pretty high-income people--that is a whole other 
debate.
    But, obviously, that speaks to this, whether we should 
expand the deductibility of interest.
    The first question: is the size of the AOTC sufficient, in 
your mind?
    Mr. Mazur. The American Opportunity Tax Credit, as you 
know, $2,500 a year, is available for 4 years and provides up 
to $10,000 over a 4-year cycle for a student in college.
    For people who are going to a public university, it covers 
about 30 percent of the costs of a typical 4-year public 
university. So by itself, it does not cover the entire thing, 
but it does provide a pretty substantial down payment.
    Obviously, you could do more. That is something for 
Congress to consider. I think really what the administration is 
looking at first is making it permanent rather than scaling up 
the size of it, because it is scheduled to expire in 2017.
    I think the first thing would be to make it permanent so 
that people can rely on it when making a multiyear investment 
in college.
    Senator Brown. Thank you for that. The other goal for 
higher education should be to get young people to attend 
college who would not attend otherwise.
    One way to do that is to think about the AOTC almost as a 
tax credit or an advance. Talk to us, if you would, outlining 
the challenges--and I hate to make up words like this and use 
words that are not really words, like advanceability, but give 
me your thoughts on how that would work, what the challenges 
are, and how feasible that is, in your mind.
    Mr. Mazur. Sure. Treasury came out with a report that 
focused primarily on the interaction of the American 
Opportunity Tax Credit and Pell grants in May--so last month--
but part of that report talked a little bit about some of the 
challenges involved in looking at advance payments of something 
like the American Opportunity Tax Credit.
    One of the difficulties you have here is, essentially you 
have a spending program that you are trying to run to provide 
benefits to students going to college, running it through the 
tax system. The tax system is set up to run on a calendar-year 
basis, and, when you are taking things off-cycle, trying to 
make them pay earlier in the tax year, that is a difficult 
administrative challenge for the IRS to go through.
    The second point to keep in mind is that, while it is off-
cycle, the advanceability issue is mostly a first-year issue, 
because, in the second year, you are catching up with the 
credit you got for the first year. So to the extent you think 
of it as a financing issue, it is really a matter of getting 
kind of a bridge loan from, say, August or September when you 
are paying tuition until, say, March or April when you are 
getting the benefits of the tax credit.
    So it is a challenging issue to think through. It is just 
hard to figure out a structure where the tax code can help with 
that advanceability.
    Senator Brown. Thank you. Thank you to all the witnesses. I 
yield.
    Senator Stabenow [presiding]. Thank you very much. Our 
chairman has passed the baton to me. He has gone to vote and 
will be coming back momentarily, and we will continue with the 
questioning.
    So, welcome to all of you. And thank you, Ms. Lee, 
particularly. You are doing what we all say we want folks to 
do. It is just, work hard and follow the rules and just do the 
best you can to get ahead. Obviously, given the challenges you 
have gone through, you deserve a tremendous amount of credit 
for sticking with it, and it is our job to make sure you get a 
fair shot to make it.
    I would just, first, say that, while it is not in the 
jurisdiction of this committee, the fastest way we could help 
right now is to lower the student loan interest rate for you so 
you at least have the benefit, like anybody refinancing a 
house, to be able to get the lowest interest rate out there. 
And that is what we are trying to do, and we are going to keep 
working hard to get through the filibuster that has been 
happening to actually get to vote on this so we can pass this.
    I think it is also important to note that probably the best 
investment we all can make, whether it is the Federal 
Government, State government, business, families, individuals, 
is education. In fact, the Bureau of Labor Statistics has said 
that the average entry-level worker with a bachelor's degree 
will earn twice as much as somebody with a high school 
education. So there are a lot of reasons for us to be talking 
about this.
    Mr. Hodge, I did want to ask you a question, but first, one 
of the things that has not been mentioned in all of this 
discussion about how we have seen costs go up--and there are a 
number of reasons for that--is that the majority of funding, 
and certainly I can speak from a Michigan standpoint, is State 
funding for higher education. The Federal Government funds 
research, we fund student aid, but the basic funding of 
community colleges and universities in Michigan and across the 
country really comes from the State government.
    Over the last 40 years in Michigan, we have seen a decline 
from 70 percent of general funds for the public universities 
coming from the State down to 16 percent, which is a huge, huge 
cut, in fact, a nearly 30-percent reduction in State aid just 
in the last few years. So then we see what happens, and they 
are looking around for funding, even though we are seeing our 
universities trying to figure out how to cut costs and so on.
    The other thing that is different is that the average 
tuition at a private university is about twice as much, $30,900 
a year, versus public, $15,600. So there are big differences 
there as well, as we look at how we move forward on this.
    But I am wondering, Mr. Hodge, as you are talking about 
doing away with the tax credits, as I understand it--a couple 
of things. How do you feel about Pell grants and other kinds of 
support for low-income students? And secondly, how would you 
suggest, again, that middle-class families afford sending their 
children to college without some kind of tax support? Is it 
just all about savings?
    So, number one would be, are you also suggesting no Pell 
grants or other support, or is this just about the tax code? 
And then could you talk a little bit more about how you address 
this, particularly with the sharp decline in State support that 
we have seen that translates into higher tuition costs?
    Mr. Hodge. In terms of Pell grants, I would like to see 
more focus on them and the use of Pell grants to target needy 
individuals rather than tax credits, which tend to be spread 
around and available to everybody. And the economic research 
tends to show that the tax credits are sort of captured by the 
universities more so than are Pell grants.
    Because Pell grants are targeted and because of the 
restrictions available, it is more difficult for universities 
to actually capture those costs and increase tuition as a 
result. So that is a far better way of addressing this issue, 
especially for the needy and low-
income people, than are broadly available tax credits and 
interest subsidies.
    How would I like to see middle-class families address this 
issue? One is, yes, savings is a good thing, but there are too 
many options for savings. I would like to see that consolidated 
through fundamental tax reform.
    But I do believe that we ought to make more opportunities 
available for people to sort of prepay, get ahead of the game, 
if you will, and lock in those costs, because that is what 
forces universities to think years and years ahead on what 
their costs have to be. And right now it is an open-ended sort 
of situation where people can never feel like they have saved 
enough because they cannot keep ahead of the escalating costs.
    So, by ratcheting back some of the Federal assistance 
through the tax code, you could start to control those costs, 
but you can also use different market mechanisms to force 
universities and colleges to think about costs ahead of time, 
and right now they are not.
    Senator Stabenow. I agree with you about looking forward in 
terms of prepayment plans and so on. I was involved, in my 
State legislative days, in putting together something that 
Michigan has, and I think that there is more that we can do.
    But at the same time, given the financial situation and 
given the economy at this point, an awful lot of folks are in a 
very tough situation to say they should just be saving more 
when they are trying to just hold on and make it every day. But 
I do agree with you that there is more we can do on the front 
end.
    I am out of time. I would just simply--well, I guess I am 
the only one here, so I will take as much time as I want. 
[Laughter.] Hopefully, I am not going to be told here I need to 
run out and vote as well.
    Just let me say quickly, nothing beats people having enough 
information. The chairman was concerned about the fact that the 
incentives that are out there--we have loan forgiveness 
programs we put together, targeting underserved rural 
communities and urban communities, we have the tax code, and so 
on.
    I am shocked to hear that all of that is not being made 
available. We have gone through a lot of fights to be able to 
put in place things that will help middle-class families, low-
income families, put a priority on education.
    So what more would you suggest that we do to be able to 
make sure that people know what is available right now?
    Ms. Fonash. Specifically, in reference to the tax 
incentives, it would be helpful if the members of the committee 
could provide school counselors a 1-page document, a simple 
document, that would inform them each year about the incentives 
available and the site to go to to figure out what their 
eligible aid is or what their eligible tax cut would be based 
on their family income and the number of people in their 
family. School counselors could be your best ally in this if 
you will just put the information in their hands.
    When I listened to Ms. Lee speaking, I did a quick search 
through my papers, and, in Oregon, the student-counselor ratio 
is over 550 students to 1. So, even for someone like Ms. Lee, 
who worked hard to look for information to find the best 
possible resources, she was doing that in a State where a 
counselor probably has 500 other students whom she was trying 
to balance the best way possible.
    But that one sheet--if you have a trusted relationship with 
a counselor, you go to the counselor, we can be a great support 
to the Federal Government in helping to provide that 
information to families and then guide them towards further 
action about those opportunities.
    Senator Stabenow. Thank you very much. I am actually 
shocked that that is not already being done, and certainly I am 
going to work with the chairman on that as well.
    Ms. Lee, again, I think our job is to make sure that when 
you work hard, you have a fair shot to get ahead, and that is 
the reason for this hearing, and we very much appreciate all of 
you being here.
    Mr. Chairman, I am going to turn it back to you.
    The Chairman. Thank you, Senator Stabenow. I think, because 
I was sprinting and I am out of breath, maybe I could have a 
capsulized version of what I think you talked with Senator 
Stabenow about, Ms. Fonash, because I think it is drop-dead 
astounding that there is not any discussion with guidance 
counselors about things that would have helped Amber Lee and 
her mom.
    That is not a Democratic thing or a Republican thing. That 
is just sensible government 101. To have a program where there 
is a very large expenditure, a focused part of the Recovery 
Act, and basically everybody is in the dark about it----
    So just unpack for me why you think we are in this 
predicament. I do not think Senator Stabenow got into this. You 
said that guidance counselors thought that they were giving tax 
advice. How can that be a reasonable conclusion when you are 
just talking about explaining a law?
    Ms. Fonash. I believe in my comments I mentioned that, in 
college financial night presentations, which are usually done 
by representatives at the university level, they provide a 
great deal of information about student loans, student grants, 
student scholarships, but they never discuss tax incentives.
    There is a bit of a cloud hanging over that. I think that 
they believe that they are giving tax advice if they step over 
into the area of tax incentives.
    That being said----
    The Chairman. Just giving people information about a public 
law or even saying, excuse me, sir or ma'am or student, here is 
a place where you can get information on it--they actually 
thought that was giving tax advice?
    Ms. Fonash. That has been my experience. I do not want to 
speak for the 4,000 universities around the country, but that 
has been my experience in their presentations.
    At the high school level, counselors could be some of your 
best allies in disseminating this information to students and 
families. The student-counselor ratios in this country range 
from 250 students to 1 all the way up to 1,000 to 1. So the 
more information that you could put in the hands of counselors 
that they can share with students and their families, the more 
informed they will be.
    So, for example, it would be helpful to have a 1-page 
document listing the opportunities in a given year for tax 
incentives and sites that families can go to to get more 
detailed information about that and other resources in the 
local community that they can follow up on.
    As I mentioned, there are some Federal documents that 
students receive every year--the survey for free and reduced 
lunch at the K-12 level and then the student aid loans at the 
Federal level--that include each year information on resources 
in the area of tax incentives so that families can be educated 
every step along the way about those possibilities.
    I sit in my office every spring with seniors and have very 
detailed heart-to-heart conversations about incurring student 
loan debt and what it really would mean to have $80,000 worth 
of debt when they graduate from college. I have sat in rooms 
with students making tough decisions about attending a private 
school versus attending a public school based on cost. But, 
without information about the tax incentives, I have been at a 
loss to share that information with students, but I would be 
more than happy to.
    In my district, we have actually started putting together a 
1-page information sheet about tax incentives that we are going 
to include in the financial aid handbook that our students 
receive every winter when they are applying for aid.
    So, simple documents to put the information in front of 
students, if the members of the committee can help to advance--
--
    The Chairman. I am going to help advance it right now.
    Mr. Mazur, can you work with the guidance counselors to put 
together this 1-page thing she is talking about?
    Mr. Mazur. Just to give a little background----
    The Chairman. That is like a ``yes'' or ``no''----
    Mr. Mazur [continuing]. We are in conversations with the 
Department of Education to figure out the best ways to get this 
information out, and this would be one option.
    The Chairman. Because you guys are the Tax Department.
    Mr. Mazur. We can work with you and the committee to 
develop that one page or two, if you would like.
    Mr. Zerbe. Mr. Chairman, if I can just intervene. I 
apologize. You might want to look at--the IRS has a fairly 
active program in terms of education and the EITC and getting 
out there and educating people about the EITC and what is 
available out there, and that might be something to look at as 
a model or as a possibility for you to consider in terms of the 
education issue, just as a thought.
    The Chairman. Good. Well, I am counting on you, Mr. Mazur, 
to honcho this, to talk to the people at the Department of 
Education and all these various and sundry people and get this 
together, get it to the guidance counselors, and make this 
happen.
    Again, I think if you listen to some of this stuff, you 
just say, this ought to be a wakeup call. It is one thing to 
talk about passing big, complicated bills and the like. It is 
quite another to talk about getting a pamphlet, as Ms. Fonash 
is talking about.
    The only other question I have on this education issue, Ms. 
Fonash, is, how early do you think this kind of information 
should get out? For example, you have already heard me talk 
about how I want to be able to say that, if a parent of modest 
means, say, 90 days after a child is born, if that parent is 
able to set aside even a little bit of money--and that is what 
Ms. Lee and I were talking about--and they are of modest means, 
I would like to see the Earned Income Tax Credit match it.
    So the whole idea here is to get there early. At what age 
level should this kind of pamphlet start getting home? In other 
words, kids take a lot of stuff home, parents get a lot of 
stuff online. Not every parent has a computer. But at what age 
level should all this information, the 1-page pamphlet, start 
getting out? Should it be 8th grade?
    Tell me a little bit more about that.
    Ms. Fonash. Students start bringing home papers in their 
backpack as early as pre-kindergarten, and, as I mentioned in 
my testimony and in the previous answers, there is a form that 
goes home every year that inquires about families' eligibility 
for free and reduced lunch. It is a federally mandated form.
    Send this document home as early as kindergarten so that 
families are aware of the opportunity to put money aside as 
early as possible.
    The Chairman. Send Mr. Mazur's 1-pager home as early as 
possible?
    Ms. Fonash. Yes.
    The Chairman. Great.
    Ms. Fonash. You know, I am a new grandmother. I have an 8-
month-old grandson, and my daughter and son-in-law, about 90 
days after his birth, spoke to somebody, found out how to open 
a 529 account and began to do that. But not every American 
family knows about those opportunities or that that potential 
savings benefit is available.
    So I am not quite sure how to distribute the form to 
newborns, but certainly at the pre-K level, we can distribute 
that in the public and private schools.
    The Chairman. We will get you into this, Mr. Hodge, because 
we have been sort of at the other end of the table.
    How about for each one of you, give us what you think is 
your best idea that we could get bipartisan support for here on 
the committee, because I think it is pretty clear that the 
great challenge of our time on these big issues is bringing 
people together, getting bipartisan support.
    What is your best idea for fresh ways to do what Mr. Zerbe 
and I are both talking about, which is wringing more value out 
of the existing dollars? I think I would like to talk about 
this in the context of families at all income levels. For 
example, this auto-alert, where, in effect, people are told 
about automatic withdrawals, and you could tie it to a variety 
of different criteria.
    Parents could get a letter from their employer within 90 
days of the birth of the child, notifying them of an option to 
save for college. So this is free time, folks. Everybody gets 
to put an idea on the board, but the kind of framework for it 
is something that is common-sense, that is practical, that 
could get Democrats and Republicans up here to common ground.
    Mr. Hodge?
    Mr. Hodge. Mr. Chairman, I do not know if this is a 
legislative fix, but it is certainly a market mechanism that is 
already in place, and that is these prepaid 529 plans that are 
a terrific idea. In fact, there is a consortium of private 
schools that has come together many years ago, I think it is 
just called the Private 529 Plan, and there are 270 colleges 
all within this prepaid 529 plan.
    When you buy in, you buy sort of a futures contract, 
locking in the cost of college many years in advance. You can 
use that credit in any number of these schools, and they all 
accept it.
    Those are the kind of market mechanisms I think work, 
because what they do is, they enforce discipline on the 
universities years in advance. The universities have to think 
long-term what their future costs are going to be.
    The Chairman. So a number of universities have already 
started this?
    Mr. Hodge. The 270 universities are already a part of this.
    The Chairman. We will follow up. Very good.
    Mr. Zerbe?
    Mr. Zerbe. Mr. Chairman, I will just repeat myself, but I 
have a new idea for you too. I would say that standards can 
move mountains. You put in standards for colleges receiving 
government assistance and benefits, as we talked about, saying 
you have to control tuition, both real and net, that you are 
going to have to look at 6-year outcomes in terms of graduation 
and you are going to have to look at people being current on 
their debt repayments, that is going to move mountains.
    Setting those standards is going to be really a game 
changer in terms of where we are.
    I have something new, though. Listening to you and your 
proposal, Mr. Chairman, in terms of the savings accounts, what 
if you were to just take the EITC--the EITC is a pretty good 
dollar figure now, as you know, because it is for folks who 
have children, by its nature, overwhelmingly--and say, we are 
going to set aside, say $500 or $1,000 of that automatically, 
to be dedicated to the account, exactly what you are saying. 
Yes, you are going to get X amount, but we are going to set 
aside this amount for a savings account, kind of a forced 
savings account, if you will, that they could elect out of. 
But, basically, otherwise, you would have it teed up as an 
idea.
    The Chairman. That is interesting. I think what I 
envisioned was something that was on top of the current Earned 
Income Tax Credit. I think what I have been struck by is, I 
think we want to create opportunities for all Americans and for 
people of modest means, and this is what Ms. Lee was talking 
about with her family. She is talking about, we are going to 
save pennies, and, if we can, save $5 or $10.
    There is a fair amount of evidence, research evidence, that 
indicates that just starting a child savings account really 
contributes to young people and families getting ahead. So we 
will work through the mechanics of this, and what I wanted to 
do was to make sure that the savings ethic was not one that, in 
effect, reinforced inequality.
    What I have been troubled by--and that is why I gave the 
statistics--is the big disparity between education credits for 
people who make under $25,000 and people who make many times 
that amount getting significantly more.
    Mr. Zerbe. You bet. The only thing I would worry about is, 
if you put so much emphasis on savings, Mr. Chairman, without 
sending the right messages to the universities to control 
costs, to increase graduation rates, to deal with that, I am 
afraid we still will never get there. But I applaud what you 
are trying to accomplish.
    The Chairman. I understand what you are saying, and, as you 
heard, Senator Grassley has already taken a strong interest in 
that.
    Ms. Fonash, give us your idea, besides the 1-page pamphlet 
that you are going to get.
    Ms. Fonash. Well, I would be glad to make a suggestion. But 
quickly, to follow up on the less tangible side effect of the 
savings at a young age, it also sends the message to a child 
that going to college is something that is within their grasp, 
and that is equally important.
    In terms of a second idea, I would like to see that high 
school seniors around the country have more solid education on 
what they are getting themselves into when they incur the 
student loan debt.
    My understanding is that the education right now is 
limited, and a lot of it depends on where you happen to be in 
high school and what access you have to your counselor. But at 
the age of 18, it is difficult for many students to wrap their 
head around the idea of, what does it mean to have an $80,000 
loan or a $100,000 loan, and I would like to see more education 
on the front end about what that responsibility entails and 
whether that is a prudent choice in light of their income 
expectations 4 to 5 years down the road.
    The Chairman. You have pretty much described what Senator 
Warner and Senator Rubio and I are trying to do in the Right to 
Know Before You Go Act. And I think what is striking about that 
is, students ought to have that kind of information, and it 
should not just be debt levels and graduation rates and 
remedial education, but they ought to have some sense of what 
they would be likely to earn when they got a degree from a 
particular school, because that can very much affect their 
career decisions.
    I know when we kicked this off at home, President Ed Ray of 
Oregon State University said, we are happy to talk about what 
our track record is on those kinds of matters, because Oregon 
State feels that it can really showcase its record.
    So I want you to know I think that is a very important part 
of the puzzle. Senator Warner is a very influential member of 
this committee; Senator Rubio, obviously, is a well-respected 
colleague on the other side of the aisle. So we are going to 
really bear down and get that done. It might not be until the 
Higher Education Act, but we are going to make that happen.
    Mr. Mazur, you have a chance to make a good pitch for 
another idea besides the idea that I like very much that you 
have talked about between the Pell grant and the American 
Opportunity Tax Credit.
    Do you have another one?
    Mr. Mazur. Sure. You are restricting me to ones that could 
get bipartisan support?
    The Chairman. Why don't we give them a chance to be doable?
    Mr. Mazur. I would think that one of the best things you 
could do is enact legislation to improve the form 1098-T 
reporting and basically have institutions report tuition paid, 
and then have reporting on grants and scholarships that are 
made to students.
    That would allow students and their families to take that 
information off the form, just like they do for a W-2, put it 
on their tax form, claim the tax credits that they are entitled 
to, allow the IRS to monitor compliance better, and it would 
actually raise a little bit of revenue in the result.
    The Chairman. Thank you. That is a very good one.
    Amber, because we have so many votes back and forth, back 
and forth, I may not be able to get back. I am going to try. So 
that is why I think it is very fitting that you finish up, as a 
young Oregonian who, in my view, has a spectacular set of 
opportunities ahead of you for your career, in your life--and I 
read a bit about your sister and what you want to do--as long 
as you do not get smothered by all these debts.
    I read a very interesting piece the other day. Apparently, 
these student loan debts are now making it very difficult for 
people to save for their retirement. So you are going to have a 
talented career as an orthopedic surgeon, but you are also 
going to want to think about your retirement. That is why it is 
so important to try to help people have less debt at the start. 
So you are in my shoes for the last question. The role is 
reversed among Oregonians. You are the chair up here. I am the 
student.
    Give me one last thought in terms of what you think we 
ought to be working on.
    Ms. Lee. Well, I think we need something like a saving 
mechanism that somehow allows students to save for college and, 
also, keeps colleges and their tuition costs kind of 
consistent, like Mr. Hodge had brought up.
    The tuition costs are just going to rise. No matter how 
much you save, if the cost is rising, then you are still going 
to be in debt. And I feel like, if there was less debt, I mean, 
obviously, that is more money that is going back into the 
economy rather than being saved to just learn.
    The Chairman. Amber, you are being too logical for 
Washington, DC, because the point that Amber is making is, you 
save, you work hard, or you get a scholarship, and then the 
costs go up, what a surprise, by the amount you saved, and you 
are still staring at a huge financial problem for a big chunk 
of your life.
    So that is a really good one to close on. What I would like 
to do--I think my staff had said Senator Carper is planning to 
return. Do we have a Carper staffer here?
    What we will do, in the lingo of Washington, is sort of 
call a time-out, like a recess, and I am going to see if I can 
find Senator Carper, and I will try to get back.
    But I want it understood that I think this has been a 
terrific panel. I think it is a pretty tough act to try to 
compete with Amber Lee, but you all have really given us a very 
clear kind of challenge.
    When you are spending billions and billions of dollars, and 
the government is not even telling gifted young people like 
Amber Lee, an Oregonian who is doing everything right, what the 
possible tools are in this education toolkit, something is way, 
way out of whack, and we are going to get this fixed.
    So we will stand in recess at least until we hear from 
Senator Carper, and I am going to try to get back as well. But 
you all have been a terrific panel, and I am very appreciative.
    Here we have Senator Carper, with a big apology from me, 
because I understand he may have been missed.
    Senator Carper, I am going to turn this over to you for any 
questions you want, and, when appropriate, you can adjourn the 
hearing, and I thank you.
    Senator Carper [presiding]. Thank you, Mr. Chairman.
    Without objection, I would like to call up--just kidding. I 
am getting ahead of myself.
    We are happy to see all of you. Thank you so much for 
joining us today. As you probably know, we are in the midst of 
four or five recorded votes in a row, and we are just going to 
kind of bounce back and forth.
    I have a couple of sons who finished their college 
educations, oh, gosh, 2 years ago, 4 years ago, and I can say 
with some certainty that my wife and I understand that the cost 
of higher education has risen quite a bit, although this report 
is in the media this week that suggests maybe not as much as we 
had thought.
    But at a Finance Committee hearing about 2 or 3 years ago, 
we had a fellow named Alan Blinder before us. He had been the 
Vice Chairman of the Federal Reserve for a number of years. He 
is now back teaching economics at Princeton.
    The hearing was on deficit reduction, what to do about the 
deficit, and he was one of four or five very smart people 
before us. And I think his focus in his remarks was that the 
key for deficit reduction for the Federal Government is health 
care costs. He said if we do not get our arms around them, they 
will consume us, Medicare and Medicaid costs, and, frankly, put 
us at a financial and economic disadvantage against other 
countries of the world who spend a whole lot less of their GDP 
for health care than we do.
    I asked him in the Q&A that followed, I said, ``What would 
be your advice to us to help rein in the health care costs?'' I 
will never forget what he said. He said to us--he thought for a 
moment when I asked the question of what to do, and he said, 
``I am not a health economist; I am not an expert in that 
stuff. Here is my advice. I would find out what works and do 
more of that.''
    That is all he said: find out what works and do more of 
that. I said, ``Do you mean find out what does not work and do 
less of that?'' He said, ``Yes.''
    So here is my question. I would say as an old Governor, a 
recovering Governor, I know that the 50 States are all 
laboratories of democracy. Somebody somewhere may have figured 
this out in this country, in terms of finding out what works 
and how to rein in the growing price of tuition and fees and 
finding out what works and maybe doing more of that.
    One example of what might work is, we have some high 
schools in Delaware that are partnering with colleges and 
universities so that maybe the last couple of years that 
students spend in high school could count toward the first 2 
years of college. I think that is an interesting idea.
    Delaware State University in Dover, I think, is in the 
process of creating sort of--I will call it a STEM charter high 
school, where the last 2 years, if the student does well, the 
last couple of years at the STEM high school could take the 
place of 2 years, the first 2 years at Delaware State.
    So there are some ideas out there, and there is all this 
distance learning stuff we know about, but just hit us with 
your best shot or your best couple of shots in terms of what is 
out there, where we need to do more, just some examples we 
could learn from, please.
    Do you want to go first, Mr. Hodge?
    Mr. Hodge. Well, thank you, Senator Carper. I think that a 
couple of things perhaps ought to be experimented with, and one 
is breaking the mold of our current higher education system, 
which is all about a fixed place with lots of infrastructure 
that is very expensive and which universities really compete 
on--they have the biggest stadiums and the biggest dorms and 
all these fancy things--break that mold and allow a lot more 
competition from online educational services and those kind of 
things that dramatically reduce the cost, because all that 
infrastructure is very expensive.
    So, when you look at the actual cost of educating a 
student, it is a fraction of the total package that a student 
will pay in any given year, because so much of what they are 
paying is going to support that infrastructure.
    I think the more we can provide opportunities for 
competition and for students to have the availability of online 
and other sorts of new services, I think that will begin to 
ratchet down costs and I think give people the kind of options 
that a marketplace can really deliver.
    Senator Carper. Thanks.
    Mr. Zerbe?
    Mr. Zerbe. Senator Carper, I think basically the status quo 
is not working. We have been pouring more money, pouring in 
more spending, more tax benefits, and, as you have experienced 
firsthand, tuition is going up and up. There is always maybe a 
blip in there, but basically the trend line has been just 
terrible.
    I would suggest that we do not have any standards right now 
for colleges and universities in terms of what we want them to 
accomplish, in terms of saying, we want you to control tuition, 
we want you to control both net and ticket price, we want you 
to achieve 6-year graduation rates, we want you to make people 
job-ready so that they are keeping current with their debts and 
what have you.
    We do not do any of that. So naturally it is just, Katie, 
bar the door in terms of what is happening. I think what you 
need to do is look at the billions of dollars that we give 
directly to colleges and universities, over $10 billion a year, 
and say, here are our priorities, here are our standards. If 
you want these moneys, if you want the support, you need to be 
meeting these benchmarks and goals.
    That, I think, will start to channel maybe to the good 
ideas that Scott is putting forward and really get universities 
to focus on the priorities that you as policymakers want to see 
happen.
    Senator Carper. Good. Thanks very much.
    Ms. Fonash?
    Ms. Fonash. So, as a counselor and as an educator, I would 
like to see students have access to an affordable college 
education, and one of the areas where we can make a difference 
immediately is being sure that we support students who want to 
begin their college education at the community college level or 
through a program like you mentioned where there is a 
collaboration between the high school and the college to have 
some advance credit.
    When Ms. Lee testified earlier, she expressed her concern 
that beginning her education at the community college might not 
perhaps meet the standards of a potential medical school if she 
chose to go that route, and that is simply unforgiveable.
    We have hundreds of community colleges around the country 
that provide a solid education for our students, and for that 
to be a first step is very affordable and well prepares them to 
move on to a 4-year university and then graduate studies and 
medical studies later.
    Senator Carper. Thank you.
    Mr. Mazur?
    Mr. Mazur. One of the things that would be most helpful 
would be better information to prospective students and their 
families about costs, outcomes, employment prospects, the whole 
range of outcomes, by institution.
    The administration is working on a college scorecard along 
these lines as a way to get that information out, effectively 
making prospective students and their families better shoppers 
for post-
secondary education.
    Senator Carper. All right.
    Ms. Lee? Ms. Lee, how are you enjoying your time here in 
Washington testifying?
    Ms. Lee. I love it. I have not really had much time to 
really get to know the city. Hopefully, I will be able to see a 
few monuments and kind of get a feel for Washington, DC.
    Senator Carper. Great. We are glad you are here.
    Ms. Lee. Thank you.
    Senator Carper. We are glad you are all here.
    Ms. Lee. I just feel like colleges should be accountable 
for their graduation rates and how much debt they are putting 
their students in if they do not finish, and I feel like they 
act as institutions that just get the money, and they need to 
be accountable for the progress that their students make while 
they are with them.
    Senator Carper. All right. Thank you.
    Unless I hear some objection from the staff back here, we 
are going to wrap it up here.
    Thank you very much. This is a really important issue, and 
one we need to grapple with. I would like to say that people in 
our business here as Senators, Governors, Mayors, Presidents, 
we do not create jobs. We help create a nurturing environment 
for job creation and job preservation. That is our job, to 
create the nurturing environment.
    And there are all kinds of things--transportation, public 
safety, access to capital, affordable health care, common-sense 
tax policy, common-sense regulations. But a big part of it is 
the skills that our workforce brings to the workplace every 
day, and we have some big challenges here, and thank you for 
helping us to address some of that today.
    My guess is that some of our colleagues will have some 
questions that they will want to submit for the record. We 
would just ask that, when you receive those, if you can respond 
promptly, we will be most grateful.
    With that, this hearing is adjourned. Thank you all.
    
    [Whereupon, at 11:50 a.m., the hearing was concluded.]
    
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