August 3, 2007

Dear Conferee:

I am writing to express the views of the Department of Education on the House 
and Senate versions of H.R. 2669, the "College Cost Reduction Act of 2007" 
and the "Higher Education Access Act of 2007," respectively. I wish 
to highlight the Administration's most serious concerns in this letter.

The Administration supports reducing excess subsidies in the student loan programs 
  and increasing aid to the neediest students, as proposed in the President's 
  FY 2008 Budget. While I am gratified that a number of Administration proposals 
  are included in one or both versions of H.R. 2669, other provisions in the two 
  versions of the bill are problematic. The Administration could not support a 
  final bill that diverts resources away from larger Pell Grants for needy students 
  toward such provisions as an interest rate reduction, several new mandatory 
  programs, the Senate's current special allowance payment amendments, tuition 
  price controls, the Upward Bound priority change which undermines the program's 
  effectiveness in serving at-risk students, and an objectionable unmodified student 
  loan auction provision. *If such a bill were presented to the President in 
  that form, his senior advisors would recommend that he veto the bill.* The 
  totality of the package is of great importance, and I want to continue to work 
  with Congress as the conference proceeds so that we may obtain a final bill 
  that we can all support.

In the context of the Nation's current long-term fiscal outlook, the Administration 
  is disappointed that Congress is using the budget reconciliation process as 
  a vehicle to create a host of expensive new Federal programs rather than to 
  restrain Federal entitlement spending. Entitlement programs currently place 
  an unsustainable burden on the Federal budget and the U.S. economy, which is 
  why the President's FY 2008 Budget proposed significant reforms to slow spending 
  by $96 billion over five years.

The Administration remains committed to ensuring affordable access to postsecondary 
  education. Since the President took office, the number of students receiving 
  Pell Grants has increased by one million, up from 4.3 million in FY 2001 to 
  5.4 million today. The President's FY 2008 Budget proposes to further our commitment 
  to this well-targeted program by increasing the maximum annual award to $5,400 
  over the next five years. Additionally, the Budget proposes to raise the value 
  of Academic Competitiveness Grants by 50 percent, providing an even greater 
  incentive for our neediest students to excel in high school and college.

The President's FY 2008 Budget proposed to invest nearly all new spending to 
  increase need-based aid for students currently in school, primarily by increasing 
  the maximum Pell Grant award. The President's Budget invested $19.8 billion 
  in mandatory funds to increase Pell Grant awards over 2008-2012, compared with 
  $7.7 billion in the House bill and $17 billion in the Senate bill over the same 
  period. I am pleased that the Senate version of H.R. 2669, by using capped mandatory 
  spending, would similarly target most of its new mandatory spending to 
  low-income students while they are in school and can benefit the most. However, 
  the House version of H.R. 2669 would target less than 40 percent of its new 
  spending toward needy students in school, and includes new mandatory spending 
  that is largely directed to students after they have left college and are already 
  in the workforce and to new mandatory programs for institutions of higher education.

The Administration strongly opposes new mandatory Federal programs that are 
  designed to aid institutions rather than needy students and have significant 
  long-term costs to the taxpayer. The House version of H.R. 2669 would provide 
  multiyear, mandatory funding to several Federal programs, totaling $1.7 billion, 
  that would poorly target aid to students, serve narrow constituencies, and raise 
  constitutional concerns. These funds would be more appropriately directed toward 
  increasing the maximum Pell Grant by approximately $450 per student. The Senate 
  version of H.R. 2669 would also provide multiyear mandatory funding to create 
  new entitlement programs that poorly target aid to needy students and serve 
  narrow constituencies, although fewer of these programs than in the House version. 
  These new entitlement programs are unnecessary and would dilute efforts to get 
  scarce Federal resources to the neediest students.

Further, the full cost of these bills is not offset, because scoring for this 
  bill counts only mandatory programs and does not reflect the substantial increases 
  in discretionary spending that would result from either the House or Senate 
  version of H.R. 2669. For example, changes to the student aid need-analysis 
  provisions proposed in the House version would result in an additional $1.3 
  billion in discretionary Pell Grant costs for FY 2009 alone; in the Senate version, 
  similar changes would result in an additional $883 million in Pell Grant costs 
  for that year.

In addition to these unpaid-for increases in discretionary spending as well 
  as costly new mandatory programs, the House version of H.R. 2669 would reduce 
  interest rates on student loans over five years, after which the interest rate 
  would revert to the current 6.8 percent – a budgetary gimmick that hides 
  the cost of extending this misguided proposal. The Administration also strongly 
  opposes this interest rate cut because it would be less effective in targeting 
  Federal resources to the neediest students than increasing grants.

The President's FY 2008 Budget included a uniform .50 percentage point reduction 
  in the rates used to calculate special allowance payments (SAPs) to student 
  loan holders. The House version of H.R. 2669 would reduce the SAP rate for Stafford 
  and Consolidation Loans by .55 percentage points, and for PLUS Loans by .85 
  percentage points. The Senate version would also reduce the SAP rates, but it 
  would create a two-tier SAP rate that differentiates between for-profit holders 
  and other loan holders, with the other loan holders receiving a higher SAP rate. 
  This structure would give for-profit lenders a powerful financial incentive 
  to find legal loopholes to receive the higher subsidy, leading to costly, unintended 
  consequences, such as those that resulted from the legislation creating more 
  generous subsidies for holders of tax-exempt loans. The Administration strongly 
  opposes the Senate proposal. The Administration strongly believes Federal Family 
  Education Loan (FFEL) subsidies should be based on what is necessary to ensure 
  loans are available to eligible students, not the nature of the financial institution 
  holding the loan.

While the Administration supports taking advantage of market mechanisms, I 
  strongly believe that we must proceed with great caution in entering the student 
  loan auction arena. The auction provisions in both the House and Senate versions 
  of H.R. 2669 would involve enormous implementation challenges that threaten 
  to disrupt services and loan availability to students. Safeguarding competition 
  in an auction program, as the Federal Communications Commission's experience 
  makes clear, requires a great deal of planning, consultations with experts, 
  and flexibility. If the Congress chooses to include an auction pilot in the 
  final bill, at a minimum it should amend the House provision to provide adequate 
  time to develop a meaningful pilot, ensure that borrower services, choices, 
  and loan availability are safeguarded, and make the launching of the pilot contingent 
  on the results of the required study. The Administration cannot support the 
  Senate version of the auction provision because it is highly prescriptive in 
  its mechanism for competitive bidding, significantly reduces choices for students 
  and parents, and does not give the Department of Education the ability to design 
  and consider alternative methodologies.

The Administration also has several concerns with provisions in the House and 
  Senate versions of H.R. 2669 that would affect student loan forgiveness and 
  repayment. Overall, the Administration is concerned that the loan forgiveness 
  provisions in both versions of the bill are a costly and inefficient way to 
  encourage students with debt to pursue specific professions. The Administration 
  is particularly concerned that the proposed loan forgiveness in both versions 
  for individuals employed in public-sector professions would be available only 
  to borrowers in the Direct Loan program, which would upset the competitive balance 
  between the FFEL and Direct Loan programs that has led to greater efficiency 
  and better options and service for all schools and students.

Provisions in both versions of the bill would permit a borrower to make payments 
  that are less than the amount of interest due. Under the House version, that 
  interest would be capitalized; in the Senate version, the taxpayers would pay 
  the unpaid portion of the interest due on subsidized Stafford Loans. For some 
  borrowers, the proposed income-based repayment provisions could result in a 
  significant and growing debt burden due to substantial amounts of capitalized 
  interest on their loans. The Senate version, providing for payment of interest 
  during repayment periods, would be a costly additional subsidy for those who 
  have already attended college and benefited from government interest payments 
  during their enrollment. Again, this approach fails to effectively target Federal 
  funds to the neediest students and may, over time, make some borrowers' debt 
  burden less, rather than more, manageable.

The Administration would oppose any attempt to establish tuition price controls 
  and is concerned about the House version's "higher education price index." 
  While college affordability is a worthy goal, the pricing of services such as 
  higher education is complicated, and government attempts to compare and "index" 
  prices can have unintended consequences. Furthermore, such an "index" 
  can have a negative effect on schools that have consistently and historically 
  kept cost increases down, and provide benefits only to higher priced institutions. 
  The Administration wishes to continue working with Congress during the course 
  of the conference on H.R. 2669 to improve data transparency and help families 
  make well-informed decisions.

The Administration strongly opposes the two unprecedented amendments to the 
  TRIO Upward Bound program in the House version of H.R. 2669. One provision would 
  earmark $57 million for Upward Bound grant applicants who submitted low-scoring 
  applications. A second provision would rescind the absolute priority used in 
  this year's completed grant competition. As a result, the bill would eliminate 
  the requirement that grantees target their activities to the neediest students 
  and diminish the validity and usefulness of a rigorous impact evaluation of 
  Upward Bound that was designed to provide information about what practices help 
  at-risk students succeed.

The Administration understands that the conferees may consider the provisions 
  of S. 1642, the "Higher Education Amendments of 2007," in conjunction 
  with the conference on H.R. 2669. The Administration has grave concerns with 
  several provisions in S. 1642, which would create approximately 13 new programs; 
  reauthorize several programs the Administration proposed to terminate because 
  they are duplicative, have achieved their purpose, or have failed to demonstrate 
  results; and restrict the Secretary's regulatory authority. S. 1642 also contains 
  objectionable provisions on a higher education price index and on Upward Bound 
  similar to those contained in the House version of H.R. 2669. The Administration 
  supports provisions in S. 1642 that would improve data transparency, but is concerned with any restriction 
  on the Secretary's ability to encourage, and provide support to, systems of 
  postsecondary student-level data. The Administration also supports the goals 
  of the "Student Loan Sunshine" provisions in S. 1642 designed to help 
  eliminate questionable lender arrangements with institutions, but further work 
  on these provisions is needed to address technical problems that could impair 
  the usefulness of the amendments.

Some general principles have guided the Administration's review of the House 
  and Senate versions of H.R. 2669 which I urge the conferees to embrace. First, 
  new spending should support two key objectives: helping the students who most 
  need, and can benefit most from, Federal support (i.e., low-income students 
  during the time that they are in school), and providing financial incentives 
  to encourage these students to focus on academic achievement. Next, competition 
  between the FFEL program and the Direct Loan program is good for students, schools, 
  and taxpayers, and must be maintained and neither program should be given a 
  competitive advantage. Third, on accountability, we must inject more transparency 
  into the system so that students and parents have better consumer information 
  about cost, graduation rates, and educational results in order to make more 
  informed decisions. Finally, redundant or poorly targeted programs should be 
  eliminated, and more such programs should not be created.

The Office of Management and Budget advises that there is no objection to the 
  submission of this report from the standpoint of the Administration.

| | Sincerely,        
| | ------------------
| | /s/               
| | Margaret Spellings



|Last Modified: 08/07/2007
|-------------------------