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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 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

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) 

(1) 

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. 

2 

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 

3 

* 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. 

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.* 

[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. 

4 

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 

5 

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 

6 

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. 

7 

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 

8 

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 

9 

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 inState 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 

10 

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 taxpreferred 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. 

11 

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 

12 

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. 

13 

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. 

14 

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. 

15 

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.’’ 

16 

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 longterm 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 

17 

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. 

18 

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 

19 

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 reVerDate Mar 15 2010 14:33 Feb 13, 2015 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 R:\DOCS\92909.000 TIMD
20 

formed 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 

21 

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. 

22 

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. 

23 

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 lowincome 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. 

24 

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. 

25 

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. 

26 

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. 

27 

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 

28 

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 

29 

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 

30 

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 

31 

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. 

32 

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 proVerDate Mar 15 2010 14:33 Feb 13, 2015 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\92909.000 TIMD
33 

spective students and their families better shoppers for postsecondary 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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