COMMITTEE ON EDUCATION AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES

November 1, 2005

Budget Proposals Strengthen Higher Education & Protect Pensions on Behalf of Students, Workers, Retirees & Taxpayers

Dear Colleague:

As part of the budget process, the Education & the Workforce Committee was tasked with finding $18.1 billion in net savings from the mandatory spending programs within the Committee’s jurisdiction.  The Committee developed proposals on both higher education and pensions that generate savings to the federal government and provide the Pension Benefit Guaranty Corporation (PBGC) with additional financial resources.  Both proposals will make federal programs more efficient and more effective on behalf of students, families, workers, retirees, and American taxpayers.

Reforming and Strengthening the Higher Education Act

Since 1965, the federal government has invested hundreds of billions of dollars in higher education on the premise that all students, regardless of financial circumstance, should have the opportunity to pursue postsecondary education.  Four decades later, taxpayers are spending more than ever before on higher education, yet the goal of higher education access remains elusive to far too many American students.

Taxpayers are carrying a tremendous higher education cost burden on many fronts.  In addition to the more than $70 billion in direct student aid paid for by taxpayers in FY 2005, American families are subsidizing aid to institutions, research, and numerous federal programs outside the Higher Education Act that award funding to colleges and universities.  Moreover, higher education consumes a significant portion of the taxes paid at the state level, and even after all of this, families are paying more than ever before for their own tuition bills.  The federal investment in higher education will continue to be a critical component of the future success of our nation only so long as it is made wisely and in the best interests of students, families, and taxpayers.

To that end, the Committee has developed comprehensive reforms that will expand college access for low- and middle-income students while simultaneously generating savings for taxpayers by eliminating program waste and inefficiency, trimming excess subsidies paid to lenders, and placing the aid programs on a more stable financial foundation.  Specifically, the proposal includes a number of reforms to generate savings, including putting an end to excess subsidies paid to lenders, providing student loan borrowers a choice between a variable and a fixed interest rate on consolidation loans, strengthening risk-sharing within the loan programs, maintaining a financially sound interest rate structure, and encouraging more efficient and effective default prevention and protection systems.

These reforms are accompanied by proposals to strengthen student aid programs and expand student benefits.  It would reduce student loan fees, expand student loan borrowing opportunities, protect borrowers’ credit, ease the financial aid process, and provide greater flexibility within the loan programs.  Taken as a whole, CBO estimates these reforms would save $14.3 billion over five years, eliminating waste on behalf of taxpayers while strengthening and expanding student benefits.

Strengthening the Financial Condition of the PBGC

On June 30, 2005, the Committee passed the Pension Protection Act (H.R. 2830), comprehensive reform legislation to ensure employers properly fund their plans, provide workers with meaningful disclosure about the financial status of their pension plans, and help to protect taxpayers from a possible multi-billion dollar bailout of the Pension Benefit Guaranty Corporation (PBGC). 

Even though no tax dollars are used to fund the PBGC – it is funded through employer-paid premiums – the agency’s fiscal health is a bottom line issue for American taxpayers.  However, it is important to note that ensuring employers fund their plans properly will prove far more helpful to the traditional pension system than simply raising these premiums alone.  Still, Congress has not raised them since 1991, so a reasonable increase is both prudent and necessary, and increasing premiums would help strengthen the PBGC’s financial condition in the short-term.

The Committee’s proposal to put the PBGC on a more secure financial foundation is two-pronged.  First, it would phase in responsible increases in the flat-rate premiums paid to the agency each year.  Second, it would establish employer-paid termination premiums.  If Congress passes comprehensive pension reform that is signed into law by President Bush before the end of the year, those comprehensive reforms would take precedence.  The benefits of comprehensive reform, which include proposals to strengthen the PBGC, far outweigh the benefits of premium increases alone.

The proposal would increase premiums from $19 to $30 annually beginning in 2006 and give the PBGC the discretion to increase these premiums up to 20 percent annually thereafter.  Should the PBGC exercise this discretion, the proposal reserves for Congress the right to disapprove the increase in a straight up-or-down vote each year.  CBO estimates this plan would provide the PBGC an additional $5.2 billion in additional financial resources over five years.  Next, the Committee proposal would establish a $1,250 per participant premium on companies that have gone through bankruptcy and terminated their pension plans.  These termination premiums would be paid for three consecutive years once a company emerges from bankruptcy.  CBO estimates this would provide the PBGC an additional $1 billion in financial resources over five years.

With some $450 billion in pension plan underfunding among financially weak companies looming on the horizon, the PBGC’s debt could deepen even further.  The Committee’s action on employer premiums is only small part of the larger effort to place the traditional pension system on more solid ground – but it is nonetheless an important one, for workers, retirees, and taxpayers alike.

Taken together, these proposals will strengthen our higher education system on behalf of students and taxpayers and put the PBGC on a more solid financial foundation to protect worker pensions.  Please join us in supporting these proposals when the House considers legislation to reform federal programs and reduce the deficit in the coming weeks.

Sincerely,