CAREER COLLEGE ASSOCIATION
Statement by Omer E. Waddles, President
Education and Training Tax Provisions of the Administration's
Fiscal Year 1998 Budget Proposal
March 5, 1997

Mr. Chairman and Members of the Committee:

I am Omer Waddles, the President of the Career College Association. I would like to take this opportunity to thank you for the invitation to testify today. I will be providing the Career College Association's views and comments relating to the President's recently proposed changes to the tax code. I will also be commenting on how those changes will affect students and access to postsecondary education.

CAREER COLLEGE ASSOCAITION

The Career College Association (CCA) is a group of over 700 educational institutions offering career-specific educational programs. The variety of member institutions that make up this organizations educate nearly one million students in over 200 occupational fields throughout the nation. CCA schools graduate almost one half of the technically-trained workers who enter the workforce with training beyond the high school level.

In addition to the varied curriculum alternatives, CCA schools now provide a critical source of industry-based skill upgrading for front-line workers. It is true that a worker's career path will potentially change as many as seven to ten times in a working life. We are proud that our schools are able to provide America's workforce the chance to seek skills necessary to ensure an ability to adapt to these paths. CCA institutions offer programs which provide individuals certificates, two-year Associate of Arts degrees, baccalaureate degrees, and master degrees. In addition, a strong unifying belief of our community is that while we are determined to provide the best training possible for our nation's workforce, we are also committed to achieving the highest possible standards of educational quality.

While our association is a truly diverse group of institutions it is clear that we have the unique ability to be extremely responsive to the market place. Our schools know that it is imperative that we are successful in tailoring our services and products to the needs of today's employers. While thinking beyond today's market place demands, we must improve our ability to foresee the skills-sets which tomorrow's world of work will be demanding.

An important difference for our schools is that they seek excellence through a healthy and vibrant entrepreneurial spirit. This spirit ensures that our schools are engaged in the necessary cutting-edge training which provides a wide array of services and training components. To survive over the long term, our member institutions must continue to provide the best quality product as measured by the market place. If our schools fail in this mission, then the market will choose to hire the workers from other sources, or even attempt to train the workforce in-house. The students are also able to seek out a different source for their education and training. This is the basic proprietary nature of the vast majority of our institutions.

Allowing the customer to determine the economic success of an institution by deciding with their feet has been a time honored tradition in this nation. If the education and training are inadequate, then the students will seek alternative educational opportunities. Through rigorous accreditation standards and strong state and federal oversight, these institutions also ascribe to a set of principles of quality and access in postsecondary education.

We have seen a dramatic improvement in the quality of this community. Over 1,500 schools have closed over the last five years through a combination of tougher accreditation actions and a variety of mandated quality standards relating to economics, curriculums and legislatively required standards. We know that today's career colleges are far more economically and ethically reliable than those five years ago. As a specific example of this kind of attrition I cite the experience of the Accrediting Council for Independent Colleges and Schools (ACICS). As ACICS reported to the Government Accounting Office (GAO), they have had 345 of the schools they have accredited over the last five years close because of a variety of reasons. This is just one example of an accrediting group which has seen its population drop as a direct result of tougher standards, stricter oversight, and a smarter consumer.

NEW UPDATE

I join with my colleagues in expressing my support for the spirit of the current dialogue associated with the issues on accessing education today. For the first time in many years we are seeing the debate focus on the issue of how and not why. We are becoming united about the clear need to provide a viable series of effective paths to choose from as an individual seeks additional education and training. The President's focus on the first two years after high school is an important period for many in our society. It is a time when important life-impacting decisions are made and skills are developed. I encourage the Committee to keep in mind the similarly important issue of having the opportunity to seek continuing educational opportunities throughout one's life.

As you undertake the process of reviewing the proposed legislation and the communities it will impact, it is important that we provide you the facts and figures describing today's education and training population. As we see an older and more experienced population emerge from the baby boomer generation, it is critical that we all address the reality of today's market place. We must not limit our actions to what we define as the traditional community setting with which we are comfortable from our own past. Today's student population has an increased share of the older and more experienced individuals. We need to be sure that we are not establishing artificial barriers for these students as we design the delivery systems through which we are attempting to provide the open door of opportunity.

HISTORIC CHALLENGE

I have spent a great deal of time listening to Administrators and Presidents of our institutions as they talk about the needs of their communities. The message that has been reverberating is that employers are looking for educated and trained individuals who can jump into the mix immediately and remain flexible as the demands of the economy change around them. This is the workforce of today and we need to adapt our curricula and teaching modules to accommodate industry's unique demands as well as the varied challenges presented by today's student bodies.

It has been an exciting and rewarding experience for our nation over the last 40 years as we have reaped the multitude of benefits provided through a more educated workforce. The newly created access to colleges and universities changed the way our nation viewed their ability to change economic class levels. This also gave new hope to parents that their kids could do "better" than they had done for themselves. This was only true because the markeplace perceived value in the education and training acquired through the new postsecondary opportunities.

With a new array of academic and training structures in place, our nation was able to attain a position of global leadership. This was the result of not only our raw military power, but also because of our intellectual capacity and economic markup superiority. It was clear that our dominance on the world stage has been the result of something more than simply being militarily stronger. The clear need has been to be more creative and resourceful in our approach to managing our human resources. I believe we stand at a similar historic threshold today. We stand alone again as the clear world power when it comes to our military prowess. Can we cheat the fates of time again and avoid the historic and traditional demise of previous world powers? I believe it is very possible if we look around and identify the available raw materials remaining in our society.

I believe the answer lies in how successful we are at reaching out to the 70%-75% of the high school graduates in this country who do not succeed in achieving a baccalaureate degree. Where do we train these individuals and how do we provide the basics they may have already missed in their secondary education? Those who follow the path of a traditional baccalaureate degree receive their opportunity for maturation during the "college years." We join in celebrating the success of our current system and believe that we can continue to reap the benefits of this positive course.

The cruel societal reality is clear: not everyone takes the same path. We need to be continuing to embrace a broad spectrum of educational and training opportunities. People reach different stages of their own maturation and find their willingness to learn has changed. This is the basic and obvious reason why my community seeks to ensure their continued inclusion in the various programs, including tax programs targeted at our students.

For those wondering whom I am talking about when I refer to our students, I ask you to simply think about the faces you see when you are traveling. We train the travel agents booking the flights you take. We train the airplane pilots and mechanics who take you back and forth to Washington, DC. We train the skilled workforce in the hotels and restaurants you visit. If you get sick then we train everyone in the doctor's office except the physician. If someone is working on your computer at home or in the office we are a major educator and trainer in that field. We even train the court reporters taking notes at these proceedings today. In reality our graduates will be seen in the faces of the people you meet and interact with each day. We take the greatest pride in our work when people can assume the service is available and reliable.

PRESIDENT'S TAX PROPOSALS

I have already stated I believe the President's tax deductions and credits have provided a welcome focus to the national rhetoric relating to our efforts in the areas of education and training. Now, we need to be raising the legitimate and necessary questions concerning the current proposals. We need to explore the appropriateness of the proposed delivery system and what necessary complexities must accompany such a dramatic initiative.

The HOPE Scholarship, the $1,500 tax credit, is still under last minute refinements by the wordsmiths in the Executive branch. We do know that the Administration's intention was to make sure all of the postsecondary populations were eligible to receive the benefits of the tax assistance program. The intent with this credit is to promote the establishment of an opportunity to have an additional two years of education beyond high school. Remaining drug free and achieving a "B" average are two critical thresholds related to retaining eligibility for the tax credit.

A similar description, but without the "B" average, is applicable for the $10,000 deduction option. This proposal allows students to use this assistance in any of the years of postsecondary education is desired. This proposal is the more universal one available for those beyond their first two years of postsecondary work, as well as those unable to qualify for the $1,500 tax credit.

I testify today knowing that any proposals that have a price tag of at least $36 billion over the next five years will pose a challenge to this Congress. I do want to underscore the importance of the goal of creating greater access and encourage your continued attention to such a significant matter.

These two proposals represent the backbone of the tax issues and can be considered through a series of questions.

1. Does the President's tax cut proposal include the private career schools?

The Administration's work has been seen as an inclusive effort. There are no apparent attempts to exclude any portions of the population in the draft proposals. We have been assured by individuals in the Department of Education and the White House that this will remain true as the final legislative language is drafted.

This is critical to the 70%-75% of high school graduates who are churning through the workplace looking for some skill development and career path choices.

2. Is this delivery mechanism the most effective and efficient available?

The answer to this question depends on the nature of the selected audience that is targeted and the other elements of the package. The original context for the $10,000 tax deduction proposal was as part of a "Middle Income Tax Break" package. The targeted audience was intended to be the average and somewhat more affluent of our society. During the recent campaign, the $1,500 credit was added to the overall proposal. Criticism has emerged that these proposals simply do not adequately assist in opening new doors for lower income individuals.

We need to note that the use of the Pell Grant program and the proposed increase in the maximum award does target the lower income students. If these items can be seen as a total package then it helps to enhance the overall effectiveness of the proposals.

The typical CCA school is seeing an increasingly more mature population attend their institutions. We still have a majority of students coming out of high school but the average age for many of our campuses rests in the 26 to 28 year old age range. This means that our assumptions as to the economic impact of each of the tax changes on our students changes as well.

A recent survey of our students and alumni found that approximately 30% of our students have a household income of above $30,000. This means that a fair number of these individuals should be able to reasonably expect to use the benefit from some type of credit or deduction proposal. At the same time the survey reported 47% of the student population at CCA schools have incomes below $15,000. This is clearly the population that is most likely to benefit from the Pell Grant expansion. This is also true of many of the other sectors of the higher education community.

3. Why should be establishing additional complexities and a new pattern of educational oversight through the Internal Revenue Service?

The call for the IRS to begin measuring the quality of a "B" average is one that quickly sends chills up and down the spines of all students, parents and Title IV participating institutions. This measure seems to quickly underscore the clear concerns that we can get into if we are not careful. There is no assumption on our part the IRS would have any alternative intentions, but it is the by-products that may come from the linkage to these credits that could become a problem. Grade inflation, monitoring techniques and the intrusion of the government into the academic environment are all concerns that need to be examined before we consider stepping blindly into this arena.

The debate over who will determine what a fair grade average is and what role the Government should have is an issue the authorizing committees have also struggled with. This issue must also be considered when weighing the impact on the lower income individuals and their ability to utilize the credits and deductions.

4. Where are the current budget limitations and how will the cost of these tax proposals impact on established and effective programs like the Pell Grant?

A fear that has been growing confronts the reality of a finite budget and if we are to pay for the tax cuts, where will the offset occur. The President has laid out a series of tax increases designed to offset most of the cost associated with his tax proposals. It is clear that there will be strong opinions on both sides of the aisle when your Committee considers that package as well.

However, before any agreed-upon tax break package is offset, we want to strongly urge against the temptation of dipping into the Pell Grant program for sacrificing an increase in the maximum award. For those who are interested in making the end legislative product a universal one, we must be sure to look broadly. A single tax proposal is simply not the silver bullet answer. The Pell Grant has proven to be a valuable instrument in reaching the first generation students.

5. Have we been down this road before?

We have to be careful as we move down this dual path of tax breaks and Pell increases. The intent to have both the middle income tax break and an increase in the Pell Grant has been tried before. In 1978 a similar scenario played itself out on the national scene. A unified and bi-partisan Congress found itself proposing a tax credit program while the President was announcing plans for the Middle Income Student Assistance legislation. The then Democratic-controlled House of Representatives passed the tax credit legislation and the Republican- controlled Senate passed an expanded Pell Grant and Federally insured loan program. The Congress finally realized that they could not afford to fund both new programs. Finally in the fall of 1978 the Congress decided to adopt the guaranteed loan programs and dropped the tax credit provisions.

A similar competition over funds and initiatives could easily develop again twenty years later and the reality is that the nations is the loser if this process is not handled well. Access and the opportunity to succeed is the education mission of the day. We must be sure to learn from the lessons of the past.

6. Are there any other tax provisions which can be additional tools for access to all types of populations and which both parties can agree upon?

a. Section 127 of the Internal Revenue Code - We would encourage the Committee to exclude the value of employer-provided educational assistance from an individuals's income calculation. This has been one of those on-again off-again benefits for individuals who need a permanent place in the tax code.

This provision is critical to the adult students who are willing to take on the added responsibility of working and also attending school. I see this as an important tool for businesses as they attempt to retool in anticipation of market challenges. Our nation needs to encourage the training and education activities throughout a lifetime of work.

b. Reinstate the deductibility of Student Loan Interest - This tool was a very effective means of getting money back into the pockets of individuals who are repaying their loans. As overall indebtedness has increased so has the burden on individuals as they repay their student loans. Over the last five years we have been very successful at reducing overall student loan default rates.

This proposal has appeal in both the Republican and Democratic leadership as an item that would not require an itemized filing to be applicable. This greatly enhances the usefulness and breadth of the provision and would have a positive impact on more students.

c. Education IRAs, Saving Accounts, Prepaid Tuition Plans, and other preparation tools. These proposals have been coming forward in a variety of forms. We all see these ideas as helpful tools in preparing for attendance at a postsecondary institution.

The Critical component associated with these plans remains a matter of fairness and inclusion. While we attempt to create a full spectrum of choice for students, we need to be sure that all institutions are eligible participants in the incentive packages related to the various saving accounts.

I have already been in contact with the majority staff counsel on this matter, and in response to their request have provided generic language that will ensure a wide array of choice and participation. We do not ask for any kind of earmarking or special treatment.

What we are seeking is to ensure that the students and employers across the nation have the full palate of choices available to them. They are looking for the best fit for their particular needs and circumstances.

CONCLUSION

It is an honor to be able to repond to your request for input on these important matters. I want to underscore our sincere commitment to being a resource for your Committee. I know that you have a number of important economic and legislative challenges in front of you. In addition, many of them are in areas of relatively new matters of law and public policy. If there is anything that we can provide, or assist you with, we would be pleased to work with you.

The faith and passion I have for this community comes from my strong belief that we have an exciting opportunity to benefit from the strength of the American spirit and character. We can never be satisfied with our current position and level of skills in the workplace. We must continue to build on the available national talent and challenge our schools, families, communities and individuals to reach beyond. Education and training initiatives if based on a solid foundation allow for this to occur. I look forward to working together in our community and with the Committee in developing a coherent strategy to accomplish this goal. Thank you for the opportunity to testify today.

Attachment

February 25, 1997

Mr. James D. Clark
Tax Counsel
Committee on Ways and Means
1102 Longworth Building
Washington, DC 20515-6348

Dear Mr. Clark:

On behalf of Omer Waddles, President of the Career College Association, I would like to thank you and Mac McKenny for meeting with us on February 13 and allowing us to share with you the mission of the Career College Association.

As we discussed, career colleges and schools play a vital role in the preparation of a globally competitive work force. Current las provides the same access to federal financial assistance to students attending the proprietary sector of higher education to those attending traditional colleges and universities. It is critically important to our nation's future to ensure that this equality of opportunity is maintained as new federal assistance programs are created or old ones evolve.

*In order to assure that the proprietary sector of postsecondary education is included in the higher education initiatives which will be considered by your Committee, care must be taken in the drafting. To achieve this goal, we suggest the following:

The legislation, in its definition sections, could define an "institution of higher education" for purposes of your legislation, as any institution which is included in the definition of an institution of higher education in section 481 of the Higher Education Act of 1965, as amended, (20 U.S.C. 1088)

(The definition of "Institution" of higher education", as defined under Section 1201 of the Act, covers only the non-profit institutions (primarily the traditional two-year and four year colleges). We would request that the Committee use the more inclusive definition found under Section 481 of the Higher Education Act.)

Again, we stand ready to assist the Committee as a resource if you have any questions or concerns as you proceed with this important legislation.

Sincerely,

Bruce Leftwich
Vice President for Government Relations