Press Briefing by Deputy Assistant to the President for Economic Policy Gene Sperling

Aboard Press Plane En Route to California

11:25 A.M. EST

MR. SPERLING: I just want to give a preview of what the President's speech is going to be on today. We think this is a very important speech. I think that for all the times that there are differences and disagreements on things that stray into just politics and personalities, today this is a speech that really gets us to where we should be, which is a fundamental policy difference between the President and many of the members -- not all, but many of the members, particularly the leadership, of the Republican Party.

I think it is about a fundamental difference in the role of the federal government in education and in empowering people to invest in themselves, and particularly in the role of the federal government in terms of allowing people to get higher education and access to college.

If you look in the package, there is about three pages -- it says, drawing the line on education, which very much lays out six areas that I think there is a very clear, crisp policy differences between us and many in the Republican leadership. And they are six areas in which the President today will lay down a marker that he will fight them every step of the way on these issues, and that we will have, I think, a good and honest national policy dialogue. A lot of the people we disagree with on these issues are honorable people who we agree with in other issues. But this is just a fundamental policy difference.

If you look at the first -- I think if you want to look at a very fundamental difference, the first issue is expansion of the new student loan reform program. In 1993, the new student loan reform program was passed. It allowed for direct lending, and it allowed students to get an individual education account where they could have flexible repayment systems. I mean, it's pretty simple. The old system had the federal government subsidize 8,000 middle men, essentially guaranteeing them a certain amount of profit, while federal taxpayers took most of the rest. What the direct lending program did was it took out the middle man -- it took out the middle man and the result was lower fees for students, saving them $2 billion over five years for students, and saving the government $4.3 billion over five years. So it's more convenient for students. It saves them money. It saves the taxpayers money.

Now, we are now at the point, our administration, where some of these things can be judged by just looking at how these things are working. The way it worked is that five percent of the schools came in in the first year, 104 schools. In the second year it went up to 40 percent of the loan volume, so we have an additional 1,495 schools. The record on the first 104 schools is extremely positive. And I would encourage anybody here to go talk to the 104 schools; we don't have to have a hypothetical debate on this.

If you look at the articles that have been written -- we included the Newsweek article, Jane Bryant Quinn from February 6th; the Chronicle of Higher Education article -- if you look in The Washington Post today, you have the head of the -- student financial aid administrator saying nearly every experience of the 104 has been positive. Many of you went with the President to Michigan at Dearborn where we did a roundtable and where the University of Michigan president talked about that it was just dramatic. Now students can go directly to their college and get their loans directly from there at lower costs.

So now what we have is we have the Speaker saying he'd like to eliminate direct lending and we have Congressman Goodling, who I should point out is a person that this administration has been able to work with on issues, but where we disagreee -- he wants to limit and say that only 40 percent -- that we have to limit it to what it is right now, at 40 percent of the schools that are coming in to Fiscal Year '95.

Now, here you have a popular program; you have people talking about allowing choice, and here's a chance to allow the other 60 percent of schools to come in and participate in a streamlined federal program that saves them money, that's more convenient, and I think it's pretty simple why it's happening -- there are 8,000 middle men who have a direct financial interest in keeping the old system going. This is a very simple debate -- this is a very simple policy issue between what's good for students and what's good for the consumer bankers and guaranty agencies and their lobbyists. It's between students and bankers and their lobbyists. And we are going to come down on the side of students and that's where we're going to stay. And I think that we will have a lot of support if people leave the ideology behind and look at the 104 schools.

The second issue is on what -- where there is just a clear difference between us -- is on whether we want to dismantle or protect and expand the current college access programs. We believe very much that the Pell Grants, that the in-school interest subsidy for students are just absolutely critical building blocks in allowing people to go on and get higher education.

We have increased the maximum Pell Grant by 12 percent, to go up to 26-20* next year; it would be the highest ever. We are trying to protect programs like the in-school interest which says that when a student who is on a subsidized Stafford loan, 4.5 million students are in school, their interest does not accrue. This makes a dramatic difference. If you are a student who borrows $17,000 over four years, if the Republicans take away this benefit, that loan, rather than paying back $17,000, would go up $3,100 to $20,000. The student's monthly payments would go up 18 percent. That is a dramatic difference and would have a major effect on college access.

Q: Now it never accrues to the student, that interest is never due to the student -- it's in perpetuity for the loan subsidized by the government?

MR. SPERLING: The student pays that without having to pay the -- the interest does not accrue while they're in school. Once they leave school the interest does accrue if they're not paying it back.

Q: The interest, in effect, is paid by the government during the time he's in school?

MR. SPERLING: Yes.

Q: But I guess what I'm trying to ask is does it then decrease by a net amount the interest the student has to pay on the sum total of the loan?

MR. SPERLING: It's quite simple. If you are a student and you had borrowed at the maximum amount and you had $17,100, you would start paying off $17,100. If the interest -- if this benefit is taken away, you would start off paying $20,000.

Q: Three years of interest on a $17,000 loan.

MR. SPERLING: So now, they have called for eliminating this that is a saving, according to CBO, of $9.56 billion. It was called for elimination -- in the Kasich* Fiscal Year 1995 budget called for eliminating the in-school interest subsidy, and then again, when we challenged them to come forward with some suggested savings during the '94 campaign, they put out a list of savings and again listed this as an option that they would use. And they have never backed off from that.

The higher education community is opposed to this; we are opposed to this. Two-thirds of the people who benefit from this are families making under $30,000, and I think this really is an issue of fundamental priorities.

We all want to reduce the deficit. How are you going to do it? They're going to say that they need this for deficit savings. But while they're trying to save $2 billion a year, hurting aid for 4.5 billion students, they proposing a $170-billion capital gains tax cut over 10 years. Now, that's not about the deficit reduction, that's just about priorities. And we think it is very misguided priorities to try to get your savings from something that we think is a critical investment in higher education and increasing people's standard of living.

Q: Now, this is not on the table right now, as opposed to the first one? This is in the Kasich budget proposal of last year, but it's not actually being advocated right now? You think it might be, but it isn't, right?

MR. SPERLING: I think it is very much out there. It was in the Kasich proposal. It was one of the savings put forth in the $176 billion in savings they put forth during the Congress. If they'd like to back off this, if they would like to respond to this by saying they don't want to do that, we welcome them to join us in calling for protecting this program. But that's not what we've heard.

We've also heard, on January 31st, the Speaker talked about replacing the Pell Grant program. That's a January 31st speech. We've also seen both in the Kasich budget, cutting in half the campus-based aid program, which is the program --it's three programs; the Perkins loans, the supplemental educational opportunity grant program, and the work-study. That, too, they would cut in half, at a savings of $2.87 billion in outlays over five years.

In terms of the -- going back -- the direct lending program that I mentioned is HR-530. That is the bill number that caps direct lending at 40 percent and does not allow it to go on its current path, or even the accelerated path that we now propose that would allow over the next few years every school to join the direct lending program.

The third issue where, again, I think there is a clear line is on national service. Now, one thing that was strange was that when the Speaker spoke of replacing the Pell Grants, he spoke about wanting to tie college aid to people working. That's exactly what national service does -- gives people a grant for college or higher education if they serve their community. We believe, again, that we do not have to be just at a hypothetical phase, this program is in place.

I'm sure that if somebody digs far enough they're going to find some imperfections, but I think the overwhelming weight of the evidence is that this is a tremendous program, that it is a great bang for its buck because it is doing several things at once. It is, at a very low cost, helping people -- helping police officers fight gang crime in the community; helping disaster victims; helping all sorts of community service; at the same time, building a civic sense of responsibility and giving people aid to college in a way where they've earned it and worked for it.

Again, we hope there will be bipartisan support for this. Specter, Stevens, Leach, Chafee, Gunderson supported national service. We're hoping that others will support it. We should point out that the way that the state commissions are appointed by governors, they're bipartisan -- there are many Republican governors who have appointed commissions that are successfully running this proposal. And again, I think that this is a clear line that we are drawing and that we will fight for and fight them at every turn to protect the national service.

The fourth issue, again on college access, is the President's proposal to give families up to $10,000 deduction for college tuition or higher education. Now, we are hopeful Republicans will come to the table and help us pass this. This has been the proposal that has been the most innovative and the most popular, and we think that there will be bipartisan support.

But right now, while we are hoping to find -- while we have laid out savings to pay for this, the House Contract proceeds looking for savings for $170 billion over 10 years for a capital gains tax cut that is retroactive and where 70 percent of the benefits go to people making over $100,000, and a neutral cost recovery boondoggle that is so expensive and is such a giveaway that I think it is making the Republicans blush. And I will definitely be willing to predict -- and at least hope --that the sensible Republicans will convince the House leadership to give up this proposal. And certainly, if they were to give up this proposal and the $100 billion they need over 10 years to fund this, they could come to the table and do something for the six to 12 million people who would benefit from the college tuition tax credit.

Fifth, I think is another stark division -- I think is the role of the federal government in playing a leadership role in elementary and secondary education. What we have been promoting in Goals 2000 is, I believe, exactly what the American public supports. It is federal leadership, while allowing reform to take place at the grass roots -- bottom-up reform. The Goals 2000 that is being attacked is a straw man. The Goals 2000 that Secretary Riley and the Republicans helped support is one where the federal government plays a leadership role, but in encouraging and empowering communities to come up with their own plans, with community-oriented, citizen-involved plans.

We do believe there is a national role in education. We do believe that we have a national interest that goes beyond any school, any community, any state. And I think that has served this country well. Now there is more of an economic reason for being concerned about having a national success in education, and the federal government does play a limited role, compared to local government, but it's historically been an important one. We're going to fight to protect Goals 2000 and to expand it, and we will oppose the efforts to abolish the Department of Education, which sends the wrong message to the country, and it sends the wrong message to the world about our commitment to investing in young people and making sure that our students are getting skills that will allow this nation to compete in the global economy.

Finally, a sixth issue is Head Start. November 11th, right after the election, Head Start was one of the proposals that the Speaker said could be on the table. On January 16th, CBS reported the Judd-Gregg* list of cuts that he'd been cast to come up with to help the Senate Republicans look for savings to fulfill their pledge or contract, included a 50 percent cut in Head Start. And there have been serious conversations about including Head Start in a block grant. We are absolutely opposed to any of these proposals. Head Start is a national success story. Over the last few years, there has been a positive review of it, a sense that even though it's been a success, it could be better.

There was a bipartisan group put together with the administration that came up with new goals with Head Start, that made it focus more on quality, it made sure there was more focus not just increasing the numbers, but making sure the young people being served were being served well. Those reforms are in place, and of all the places to go looking for savings while you're throwing away money on something like the neutral cost recovery, there's just no excuse for thinking about taking it from poor children and Head Start and a program that has been a success story.

So today is the day when people want to know, where is the President going to draw the line, where is he going to lay down a marker. He's going to lay it down here. It is a fundamental difference of priorities, and it is a fundamental difference of economic priorities. The President believes very deeply that the skills and education of the American people are absolutely fundamental to our ability to raise standards of livings and keep America the most powerful economic force in the world going into the year 2000. That's what he believes in, that's what he's going to talk about today, and that's what we will fight for during the next six years.

Q: Gene, is he going to ask the council not to use these new availability of deductions, or your hope that you can have continued access to direct loans? Is he going to urge them not to raise tuition? Because that's a criticism some people have said that they could do now with these expanded funds available for education, they just turn around and raise tuition?

MR. SPERLING: I think that, first of all, tuition did skyrocket during the '80s. It even was up faster than health care. But over the last few years, the competition among colleges has become more fierce. The demographics put them in more of a competitive mode. We believe that the marketplace will be working, but I believe that one of the President's messages over the next couple of months will be in the sense of the New Covenant, that we have mutual responsibilities, and when the federal government is making an effort to make college tuition more accessible that colleges and the state legislators that control them should not take advantage of that.

But while I think we will challenge them, I think that the marketplace and the competitiveness for students will be the main driving force that will keep tuition costs down.

Also, remember -- certainly, college tuition tax credit does lower costs by 15 percent or 28 percent for a family, but they're still bearing a large cost, and if a college raises tuition, families are going to feel it, and they're going to hopefully, as you would expect, go to other colleges that are doing a better job of keeping their costs down.

Q: talk about merging the Department of Education and the Department of Labor.

MR. SPERLING: Our feeling is that the Department of Education and the Department of Labor have been able to work extremely well together on the School-To-Work, Goals 2000 and other issues. But we support keeping the Department of Education and keeping the Department of Labor. Certainly as the President goes forth reinventing government, we are willing to look at many reforms and challenge the departments, but we believe that right now, those reforms can take place fast within the Department of Labor, and within the Department of Education separately. We think they're performing well and will be going even further through the Vice President and the President's Reinventing Government process.

But there is no question there is apparently Congressman Gunderson, according to the newspapers, has proposals to perhaps merge them, but I think there are obviously other people who are interested in eliminating the Department of Education; certainly some prominent Republicans have spoken out on that. Some of them are certainly people who have honorable records on education, but we just believe they're fundamentally misguided and wrong, and that they are making their case by setting up a straw man about Goals 2000 and not looking at what a very decentralized bottom-up, grass roots-type of reform the Secretary of Education is leading.

Q: Will the President specifically threaten to use a veto on any of these six issues?

MR. SPERLING: I think a wise strategy by any White House is not to rush to give out their veto strategy. I think he is going to say that he will fight them at every turn. Certainly, the veto is a powerful weapon in his arsenal. But when and on what and in what circumstances he will use it, I will leave it to the President to tell you.

Q: The House, as you know, is debating whether to change the money in the Crime Bill from funding 100,000 police to block grants for citizens and states. Is the President going to be able to resist talking about that today, and essentially stepping on this message of education? Because that is today's story back in Washington.

MR. SPERLING: Well, he's speaking at the American Council of Education. Clearly, this is where we're going to be drawing the line today. I think the story is that the President, this week, is laying out places that he is going to go to the wall to fight the Republicans on issues -- or, some Republicans - - on issues that he believes deeply in. So I think the common theme is that the President is using this week to draw the line on some very fundamental issues: 100,000 cops is one, and the role of education and particularly higher education for this country's future is the second one. And I think that is the thread that ties today and the weekend together.

Q: foreign policy issues?

Q: How about the foreign policy issues involving the peacekeeping, and Secretary Shalala's letter yesterday on --

MR. SPERLING: I'm going to tell you that you're getting out of my range, and I'm going to let you ask Mr. McCurry about those questions.

Q: Foster -- he's going to the wall for Henry Foster, too.

MR. SPERLING: Again, I'm going to stay within my policy area.

Q: your policy area, Gene, there's some confusion. This tax deductibility for education, this would be a so-called "above the line" deduction, available even to people who did not itemize their tax returns, right?

MR. SPERLING: That is correct.

Q: So this is not just a sop to upper middle class people with college kids that some people have tried to say that it is?

MR. SPERLING: No, it is an above-the-line deduction that would be available for people who did not itemize, and that will be one of the things that will make it very popular, we believe.

Q: In some of these areas he's asked for really big increases, like AmeriCorps, which might be hard to justify down the road. Is this kind of a symbolic gesture on his part, or does he actually think he can get Congress to develop a full funding of AmeriCorps, which is already bigger than the Peace Corps?

MR. SPERLING: We're proud of the fact that it's bigger than the Peace Corps. We think that having 33,000, and hopefully 47,000 young people who are out in the community, making low wages to serve their community, to help solve social problems as a way of learning how to work in their communities and being community leaders and going to college is a tremendous thing, and we're proud of the fact that it could get to be larger, and I think we want to do everything we can to move towards the President's goal of having 100,000 young people engaged in national service through AmeriCorps. I think that the proof will be in the pudding, and I think that right now the stories you are hearing are very positive stories about very enthusiastic young people, working in communities where organizations have bid for them, where state panels have worked to set things up. This is another example of national leadership where the implementation and the design happens at the local level, it happens with the private sector. You have IBM, GE, many large companies working together to make this happen.

As to whether we'll get the increases we want, we're going to fight like hell to get them. We'll do the best we can, and we'll make the best case we can. Certainly, on some of these programs, it will take a big fight just to hold the line. We understand that. That doesn't mean we're not going to fight for the full amounts that we believe in. We've been able -- we are very proud that we've been able to bring the deficit down now -- it's projected to be $616 billion over five years, and still be able to find additional spending cuts so that we can increase exciting new programs like national service. And, ultimately, if we'd put ideology aside, if people look at the direct lending program and ask whether it's working, if they look at national service and ask whether it's working, the proof will be in the pudding. And if it turns out that you need to go slower at some point based on the facts, that's fine.

But people should also be willing to say that these programs are working and that they're successful. We should be willing to admit that, put ideology aside and give more people a chance to have these opportunities.

THE PRESS: Thank you.

END11:55 A.M. EST