GUARANTEED STUDENT LOANS, 1973

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					GUARANTEED STUDENT LOANS, 1973

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                HEARING                         (
                   BEFOKE THE

     SUBCOMMITTEE ON EDUCATION
                      or THE

        COMMITTEE ON
  LABOR AND PUBLIC WELFARE
    UNITED STATES SENATE
          NINETY-THIRD CONGRESS
                  FIRST SESSION*
                       ox
THE AVAILABILITY OF GUARANTEE!* 8TTDENT LOANS
AND THE INTERPRETATION or THE NEEIHC TEST Ate IM-
PLEMENTED BY THE I>WABTMEXT OF HEALTH. EUtXTA-
TIO.V. AM) WELFARE fVOEE THE PBi>VIKIOXH OF THE
                    AMENUMEXTK t»F ltI2


                        22. 1973




             . covnunforr nuwnwc OITKX
                 WAMUKCTOV : I»T»




                      LAW J/tT approved
                                      !;




           COMMITTEE OX LABOB AXP I'UBIJC WELFARE
               HAKKI8OX A. WILLIAMS. -In.. X*w Jmrjr. C»«irw-
JEXMXGS RANDOLPH. W«« Vlr«t«U        J XCOB K. JAVIT*. X-w T»tt
CLAIBOKXE ITXI.. Rk«4r l«bD4         1-KTKK H DOMIXICK. C»lvnd»
rJ»WAKI> M. KESXEDT. MaiMarfedfrt t» KKIIAKI* *. KCHVnKEK.
CATUMD XRL8OX. WImMiita              KOBEET TAIT. J»..«>W.
WALTtX F, MOXUAIX. MteanM*           J. «LEX> MULI- J*..
TIIOMJH P. KACI.ETOX. Mbmwl          IU>nKKT T. «TAFPOU>. \rtm-ut
AI-IX "TtAXirroX. «:«ltf«nU
I1AROU> IIUCHKK. U««
VIUJAlt I>. lUTlUWAT. Mala*
                        KTEWUT K. MrCtru:. Ctlrf Cbrfr
                        EHMJTT E. XACLC. (fntrrml r*m«rl
                     K'>T II. MiLUC»»y. Mim*ritf Cliff Ctrrt
                      Krccxc Mrmeuiax. IfiJwHLy rMMr(


                        SI-MOM MITTCK ox
                                IT.I.I.. Ki»4
JRyKIJMM KAXIMHJ1I. Wmt flrclala       rtTTEK II HOMIM«*K.
IIAKKI«OX A. m-|IJJAMf. Jc.. Xrw Jrnnr JACOB K JAVITH. 3C^w r»rk
n>WAKI> M. KEXXKI'V. UjMu»rhav<f »     KK.1IAKI> * KOIVEIKEK.
VAI.T>:K r MOXOAIJU Miawwt*                J 4;iJt;yy HEAU.. J« .
THOMAS' r. EA«UrT"X. «l~-»«rl              IU>B»JtT T. KTAF>*<IKI». \'

VIIJ4AM r> UATHAVAT.
                                      VCXLU. Cni

               Kuril MlUX»»>. Himfftlf      rntrtt^»»t ISttf Mrmhtr

                                       mi
                                     CONTENTS

                      CHBOXOUHJ1CAL LIST OF WITNESSES*
                                             Y. Jrxe 22. 1S»7»
Qtttu. J«*m R^ CoaamiMdoQ*T of Edixatl<>t>-4'~lcBat*. aro>«|*ul»d by
  WlOiarn M. Slow**. IHmtor .rf tbr IHvWoo »( Innatwd )>*DI>. and
  IVrr I\ MolruoML Sprrial AndMant to thr I ••unmisiiionrr <>f Kdnral i«o . .                             2
Pa)rt>«k. IfcicaM. cxwutlrc diircf •*• ->f tbr«>»inda Hlcferr MurmtUm AwiM-
  •nor Corp.. and Stat«> tfcn>4ar*hll» <%>mwifvi<tt. and ITnOdmt »f thr
  National OmmeU «>f Hlchrr Ertnoillon I^«n fnvTam.1 ...... .             .........                   .T«
T'MBtauicb. Klrhard U. Kjuvutlrr SrrrrtJtrv .< tbr Natl««sJ Aiuu«4atlua <.f
  SttMrnt ntworl^l Ak) Admlni«rat"Oi               .................... _ ..........                   On
Ihutta*. Honor, pnvtdrnt n( tb* FJnrt Watr Bank t»f <'«nJtlt«-rwv!Ur. M». :
  and Banr Dnbc urniitr rl«r pmirirnt <>f tb«- Cotumrtirut Rank and
  TravT Co* in Hartf»rd C'lna^ miramattng the AurrVaa Baok*-r« An<<>-
                          ......... „ ................ „                 ...................          7«
       >. EdwanJ K_ Chairman •* TUr Buant .-f Stadrnt I>«o Markrtinr
             : Jonrpti W. Barr. MtmfciT «T »Ur lU^rd uf JMnvtun of Stu-
  drat r>«o Xarlvfinp An»»-iati>w : and Edward A. F»x. i*r««idms >rf tin-
  Klodrot Owin Markrtliic X«viriatM»...      ..................... . .......                          IW

                                          STATEMKXTS.
Ihmaean. H>tn§n>. prwiitfnt "f t! flrxt Stat»- Itonfc <rf Canttbrr«vilU-. M". :
  and H»rrj l»mM. s»ni<>r vU-r prwldrnt "f MM- C<ma>itirat Hank and
  Tnmt l'«i.. in
  cjatl-m
MoCahr. Kdward R. «Tj.--.irroan nf tnr ft*«nl »r
  AMoruitlon : Jotwfiii W. Harr. Jfc-ml-T ••! the nostril <•( IKrwt'T*
              Markrtine A«-iri»ti.-n : and Edward A. i'..x. 1'rrnWrot of t»w
                 Uarlrtinc An.~«4atii>o. _____ . ...... .. ............ Jim
    PnrpawiJ »Mt»iarfit ....... .......... _________ ..... ____ .               .....    IIK
O*Sln<« John K.. «'nmjnI*«l"n»T »f E«luf»fk"n-4»T«ienat»'. ar>-»ioiiiiniM> l>.r
            II. SlmiBfifM. IHrxrtot uf tbr fKrl«l»n <>f Imaiml f/an>. and ''
            Uoirh»aii. tH^-ial A-*4irtapt \» tin Ci
     Pn-j>arrd Mat^turnt

                - and >trat*- KHi»lar»hi|> <'<xan»iMii<iti. and I'nTUVnr .>f tb<-


            . KW-Uard T.. F.i*»TrtiT^ SwTvfarr "f tlx- Xati»nal Aw»«-iaii*in "f
             financial Aid Adwlnlirtratoni ......... . ________ .......                              ISO
                                        ...... .        ............          .............       «!•;
                              ADOITIOXAr, IVKoRMATlo.V
                     . rtr. •
             kn cvarant»>d irfiKlntt !->nn pri>enitD a« i>f Af-rll VJ7T! «tuto»
            -      .........   .......        ............          ...........         ...       .     C,
           r»fr 'if ^rutnVfary Mh<»U ...... .......... .                           ..............     17
    Rdvard A. Vm. IKrmi* -t Fini»n»- "f fl»- fitt-nl H'nw f/«n ffnpkn
     nantnl fiivt I'rmUVnl «f fliv fttuVnt f>«in MarLctint; A»*«-l«fi"li
              Man , „             ...........          ..............           ...........         |J.-,
                     analr*i« Mrrirr* foraia ...... ... ___ ....... . . . . . . .                      •<•»
                                       IV

         pofcUe*d>««, rtc -Tonfinnwl                                              P.*.
              HfHts Xr^tfrd In Admtoixtratlon of the Onarant«rd StndMit
              ttcnat." hj •••• Crural Armuitiiuc <"NBrr. poMbbed bjr Uw
     flflkr of KdocaUoo of thr I*n«rtmmt of Health. Education, mod
     ttVltarr. MarHi 3D. 1!»73                                   _                 1*
    M*nl*nfcl|> rtwfcr (1973 >. Xatbuul C>morll ol Hlebrr Education loan
      mrnbm                                                                        41
Coamuminttoo* ro;
   Jarltn. ll«m. Jamb K, a I'.S. Snutor fr.nn tbr Sutc of Xrw York.
      torn Elvnnd D. ll<All*tfr. fjtfvWirv director. Nr»- Vork Hlctwr Edu-
      otioo AMMaiirr <'on>- Albany. X.V.:
        Junr 18. 1SH5                               -                             37
        Jaw 23. 1873                                                              4O
   IVJI. Hnn. CUIhnmr. a l'J«. fdvatnr fr..m tbf Sutr .if Rlinde I*Und.
      rttainoan. ynbrnmraittfr> «B Kdomtion of th*> Cnmmittrf on I jl"»r
      and PttNk- WHfarr. fnmi:
         Btom. Arnold M_ dirxnor. Stodmt Aid n«w>n fnlvrnclty. Cl«tu-         .
            *wo. JSji'.. Joljr 1* 1K3                                         - UK
         Panry. B*roanl J.. «*J'.A.. dint-tor. I>Uw»rr lucli^r ndncation
            U»n program.                                                          119
         IIUL tlMMrtr* U'_ exmitlvr dim-tor. State Education Amdxtannr
            Aotnoritr. RJi-fanvMul. Va.. July 1!». 1973                           120
        OtUna. John. r'.S. CnmmMoiMT of Kdomtlon-dniiiciuite. OAn* '•{
            Education. Dn>artnrnt of Hnlth. Kdncatlon. and \Vrlfare.
            J«w2M. 1973                                                           2T.
   WrxUr. Strrv, roonari. Suhronimltt*«- on Kdoration of the Committee
     ••o tjibor and Public m'rtfarr. f.H. Sraatr. Wartilniflon. I).C« fnxn:   '
         MatbU.. J.4ui H.. ixnidmf. fnltnl Stodrnt Aid Fund*. NV» Vork.
            X.V.. July 12. 1973                                                   117
        T»ml*oxt). KIHiard !>.. KxMtrtirf »i rrtary. National Afwociatbin
            of Ktndrtit niun>-lal Aid AdminiKtratom. Wavliinet<«, M'..
           Julr 12. M»73              -                  _              _.-        73
          tultnt:
   f>>aii ToJom*-. euarantj-nl Kttxb-nt l<«n |>ri«rain. nxntiariiuiu—Mardi.
     A|>ril. Mar 1972-73..                                                         K
           GUARANTEED STUDENT LOANS. 1173

                       WDAY, fUm tt, 1973
                                           \J£. SKXATE.
                           GCBCOMJUTTEE ox EDCCATIOX
             or THE COMMITTEE ox LAMB AND PCBUC WELFARE,

   The- BrfniiTin*"'t*f* "^*i punusnt to notice, at 9:30 *.m t in room
4233, Dirksen CNBoe Building, Senator Claiborne Pell, chairman of
the subcommittee, presiding.
   Present : Senators Pell. Hathaway, and Javits.
   Committee staff present: Stephen J. Wexler, counsel; Richard D.
Smith, associate counsel ; and Boy H. Millenson, minority professional
staff member.
   Senator PELL. The hearing of the Subcommittee on Education will
come to order. Today, we meet to discuss the guaranteed student loan
program.
   This hearing was called because of information received by both the
Subcommittee on Education and several senatorial offices indicating
that guaranteed student loans are not being made bv local banks. The
reason given is that the so-called needs test precludes the bank from
making a loan.
   The needs test spoken of grew out of an amendment contained in
Public Law 92-318. which does put some type of needs recommenda-
tion into law. However, that recommendation was intended to apply
only to those with an income of $15jOOO ami over and more im-
portantly was intended to be merely an advisory mechanism for
the banks. As some of you may remember, there was a misinterpre-
tation of this language by the Department of Health. Education,
and Welfare last year and an emergency (situation a rune. This hearing
today is l*ing held early in the summer to preclude another emergency
situation like we had 'last year.
   It is ity Itope that the witnesses will bluntly discus* the situation
that we face with the loan program. Allegation* have been raised
that the regulations pnmmfgated l»y the Department of Health.
Education, and Welfare are restrictive in their interpretation of the
legislation to the lending institution. Others would attribute this
lack of lending activity to the desire of the banks not to make loans
and to seek an excuse to achieve that end,
   In any event, I hope that when this hearing is concluded we will
have a complete record. One which clearly states what is the effect
on the needs test on guaranteed loans, be they subsidized or not.
   Our hearing list islong.so I shall now call upon the first witness. Mr,
John Ottina, Acting Commissioner of Education, t'-S. Offce of
Education,
                                   (l)
   Senator IVu.. I present my apologies to t lie wit twsses. hut lircausr
of a prior commitment at another ronimittiv hearin<: 1 have asked
Senator Hathaway to preside in my al»sen<v after I have to leave.
I lioppyoii all understand.
   I w«Hil<{ hope one of tin- witnesses would address himself to tlie
question f have lie<>n inistKivssfiilly trying to ^i-t for inanv months.
in fn<-f . years, and that is the information on rated default of these
•ruaraiif'isl student I'wns. >o we knou what we are lalkinjr aiiout.

                                       NFKI> FOIC iir_vKi.\<:s
   Sen»lor JAvrrs. As far as the minority is concerned. we arc eon-
rerned from what we •*•«• that w i t h (!>«• ••oti'nvssioiial nvi-ss. Aujnist .1
Co Sepfemlier '.' rotijrhly. ue may !•• engulfed in a «-;-iMS of new students
fiiroliitifrthi- fall, iinlt-s.-- j»n)vi-ion is mude now. heii'i- the ur^enry. riot
onlv of the hearing I>ut als<» «>f tin- le^islalixe ai-tion if it is required.
   Tims. I wonlilask the witn«>s>w-sto»ive u.-ihi'ir n-coiiiii:endatimis for
legislation, if that i.- the only way in uhii-h f«> Mi-iire thi< situation
for the students.
   Thank you.
   Senator PrJJ- Thank you very mu>*h.
   I li.tie jiisi MVII tiie lit.Tjfutv in ••«nitn-<-tii»ti xvtfh the liasir grants.
I arn^'lail if is^oin^nnt.
  Our lirsf witm-ss is John It. (Ml inn. ( *oiiiini<si»iier of K'lnrati.ni-
I>esi«rnate. and In- is urrompanied l.y .Mr, \Viiliam Simmons. Dirwfor
of flu- [)i vision of lii.-im-il I/>an.-.
   \Vi>uld voti please pntfi-iil.

STATorarr OF JOE* B OTTWA. COMMISSIOVER OF EDVCAHOV-
   DESIOIATE. ACCOKFAVIED BY WILUAJf M. SIXKOIS. DIBECTOB
   OF THE OIYISIOI OF MSUBED LOAJIS. AJTD FETEB P. MUIBHEAJ).
   SPECIAL ASSISTANT TO THE COMMISSIOWEB OF EDUCATIOV
   J)r. OrriNi. Mr. Chairman, on my leff i- .\fr. William Simmon^.
wiio :- our I>ire>f>>rof lite ^na^intii'd stiiili-nt I»ai> program.
   f hate a prewired -f:iI«-jiH-lif hen-. Mr. ( 'ii:iirin:in. Iiei-aiiM 1 of your
|iresr.iri^' M-hi-<iiili-. and prescit>^ M-|U-I|II|I- of S-n:i(ors H a t h a w a y and
.faiifs. I wonder if I urn lie |N-rmi((r<! to hijrUijrhf if very lirieriy.
nti'l a.»k you tornN-r it fully info f l u - n-cnr-l.
   S-nator !'»!.«_ \Ve uoiiid U- i|«-Ii^htrd to <l» t h a t . It \\ ill !<•• iii<-lnded
in t i n - rr<*or>i at tlw ri>n.-lu-ion of vonr te>tinioti\.
   J)r ^>rriv i.Thank >oii \>T\ inii<-fi. Mr. < '!i:i'rti;:in,
   \j-\ inehe^in w i f l i ilwlir^t pai.'»-of liie -tutfiiii-nt.and jn-f Minincin/.i 1
a para^r;i|>li or two in t-ui-h -cctioii tli:if ( t l i i n l , \-.>inli| lii^lili^lif it.
   fir^f "f all. »»n the lir-t pa;;e. »*•' mf«-rpn-f f l u - reyiilafions- or tin-
law and n-^ulaf :OM- i-niun:ititi^ from it KI t»-im- of t!i«- 'e-f to !•• a
rri'oiiiiii'-mlat ioo. noi iodrfd :i 'I'-tcnnifuit ion l>v t i n - -tudent aid
officiT.atul licit i-'-oriiiiH-nti-doii id I ) H - lir»t ^•••tiofi.
   Serond. ill fli<' ••liroiiolojfv of t i n - hi»iorv. ue did |'ill)Ii><Ii. a- von
[M>I nt i-il out. a rv\ i^-il -4'i «>f n-'i|!:if i o f i - i.d \ d / n - i •_'•.'. 'J'lu'V lin;ill\ IK-
• •.'line rffi'i-fm- ol: I d-tiilii't •_'• in w l i ' . ' l i t ' l i - !' !••>• liirijol' r-!j:i|i.^i^ Hi-ri1
made ard et.niiirrati if :i( f l u - I w r f f u m of m\ statrnn-nt on pa;.""- '2
:Mnl •"-
   Actually this program lias been o|»erating under this new set of
 regulations since the tin* of March i>f tliis year.
   We do have a set of statistics that we have calculated baaed upon
die record in the* 3 months compared to tin- same 3 months of last
year, and if you will briefly note, it do** show a drop in the percentage
of loans and the amount of money t hat lias been in thr same comparable
periods.
   If I may continue, we have done an analysis of some 7,377 applica-
tions, which .show that in li jiemsit there were decreases of student
eligibility for interest lienefits. and in 7J> |>erccut, that there were
lenders who exceeded the recommendations. So there arc cases where
we can show that lenders arc taking the student financial »>d officer's
determination of nerd as guidance and not as a detenu'nation.
   In terms of looking at the decline, then- an* a number t-f factors tliat
we. Uiink make it very difficult to interpret what is occurring tliis year.
   Factor I was the great uncertainty that, as thi? committee knows,
was due to wliat was going on with the <-ollegc-based student Huancial
aid |«ckage itself. Tliere was uncertainty whether tliere would be
direct loans, uncertainty win'thcr tin-re would or would not be direct
grants, and tlie questions about tiu> timing of tlio Imsic opjiortunity
grant program, tiie Pel I grant program we referred to earlier, Mr.
ChainuaiL
   There is also a feeling tliat has come up that we liavc sensed, we do
not know the degree, but this |>ervadcs tin- students, but some just are
not applying because they tired to declare family income in this case.
Third, as you can sue. lenders acew in many ca»«*s to lie equating the
recommendatiton for eligibility for Federal interest benefit with the
student's need for a loan. It is still true, as you all rwoimiw. tliat even
with a zero recommendation that a stiuk-nt "-an oirtain a loan on an
unsuhsidizcd liasis.
   Interestingly enougii the amount of loans in this an* does not ceem
to have been negatively affected—tliat is. we are still encountering
about the same number of unsuhsidized loans, in percentage terms a
larger uunilier.
   Tliern is as you know a great uncertainty about financial rates, and
the liquidity of the paper.
   We think tlie Student I>wn Marketing Association. Sallv Mae. may
increase tlie size of the loan j«ort folios, and. then-fore, lielp alleviate
thisprot>lem.
   AK I commented, interest rates have also Iwrn Climbing steadily, AK
you know, thin program has a 7-percent rate with an adjustment that
is made qua rtcnv for tlie lender. Our next ad just incut U scheduled for
J unt> '•'•>». norif x ilayii away.
   All in ail. what I was trying to describe hen*, tiie statistics do chow
a ratiwr large decreaw in loan voliuiw ami loan amount. The period
we an* anal.V74tig is one that is a verv cotnplex and cotifusing^ period
analy/ed in terms of previous years fVinn tlw effect of new legislation,
n«'w progrums. new regulations. jx>s»ibly. though it di<I not turn out to
In- that way. collapse of old programs! and great uncertainties liere.
   \\'f tort are decplv concrnied altotil tlie plwmmwiia. \Ve are as you
can sec in tlu> next few pagi-s. launching on a cafiijuigu to better edu-
cate lenders, to educate our regional ii«>opk> that arc involved, to try
to do a bctt»-r jol/ of ediicating titc public at large, and t! c Htudenti in
particular, and also the student financial aid officers. You can see in
tiie next few pages son*e attem|*s at that effort to pet a better under-
standing of the point that these are indeed recommendaions and not
fixed amounts.
   I think in summary, that would suffice. Mr. Ch» irman.
   Senator PEU. Two Iiasic questions. First, what is the difference iu
the criteria that is lieing used for tiiose youngsters from families with
an income of less tlian $15.<»0<). and those with more ?
   Dr. OTTIVA. The criteria in essence are the same. Mr. Muirhead, per-
haps you can help me.
   Mr. MrnuirjiD. The criteria are the same. For a student with an ad-
justed family income under $15.000. die hank may change that amount
if it feels that the family contribution identified bv the student finan-
cial aid officer is riot realistic from other information which the bank
lias. They may do that without any further communication with the
school.
   If the family income is above $15.000. the bank may increase the
amount of subsidized loans, but if must communicate, and give that
information to the school.
   Senator PKIJ. There is no differentiation in tiie treatment, no addi-
tional criteria needed if the youngster has more than $15.000 of family
income?
   Mr. MIIKHKAO. Well, no new determination except, of course thai
under the regulations now under the amendment, the financial means
test from both $1~>.<IO and over is applied with a little more precision
than wast lie case before.
   Senator PKIJU And another question here, what is the rated default!
   Dr. Orris*. Our rate of default—<-al<-ulated by the number of dol-
 lar volume of loans that are in a default status as a numerator, divided
by tin- nunibr of loans which nrv mature—is about 4.5 percent.
   Senator PKIJ. SomeJmdy told me the figure was almost -Jft percent.
   Mr. OTTIVA. It varies greatly as you look at institutions and laden.
   Tiwn> are sonic lenders who have rates of 2" percent, and indeed
higher.
   There are *HIM> institution* which have very, very low rates and
lender* an- very low.
   Nationally it is about 4.5 percent.
   Senator I'KIJ. U'liat i« tiie reason for tiie difference ?
   Dr. OTTIXA. UVII. there an- niany differetKVfi. wy believe.
   Part <>f tin* differern'n; we think are due to the c<»ninituiicatiofiK with
tlw rtudrnt on tlw initial w<ting, WV liave bren attempting to get a
bffr«>r understariilingof flu- Jcn.ii-r-' r<v|>oniiibilitieK. and having them
sitiiown with client udrfit JIM! di-A-rilie fully at tin-tinw of the applica-
tion what hit* mtponxihilif i<>» are or are not.
   Also, there are diffcn-fK-f* iietwren lending inrt hut ions on the
atiKujnt of i-lainieii priK'nwinir that tlwy apply, and we are trying to
get thi-tii to \*> rnon- diligent an«>uf that «spM-t.
   An you kiion. wi- liavt- mounted in tW la»ft vear or no tiif field haw
••rew tw try to attack that j»rr4)U-m. w i t h both \vw\en and rfudentK,
Tlwy have. I believe, mad* reruarkabU* progretw.
    Iti th»- fM>rio>l that we fuvr flwin out there, we had al«>»t $45 niillioti
worth «>f •Ii-fauJtn that have I«vn paid fhrougfi Marcii ;{J. 1973,
   We have repaid over a million dollars of that already, and have in a
repayment mode—that is. students are now paring back, but hare not
fuilr paid Ijadc—an additional $9 million. Of* the $45 minion that is
in a*default classification, oner 10 million of it is presently either fully
paid, or in the process of being paid, which amounts to about 23 per-
cent of our default, so this effort that we have mounted in the last year
I think is continuing to pay off.
   [The information referred to and subarquenUy supplied follows:]
                     Statv* of Default* u of April 1973



General Program Data

     Nearly 6 Billion loan*, amounting to $5.7 billion, bad cither been

guarantee*' by Scat* or private nonprofit agencle* or Insured by the Federal

•overnmrnt during the period from the Inception of the Guaranteed Student

l*-in rrogram on Xovember 8. 19*5. through April 1»73. Tne*e loan* Here

mad* by almost 20.000 lender*. Including bank*, caving* and loan a**oclatlon*.

trejit union*, and oti»r financial Institution* to a population of about

3.5 Billion ctudmti. More than 8.200 aducatlonal Institution* offering

a variety of po*t*econdiry prograB* enrolled ctudent* «bo had borrowed

under the program.

     During th« 7 1/2 y«ir axlatence of the program, about $452 Billion

in lnt«rr*c benefJt* an4 apcclal allowaice* ha* been paid by the Federal

Hovrr-».nt to lender* <-n behalf of itudent borrower*.    In addition, the

                    '&
Federal government * • State and private nonprofit ageocl<* have paid

$131 Billion to leojrr* In total claim* for default, bankruptcy, and death

and difcibillty. The Federal government ha* paid tlX of the*e claim* under

the Federally inKjred program, a figure which alto represent* it* approx-
                                             r
imate *hare of cuaulatIvr new loan volume.   laim* dollar* paid out on

defaultrd loana by all JKrnclr* aod die Office of Education amnnnl rd to

     nilllft a* nf April Iv7).
Default

     Tbc attached clals» suBury provides detailed data as of April 19/3

oo all claims paid directly to lender* by the Federal government and by

State and private nonprofit agencies, as well as payments made to guarantee

agencies by Ch« Office of Cdur.tioa under the reinsurance prograa.

     Fay*ents by guarantor have generally been In line vlth the proportion

of new loan volus*. Fayaents under the reinsurance program have lagged

•oaevhat as coBpared to direct lender payments, as a(encies say elect to

defer f 11 Inf. for 801 r«lBburseaent. The Federal government has paid out

5*4 Million In default. Including $48 Billion directly to Federally

Insured lenders. The guarantee agencies have paid $68 Billion directly

to lenders for default clalsa and have received >36 Billion In relmiurance

funds fro* the Office of Education.

     A narked Increase In default payBcntf Bade under the Federally

insured prograe for vocational students has occurred during the past

several aonths. An estlBatcd V7Z of all federally Insured default clalas

paid to date have been for vocational school students.   Since Xovecber

1972. appro*laatcly 75- of the defaults paid have been for students froB

vocational schools.   This share of default dais* Is alanlnftly dispro-

portionate, since vocational school loans represented only about 10 to 151

of new loan voluBe at the tlBe tlurse loans wvrr made,

EstiBsted Default and Delinquency Kates

     Fully reliable default rj'.ec on matured paper for the total Guaranteed

Student Loan T to film are not yet available. The Office lia» derived an
                                       s
                                                                        3
eatlawtad default rate aa of JUM 30, 1972, for the total Prograa ualag
Intonation collected (1) froa leader* aad guarantee nanrlt* oa the aanaal
JMH 30 call report oa atudeat loaa* outataadlag aad 1» repayowet, (2) froa
euiraatee »|eaflaa oa loaa* paid la fall aad eaBCcll^iion*. aa4 (3) fro*
       and Faccral 4*fault •ayacatta. TbaM data, vbaa c«abia«d, ahow aa
          oaa third of all the C»ira«taW Stadaac Loaa tiofcm w aatarad,
M total cUla* rat* of appralaataly 4.9Z, aad a default rat* of 4.3Z.
Coaparabl* rat*a ara not avallabla at rtgloaal. Stat*, lender, or •ebool


     Calculation of a default rat* for the Federally laaurcd prograa aloo*
la dcpefldcat on th* agfrafatlon of ladlridoal atodcot loaa data la the
coapucer vjrataa. Lender* arc raaalrad to resort on loaoa aa tbajr catar      ..
aiabirad (tataa. TheM retort* ara to b* coaplatad on a aoataljr *-^L» tor
                                                        ..
each •tadcat loaa concerted to payout or £ald la full. '.. ~     ;-^<i of
thea* aatured loaaa tb«a ticneit* to* daaoalaator la cilctilatla( a default
rate baaad oa default payaeata. The Office collect* the data on aa Individual
loaa baal* racker tbaa la th* aggrefat* froa each lender, la order to pro- Id*
for the calculation of a variety of default race*. Thla procedure will
eventually provide the baalc data for producing rate* by type of achool or
•cbool locatloa, borrower, aad loan characteristic*.
     Leader reporting of aatvrad loaa* baa been lacoaplet* aad uatlavly to
th* pact, but iaprovaaent* bar* occurred la receat aoach* aa a raault of
epeclal effort* of both the central aad regioaal office* la educating leader*.
                                        9


A ••tit* a' bulletin* wa* *eot to all Federal leader*, outlining MB* of
the reporting problems vfclch efface the Office's capability of calculating
••cured paper aad default rat**. Leader* have bee* advloed chat lack of
tlaely reporting of •atared loan* adversely affect* and remit* la over- -
•tataacct of IOH'CT end ln»tltutlci»I dofaalt ratio*. Forcbcr taproveacoc*
la leader' r*pr .tla(^re -rr>^>JH •• tbe regional office* Increeae cb«lr
level of oa-*lce leader exaBlaacloo*. The reporting lafrnireaenr* realized
over the p**t few ejoocba *a«(e*c chat reliable ratio* will b*co»a available .

•borcljr on che Federally Inaorad progr**)'
     Oadrr cbe Stac* agenc; prograa. .eporc* oa •ecared loan* and default*
•re *ab*itcc«d directly to che Office of Education ky the verlou* State*.
Unlike the Federally laaured progra*. the dot* are eubaltted la the aggregate
for all lenders coatlaed.   The Office of Education data baae 1* tbexeforc
Incoaplcce for celcularlng ratio* below the State ageacy level. Tbu*. until
such tlae a* detailed reporting 1* required, toe Office will not have the
capability vf producing total Guaranteed Student Loan Program default rate*
for Individual or type* of schools and lender*.
     The reliability of the rate* reported by the State agencies varies.
The level of sophistication 1* uneven aaong the State*, and the degree aiu
                                                      i
depth of reporting 1* affected. Correspondingly, Che ability of each State
agency to produce leader and school rates froa It* ov* data baa* 1* Halted
The overall default rate for the State agency progr^a, coaplled for last
June 30, was close to the 4.31 rate for The coablned progreas.
                                         10



   •' Information 1? not available which would permit eu.laa.tlno, • Guarant *d

Studrat U>ac Tra^rtm rate a* of «prX' 1973. However, ooc could conclude

iron analy*!* of sow: of the prelinloary report* on the Federally Insured

prograa and froa-tbe experience-of the. Scat* ajen-Ue* chat the current

default rat* i* probably *oawwhcre between 4-61 and ft.M. The ajeocJe*

report.-1 ut of Decenber 1972 an es..lBated rate of 4.71. CompitL»oa of

national dellw|ueacy ritio* reported on the June 30, 1971. and June 30. 1972,

call reports il*o Indicate* that cba default fate 1» •oviog upward.          The

overall delinquency rate (30 day* and over) ID the program wa* 10.51,

with t.Jt of loan* in rcpayaeat 90 day* or ovrr pa*t doe on Juue JO. 1971.

The default rat* «t that tlae wa* ettlaated at around 3.51, but BpvcJ co

abnut 4.11 by January 1972. Th**e delinquency figures co*ipar« with an

ovrrall i«te of 11.OS nod 5.21 for loan* 90 da/* pact due a* of Juo* 30, . ~

1972. All of these factor* would polbt ro aa m^(«ac«Tj default r-tc of
abi«jf 4.9? on June 30 ot th(* current year,

Caiiu«;« of Default

     Ary "uabcr of caunc* of d'ttuli can he c(t«d. Kiny Undent* who have

dcMvUcd iiavi experienced •rrlouo d(ffl:i;lcf.'< i.i ubcjfnlny rcployixnt.

^jw "CucVntu slaply cttutt to pay. Hone; cf cliuse who •'efjulc ac-- Ul-

prcpjrrd and dlKLIluciontM ncudmt* who ferl tbry did not trc-Avt the kind

r;f ntacntici proolfnd ard paid fnr vl'.h their loan*, T>ie relatively lll^h

ri.'urt- .if di-i'juJtc i-jld fur Klud'-nrs frma vuc4t(on»l *chu«I» ha« already

hi.'rn nocrrf. Many <il clw pr*i-t)c.-» .if tln-«»r iichuoL* hayr contributed directly
                                                   •u


. to ttie <etauU problem-. Student* hive been Jtodltcrimtnat^l) v*:rrutte<!,
 ~         r   '     •    .'   ^                   "                  _


     provlje-i vlch loan*, n» • source or funds, and enrol Wd lo -courses not
     to t.««lr £4«d*.    In addition. some school leDaoes^fcave m*de m&r'r lours to
     Ktiidrnts ebar school financial re.iourv.-cjt could support. Appropriate or ,
   tl»«lr jrefunds havr not bern todc CO scudenc* uhn withdrew piior .o completion
     •* '"""."
 •-of -tb* cou:»c. SercrJil schools h«vc closed, *Me la the »lddlc of th# um,
• »nd the proper refund* h»vr not been rude. Salesmen or thi- schools diesi-
     srlv*s have «_-Kfc;t ts»s made improp^, claloa and Misleading promltics Co th«p r


           Luc.' of adequate Offl;t of Education staffing to perform rwlcva «nd
     M«mln*tJ<m» of the 20.00(1 part Iclpac log -Jlvodcri and 3,200 school* h'x>
 -«ico contributed Indirectly co the Jefaulc problem. A veil quilifW jiad
     sizable ntnii of financial rxJBlr.tr* Is needed to conduct on-slic Cf>vl2»s
 -to assure Institutional conpllanco with tl'» BJjcutory requirement of
          - '•                .               .• . -                I         . v' '
 "'casonabJv <-J>-« atu! -d i Ugcacr In thC;'=n'<lnK and collect Jjn~uf IOJM." "
                                           >                     ^      -
 Stiu^nto 'i*\. be properly counseled by ch»- schools sod Urd-'i't abmjt thrlr
 .     A

     Joan ol>llg*clons; schools oust tw held accountable for providing the training
 -ptowlicd anf for aaklng apputpr'ate and tlncl->- wfiinds; «nd lenders aunt
 put the %«Jmr d«Rr«« of cart"~and Jlllnence into making and collect l.\(C>li.;sc
 Ixians »» ttrfj i ol low for ither connus'-T I'j.ins.

 £ol l»ct vn»                  •              -"

           The 0(ft<:» his m*i<- significant prny.r.'Bi* la <:(.> Irctlnn f.'oo ctwicncs
 who Iiavtf drj'aultwl.        Tlw ^ollectlc-nt pi'i^rar bt-f.4n In th»- latter p
 fi«c*l>«»r 1)72 trti* M mt\\ end '.nexperleoced fleW *c»fi., .However,
             -:^C~V -/:. " v- -' '    .'    '     '      '         " .
 cne •uf.r'-aad th* State agencl** arc effecting reBevMae actlvlcy throocb
      • . '.- ! • " . " ' C                ".                     '-
 CJli«ctlon» <3n 23.71 <vf th* touL F«d«r«l dollin «xp*od«d for default* •
'"''---•• ' '.J      >         N    .                                        .
          Itordi'-n..l973.               , , ..-          -           - . ' - . .
       '         '     .                     '
                                     - - " . x " . ' - , "                   .•
       A tiaanry of dm* <Ur* follow*: '                     -               ;• _




           Ja Full
 In (•pqiBcnt                 9,503, *40    .       21.1
 Ixptrmeat TocaU             10r«74.4«0         '   23.7
       Tb* Office 1» d«c«rr«io*i Co iaprovc lt» record of collfrrtnna, «od
-thtf fact tt»t chc flical yutr 1973 goal of $4.3 Billion bu alao*c been
^ rearhed -ooold ladlca;j« that cbc rclaclvcljr new collection* prcfraa la
 already attalB<4( rcawrfcabla raaalta.    Hopclully, chcac collccclona
 rffort* aru hariog < d«t«rr«nc efface oo pocaaclal default*.
 Outlook
       CoUaccloiw actlrltlec are by nature "after the fact" la looking
 for reaadiea of default*.   Any preventive prot;re» mint conccntrace
 primarily oa Identlfylof C*U«M <>f default* and Cheo taking oeceaaary
 corrective act ten* on a "be'ore che tact" bMl*.
       Tb* Oilier it taking tho*e «*oaf**)cnt action* which iia/ have aoa*
 iapact on curtailing tbc rate of (rovth of default*. Tbcac Action*
                                       13

                                                                           8

Include revision of existing regulations; Improved processing and screening
of individual loan application*; periodic review of Che financial state-
ment*, Limitation of the lending celling*, and/or suspension of Insurance
contracts oJ insltutlonal lender*; Increned numbers of lender and school
program reviews and workshops; Improved skip-tracing and claims eyamlna-
tlcu: enfnrcitjsnt of tuition refund policies: and sx>re Intensive examination
of State guarantee agencies for the exercise of due diligence.
      Twenty-five new positions have just been allocated to the regions.
'Outwidc hiring limitations have been waived In order that these can be
ftttf+A wlch qualified and jncperienced peri ons who can perform effective
and professional reviews and examinations of schools and lenders.    The
eipecc^d Issuance -of aev regulations affecting both schools and lenders
vllJ .prr-vidc program examiners with formalized review procedures and firm
grounds for suspension, limitation, or termination as necessary to assure
sound and prudent program administration.




    M-«i   u   71-2
                                    14
  Senator PELL. 1 thank you very much indeed, and 1 will turn the
hearing over to Senator Hatliaway.
  Senator HATUAWAY [presiding pro tenipore]. Thank you.
  Senator Javits, would you like to ask any questions ?
                    LEGISLATIVE    RECOMMENDATIONS

   Senator JAMTS. I would like to ask for the legislative recommenda-
tions, Commissioner.
    You have studied the thing enough so that we can get from you
some recommendations as to irliat ougut to be done about this. Whetlier
we can get reconciliation of House and Senate, we do not know, be-
cause we have a terrible problem when we passed the higher education
bill, but we can certainly try, liowever, to recommend we need to hear
from you.
   Dr. OTTIKA. Senator, we would be most pleased to do so.
   Let me again comment, if this were a normal year, it would be much
easier to come to grips with the statistics and the effects going on. Hut
this is not a normal kind of year, so it is very diflicult to interpret what
should be done, and what legislative changes should be made.
   We will be pleased to make those considerations, and submit, to you
such a recommendation of this committee, if we feel one is necessary.
   Senator JAVITS. When you say an abnormal year, how is it abnormal,
in what way?
   Dr. OTTIVA. As I recounted earlier, it is an abnormal year in many
wayg.
   It is abnormal in the economy of this country ; it is abnormal in the
climbing interest rates; it is abnormal in that the coIlege-L^^ed pro-
gram was proposed for both a direct loan program and the st'ju^nt
grant program which the colleges administered not to be put into
effect for this coming academic year.
   In other words, terminated.
   We had a very new proposal that came into effect in the last year, the
Basic Educational Opportunity Grant, that .Senator Fell and this
committee was so instruniental 'in putting in place. Tiiere were ques-
tions concerning tlie funding level of tiiat program, how much money
would be in diere if any at all. great uncertainty wliuther we could put
it into place and have it ojierationa! by the end of the year, uncertainty
about wiiat this new regulation meant, and wliat needs analysis would
be used, uncertainty about wlietiier indeed it was a recommendation, or
whether the tanks lutd to loan that exact amount. Tiiere were many
factors that were operating this year that were abnormal, and that is
why one of the difficulties that we have is predicting wliat it really
means to 1* in situation we are in.
   Clearly it is U low wliat we jiad hoped, wltat we liad expected it to be.
   Why it is, we are not entirely sure, and wiiat ciianges we would
make, we are not presently ahle with great certainty to recommend to
you, sir.
                   WKBCT «V     KVTBV JVTO

   .Senator JAVITK. N'ow, in your judgment from wliat you liave mvn MO
far, ha» thig \taai a depressant on tlie entry of young people to u>\\egt,
or liau it U*-n an eiu^urayement '{
                                   15
   What we ought to know is whet her or not t his lias l»een an incentive.
•?r a disincentive.
   Dr. OmNA. It seems to me. Senator Javits. clearly the history of
the program has l»een an incentive.
   In this particular year that we are all deeply concerned about, this
incoming fall enrollment, we just do not know the answer to that
question.
   We have no evidence in either direction. There is a suggestion very
clearl," in the statistics that j»erhaps l»ecause a number of loans are
not what they liavc Ixren in the past, it would Ix* a depressant, but only
a suggestion.
   Senator JAUTS. Well, the fact the loans arc not as high may not
necessarily I* a conclusive answer.
   Mr. OmxA. That is correct.
   Senator JAVITS. That was one of the reasons for tightening up on
the student loan program was the defaults.
   On the other hand, we deeply convinced the gifted idea of private
enterprise participation with a guarantee rather than a direct Gov-
ernment loan is in many, many cases a better solution.
   I notice ivfereur-e in your1 written statement to federally insured
loan activity in three large vocational schools, which function with
lenders.
   Can we learn anything from that cxj)crieiK* i
    In other words, on page •'! of your statement, here is a rather unique
 way of handling this matter. In the next sentence, it tells us in a num-
ber of States, it is the State which is the lender.
    Xow. here are two. we have now three concepts. Ijanks. vocational
schools, and the States.
    Is there anything we. could learn from tin- yardstick character of
those three ex|»eriences'.
    Dr. OTTIXA. I am sure that there is. Senator Javits.
   The three vocational or technical schools enumerated there have
dramatically increased over the years in terms of the number of stu-
dents that are obtaining loans, and 'lie dollar volume itself.
    It has represented initiallv as vouVan see bv these schools over '{<)
           f        i
 percent of our volume.         *    *     •      *
    There is u not JUT note to this, as we were talking earli'T abou* de
 faults. It hapjM'fisthat in our analysis of defaults, many of these insti-
tutions rank among our highest default rate institutions also, so in
 sonic sense it is that in the picture of jx-rmitages rising, we may well
anticipate a larger default rate tlian we are presently exj»crienciiig.

                           KTATT> AK I£\WM»

   Senator JAVITK Xow. wluit aix>ul the States acting as lendi-o. again,
is there anything that we can kvrn from that'.
   Mr, SJMMOV*.. The activity l»y the States is relatively new.
   We have alx»ut four or live which are currently doing this. This i*
when- the Sfate loans the money <Jirc/lh. uiul it \* nihured us it would
by a commercial bunk.
   Senator JAviTc. It has i '.S, insurance'.
   Mr. SlMMoVM. Veri,
  Senator JAVITM, The State is the lender, und the I'nited States is the
                                     16
   Mr. Snocoxs. Yes.
   Senator-JAVTTS. The same with these vocational schools, the State is
the lender, and the United States is the insurer?
   Mr. SIMMONS. The State activity is generally for the student who
f or some reason cannot locate a loan.
   Most of them provide if he lias made an effort in some area then the
State will make the loan for him.
   Senator JAVTTS. Like the pooled risk theory ?
   Mr. SIMMONS. Yes.
   Dr. OTTIXA. Tl.^re is a lesson, Senator Javits, we might learn in the
sense of what the proprietory or the trade schools are doing.
   In many cases they themselves are the lenders, or they hare a voca-
tionally tied affiliate who is the lender.
   Under the new law. institutions themselves could be eligible lenders
if they so chose, so there might be indeed a lesson to learn By our tradi-
tional colleges and universities, where they themselves could become
lenders, ana, therefore, better encourage the program.
                            lAAVS BY SCHOOLS

    Senator JAVTTS. Is it not a program of self-dealing? In other words,
if die school has to make a certification based on which the amouat of
loan is conditioned and tlie amount of the guarantee, do you not have
the dancer of proprietory schools that will simply build up their stu-
dent bodies, lend the money, get a guarantee, and that is it f
    Dr. QTTIVA. There is certainly a concern that we must be aware of in
tlie area you express.
    Senator JAITTS. Wliat supervision do you give that ?
    Dr. OTTIVA. We are working with our accrediting associations for
that particular area, and our advisory committee which recognizes the
accrediting associations has agreed to put on their agenda for their
next September meeting now 2 months away that particular topic.
   We are trying to get tlie accrediting association to look at more
closely die financial aspects of die institutions, to look at tiieir policies
in terms of returns, of dropout students and refunds, and manv of the
other policies which affected rite areas we are talking about, and trying
to bring tJiat into the focus in terms of considering it for the recogni-
tion ana accreditation itself.
   Senator HATHAWAV. Would the Senator yield at this point?
    Do you have figures showing default rat*- of proprietory schools?
   Dr. OrnvA. Wt- do. sir.
   Senator If VTHAWAV. What is it, compared with the others?
   Dr. GTTISA. I answered you too quickly. It turns out we do not iiave
it for proprietory, but vocational and technical, which proprietory is
partoi
   Senator JAVITS. Can you get that?
   Dr.OrnVA. Yea.
   LH i»e. comment, of the claims being paid, our experience t <l*te
is that about 75 permit of all of tlie claims being paid go to that classi-
fication of schools,
    In other words. though during this particular bifrtory, they repre-
sented about, I would gum, ai>out ITi to .''/) j>ermit' of ttic uan\
volunu.' tiiat i* tinw mature, 1'liey are representing aU>ut l'> percent of
the cUiniK. We will provide you with tlie a/tual tftatistics.
    [Ttw irifonnatinu referred tx» follows:]
                                        17
                     DEFAULT RATE or PtonuiTABY SCHOOLS
  In flacal y<-ar 19rj, 30 ]«rct»ut of all federally insured loan* were mmde to stu-
dents »U«tidiuK proprietary Hchoolw. It in estimated that this iKjm.-nt.age is eren
greater iu fiscal year 1973.
  Paralleling this rapid increase in new loan* for students attending proprietary
Hcuoola has lieen a similar increase in the nuni!>er of student!* attending such
schools who have defaulted on their obligations to repay the loans. The itercentage
of propi'.etary school students defaulting on their loans has Iteeu far greater
than their proportion of uew loans. Currently 73 i*rcent of the claims being
laid are for students n-fao attended proprietary school*.

                                   OAO 6TCDV

   Senator JAVITS. It seems to nic that an awful lot of analysis is
needed in this situation.
   Now. an: j'ou in an}' position to do it. or shall we ask the Genera!
Accouut ing Office to do it ?
   Dr. OTTJVA. We ai-e Incoming more able to do that analysis. Sena-
tor Javits.
   We nou- have a system which collects more particular information,
and Mr. Simmons can describe that.
   Mr. SIMMOXS. We lia\-e a system that we hoj>e will be very shortly
out of our computer where we can identify claim ratios by lender, and
also rlaiin ratio by school, regardless of who made the loan.
   We iutvc identified many so far where high risks and high losses
are involved, and as a consequence, it is necessary to terminate some
contracts.
   In other instances, we limit the amount we will insure.
   Again, in an effort to try to curtail losses and higher risk than
ne/u-ssaiT, wr can do something alx)ut that.
   Mr. Orris.*. Let me add. the GAO has conducted studies in this
area, 9mi if you would like us to forward that. wt> would be pleased
to do that.
   Senator ,1 AVITK. You have liad a GAO study ?
  Mr.OrnxA. Yes.
   Senator.fAvrrs. I would li^c very much to get the conclusions and
recouimeiidationsof the GAO study.
   I>r. OTTJ a; A. We would lie pleaa-d to do that.
   Senator JAVITK. And I ask unanimous consent that it be incorporated
in tin- record.
   Senator H /.THAWAV. Without objection, st. ordered.
   ITln'(»A'J rejwrt requeetr-d follows:]
                                        18

ffOBML ACCQUrrilG OFFICE                 IMPROVEMENTS NEEDED IN
REPORT TO TSt. SECBETAH                  ADMINISTRATION OF THE
OF Pf»LTH, EDUCATIOX. AfD VELFASE        GUARANTEED STUDENT LOAN
                                         PROGRAM
                                         Office of Education
                                         Department of Health,
                                         Education, and Welfare 6-164031(1)
DIGEST

Wy TkE HSVIEV HAS                        The program, administered by OE,
                                         consists of a State or private non-
Because of the rapid growth of the       profit agency student loan insurance
Guaranteed Student Loan program and      program and a Federal student loan
tbe potential liability of tht Gov-      insurance program.
ernment, the General Accounting
Office (GAO) reviewed lender and         The Govemnent pays interest sub-
State guaranty agency efforts to         sidies and special allowances OH
collect defaulted student loans          eligible loans while students are in
insured under the State program          school and during a grace period
conponent.                               afterwards. The special allowances
                                         are also paid while a loan is beirj
GAO also examined the administrative     repaid. The Govemnent bears all
controls exercised by tbe Office of      losses for defaulted federally in-
Education (OE), Department of Health.    sured loans and a large portion of
Education, and welfare (HEW), over       the losses for defaulted State or
the payment of interest and special      privately insured loans.
allowances under the State program.
                                         As of June 30. 1972, about 4.8 mil-
As of June 30, 1972, 26 States, the      lion loans totaling about $4.5 bil-
District of Columbia, and the Virgin     lion had been made under the program.
Islands Mere participating in the        The Govemnent had paid interest
State program. GAO reviewed 22           subsidies and special allowances
lending institutions in Connecticut.     totaling about S496.5 million and
Illinois. New Jersey, and New lork       claims totaling about $53 million.
and the State guaranty agency in
each of these States and Pennsyl-        Flavian MID nsczuxosc
vania.
                                         Although a significant nurter of
Baakyround                               students received financial assist-
                                         ance under the Gu ranteed Student
The Guaranteed Student Loan program      Loan program permitting then to
enables students attending institu-      pursue their education and although
tions of higher education and voca-      most of these students have taken
tional schools to finance part of        steps to repay their obligations,
their education by obtaining long-       loan defaults have increased stead-
term insured loans from banks,           ily since fiscal year 1969.
Ted it unions, and savings and loan
associations.                            OE officials estimate that 4 percent


                                                    MARCH 30.1973
of *11 stader:
         v •• 4tffeiU.~ -»U is -sot          105 '
          to il* *<etfter tae de-                                         t»k Gcnr-
fault r«t» It rt*s*M£l* fo- * oro-                                     to p«y le»fl-
frea of Uis Xyp«.     T*» *»*tn.t cf         er» i«ttr«t               »ad S9CCU1
                                             *))<MMCCS once
t*«»» ta tacrene                             (See B. U.)
                                       »re
.               JTMr— lo*n                             &c«n                 of
 i*Crc«Md                 fraw 1966
1973                VW t«6rr of                       on cfcMgn in
                                             tn' eorollaevt SUIMS. A
       in                                      stw-»ic*i OE                  *c-
Vis?.*- •i-**"^*"' V-- * J-JTW ".      v;    uri«oeate« ««d nil* b
                                             for U* rt^ertl progri* in t»* «e«r
                                             fitare. if u» procedure is success-
                                             ful. 0£ trii; »i»c: u to t*e Sute


                                             VO votes ttwt » Jttr procedures in
                                             j«« cvuli be ^^ited to the i«*r««-
                                                                  rj^ SM be-
                                                                         y w£M so
                                                t i wvrr mfcrari decision C*» t*
                                                  30 )OH to test prcvidr lenders
 -<t«>a»rj.. x. MK: stjte «. •
              >i sot                         ». Ja.)

              tKt

                                                              *f fects vest of
                                                 «9ra*iwte'!» £0.000 leaders
                                                   :i3«tiaQ ia t«>« yyfri*, GAO
  11*3 rot* ef »*m                               r»ri t»e l»c» e* t*»tl/ »
         tc                                       on sc*«cl d^aexiutx iv lediu
                                                   s* * ?«-atl«« t«ut *>/ t* e«-
                                                                  «*«>*rs.. (See
                                             p. ??.3
                    9" 3



                                                                                 of
            lawn vau'' S*                                         p.

                                                 K>t
                                            20

rciort aralnst bmiuMtn defaulting                9r*du«te or drop out of school Md
oo their loans.-. T*e agencies also              require p*rticiMt1*Q institatiou
took little or mt, ccl.ectio* action             of hleMer educttfoa. mutton*!
•aatast defaulted borio»t»s li»1ng               schools. *«d lenders to cooperate
i« other States. (Seep. 2S.)                     in inolcMenttno, the acst feasible
                                                 •rtkod. (See p. 21.)
CM noted                 weaknesses
U soae lenders' pf       es for                            to lenders tfceir
        Cc for interest subsidies                         to *djost billings for
amd special allowances. Tkne »***-               interest subsidies «od spec 1*1
•cues Here u»i<cm «ftcr t*ey                     «llBM>nces so thtt tne Comnm.»i
•rre brwakt to t«« Iwdrrs*                       CM recover Mounts p*id before
            (Set-. 3?.)                          t*e d«te th*t lemSers le*rn Uut
                                                 t stadent bono^i Kts defaulted
          K occfts tt* .            of           on His .0*0. (Seep. 21.)
thr
tiUtags. Ot did Mt *•»« M effec-             —Continue to inpnjur its «onUo»-i»o
tive «rd>od for venfjri«9 Ue pro-             of tfte collection efforts ««d
priety of tte MOOTts reported by              interest btlling procedures of
the lf«6Vs is. outstanding IOM»               Sute gutrmty •gencies «nd lead-
Mhick «ere «Md for co9«ti*f '»-               i*9 institutions *«d ftremrtnea
tercst «tid SMCI«I tUoMMcet. (See             its ow :--ocedures for »enfyii>5
P. 16.)                                       tne p-^rietv «*d Accw^cy of
                                              billinji swbBitted by lenders to
                                              insure ttv»t they «re *deqiMte.
                                              (Seep. ».}
Tke Secretary »f    ifcou'4 direct
X to:
                                                            cf BOSt Of U« prob-
— E««lMte «lte™*ti»» wttods for              leas. d<sc»ssed in this report *«d
                                             •d.-.sed CM t«vit actions **d teen
  tke fa*rMt«ed H***t LOM pr»-               or Mould be Uiea to 1*pro»« *dvia-
      i irttk wre tiarly inforMtiOK          istratign of the Guaranteed Student
          ES of ttadevt                      Loan proy**. (See pp. 21 and 29.}


                    I TV, f u l l        : o» :•>» CM tut Nr
                                    21


  Senator JAVII*. A premium u paid for this insurance!
  Mr. OmxA. Yes, it is.
   Senator JAVTO. To what extent has this held up actuarily! Has
the- United States lost money!
   Mr. Snutoxs. Under federally insured program, we charge one-
quarter of 1 percent.
   Th» State agencies are permitted to charge up to one-half of 1
percent.
   Actuarily, it is not adequate.
   Senator JAVJTS. I see.
   Dr. Or OKA. We are indeed financing the premium from the Fed-
eral dollar.
   Senator JAVII*. Don't you think vou have to get some increase
in it?
   Mr. Suui ox*. I would he- delighted to get an increase.
   Senator JAVTK. 1* that statutory I
   Mr. Suutox*. Yes.
   Senator JAVITS. l*hecc> is a statutory recomiD'ttdation you have to
make, unless you are going to tighten up on this thing.
   The great aooommodation of the Government guarantee programs,
in housing, banking, brokerage. ha* bm» tliey never lose any money:
they make money.
   Dr. Omv\. Senator, I am suns you share with us the belief, it is
not an either /or, w* must tigliten up as veil te reconsider the premium.
   Senator JAVTT&. 1 hope you will do that. lnvause 1 see some. bad
signs arising for a very important program affecting millions of
yxinger Amencars. I believe that if we get stuck with a bad deal,
tbe-x l»wv tlM? ngLt to complain against us. The individual students
have no control over thi.-. We Jo, M> that we luvr to be provident aliout
srtting this up.
   What difference does it make to tin- individual student if it is a
premium of a quarter or a half? If a lot- of jn>ople are £i*tin£ a free
ride on this who should nor. JUM! only prejiidirtug t'n» lAJwile otv,
the noxt thing you ki'«»»- tfie crJ^.V ^i.^ntui will I* out in The ash
ran. So I really see, Mr. ('hairnian. >*»w verv tr««tUlcsonie sapw.
   I think we are moviug in time, Iwt we had U-tter ivJi lie .-ooipla^ent,
and nehher had th<> llefNUtmrnt.
   I w«MiU) dig into this immediately.
   J>r. CJhmx*. Agaiu. let me a»-ure you. »i- an' not ••onipU-vnt.
    It i» in die laot ft-w months we ha\v iiKre«irJ our vigilance, and
havi* r*9u!y doubted, almost tripled, uur nianjiower iu the area of
rolWtwmsc. in the area of ovfiuitc. auditing, looking at the lenders.
We are tr>-ing vvry hard to improve this record dramatically.
   Senator Jivnv. Mr. Oiairman. amrflwr supc»*lion whiHt I liave.
IB I think tlw cooiniiftw ou^iit to ronsider tin- feasibility of shaking
umarimdy loose to go tlown ihi-fv. ri^bt into tin- ir •&*• . to" t^wnd a few
weeks. Lrt us find out fn«tn ilie in^id*- wliat w really going on. *n we

  The thing that makes nw jump, i* w()«>n \<«u say wmrbtxiv put it
<m tbt- ajr^tMia for th.- Sp|4emher iw^-Uiig.' Tliat'w the iraditional
                                             22
syndrome of Government, to prow tin- lonp gray beard, so. Mr. Chair-
man. 1 would hofie that -
    Dr. OrriN'A. Senator. the Advisory Council meets periodically.
    It met this nraiitii. June. There was ahout an hours dissuasion on
that very item. Itecause they shared the same i-otK-cnis that you are
expressing here. they asked that it lie indeed put 011 tlu-ir agenda,
and that tliey delve through an a<vreditation nvognition im-ans of
at tar king that problem.
   lliat m , it the only solution. Tliere must be a uuitiod effort on
many i-ounU; to unit nil this problem. aiul tliat is one of a niiinlxT of
        tJiat we nut:] taLi- to i>rin^ this problem under eontrol.



  Senator JAVITS. For example. <io you eontn>l the airn-ditation

    \\*]io<i>ntrolstJiat?
    J>r. (hriXA. No. Mr. we r»-«»«rniz«' thnm^h this advisory «rnmp tlie
aSMH-iatioii^ They <!•• tin- ao-nnlitin^. and »'<• n-«-ofniiz»¥ them for
liartieipation in Federal pn><rrairs.
    In otJM-r words, up n>-'»^ni7.e a jrnmp whieh an-redits flu* institn-
tions, and our recognition is only for partii-ijutiou in Federal pro-
•rranis.
    Mr. .MfiKiii.vi). May I Continue tl.nl .lis< u-<i«ni. Senator >Ia\ its.
    1 think it it- ••nn-ial. iin- |»>int y»u iiave niis<-<I. as to how do wr
determine hov an institntiiK: ln-.->»(tn-s eii^jWc for |>arU<*ijHitiop in
tlie Feilcr.'l }>m^raiii. UV <Jnioii.-iy mni fi: tin- ai-i'n-«li'. in;r «^ooci-
atiiHis. I >ut in tliis iii.^tano1. <-<ni,-ertiiii^ the pn>|>rielorv s'iioots, wln-rt-
xve have J*TH a very lar^e iih-ii|en«-i- of drfau!r,.ne an- notv .*ayin^ t«
tlw- 3< - <-t>ilitin^ a>.»<H-jaf ion tliat :i--rni!it> tiiat ><-!i»<>l. that we *v<nild
(ik«- to Iiave you niake'vonie rai'n-c -j-ri«nir. fjian^-s in the nay, in which
v»! a-i-nilit tluise in>i it :it !»d.-. ><> fli:it \xe nii»ht l i u \ i - u.;.<iiran«T tiut
then- w<Hild he nion* liiian«-iui ;4al>:lity in tli-- inMiliittoti. that tin-y
wouid have a it.>Iii^- of Ih-in^r «'«*'• to refuni! ('• the >t<;ilent-;. if tlwy
• lft\i «m«. or tsint tlien- uoiiM !«• s*»nn- a»»rj)n-e that, if the j-'lwol
riot's. a> a nnnilvr ">f t'letn IiaM-.-ll-i- !-Ju>l.'iit> will nut \»' Iffi hi^li
and dry «Hrirjr tin- ni«>n«-y. So n«- an- ptirsuini' \ery vitroroo^Iy tlk<-
•|ii«-sljon of dftKnuiiii'i^ wln-t^er <»r n<K t ho>4» jn.<4 it ut ions <hould «-'Mi-
            u'elijjihfc- fur p - »«Ti«'ipi | 'ion i n t l u - program.
     S-nator fl \THA\vVv. f)n that T.i»-i.. «hpt arc \«»u sjyin^ in t\ti: pr^

  Mr. Mi'tRttrut. \\'i- J,an- a^-.I «!K.-III t«» lake a xvr>-
jt fin-jr own J:v-ii(iiti.i(:.v. at t!ii-;r nun i-rid-ru. \Ve Jiavi- arked them
to <viriH' tffitrv tli-- u.-.-n-iUlin^'. ,niii.-il in SepteiiilM-r In pvvi-if »«rxvith
HHire lilforjii«H«») '<i U' ri^fiili! ixe to tliei-iiix'em fli.li x\ ••«<••• eliii'rjlilljf
iii t i n - ^-iiuraiifo-d lo-.iii prn^rnrn. .ind hu|H-fiilly to Iiavr (ln-ni then
fiian^i* tln-ir I'ntrna f«»r fi> > teriikinin^r< < !i!;il']l't\.
   S»-n»l"r i f x T i n w M . Wii'ii i|i«l i oil a^k thi'in tod" lliis^
    Mr. Mi IKIII .»!». We sent a lettei- !•> lii.-m I lliifik it ua> Iu,-J w.'1-li.
Mr. f "uriinii-^JoiMT. i"i| -iir:i«-<l t i n - li'ili-r "oifr^.to t !•«• a«-.-r>-difiii{j a*-
        ioft. A\ f l u x e aim :l.>ked th«- :«''iT>-«|jt njjr •/>I:iUH»»'in when thry
       in S»-pt.-ni'j»-rtoptit l l n - n n I he a^-
                                  JU-I ID >-!i;iri- u i l t i X'vd tl«.|t f }|i> v.lu>lr ffix*).-
      of •Irfanlfc in fin- jnaranlMiI loan pru^fTiiii i- rr.ilfv otv uf our
                   in II
                                      23
     Seotaor jAtrn. Mr. Giairman, I aan not satisfied that everybody is
 sitting forward in the saddle in this matter at alL
     I am too much of a trial lawyer myself. 1 do not get the smell of an
 etnergvncy, so 1 would hope, Mr. Chairman, to propose to the full
committee thkt we put somebody on this job wlio can concentrate on
  it, get into the agency, and giw us a crash report as to what is going
 on, what needs to ue dune.
     Senator HATUAWAV. I would agree with >ou, Senator. 1 think we
 nerd it very quickly, so that we can kct sometime certainly liefore the
 middle of July, so that students entering scliool in the fall will l«e able
 to obtain the loans that they need to go to school.
     Let me ask you this. How long would it take you to make recom-
 mendations to us as to what legislative cjtanges should be made so that
 wr can free up this money anduiake it available to the students in time
  for them to use it next fall (
     Keep in mind that we have to deal with the House of Ik.-r»resrnta-
 f
   ives. as weJI as ourselves, and we have an August re»i-s& ana nothing
 can be done around here, certainly not after the last of July, that will
 help t he st udents.
     Mr. MnuiEAD. My response a moment ago v as directed to tlir prob-
 lem of the deficiencies and defaults.
     I would like now to say that as the Commissioner indicated in his
 testimony, there are a number of factors that have led to this decrease
 in the number of loans, and time factors are coming to sort of a climax
 in the riouth of J ulv.
     \Vf will L*%ve told tlie colleges by that time. Senator I Cat haway. how
 mu-.-h money tiiey will have Available on the college based programs.
 WP will hatv l>rcn able to make some «rooj estimates as to tlie num-
 ber of students who will get grants. \\> wi'.l pet from tlie newly estab-
 Uslted «Kondary market SOUH- indication as t<* wlteii it will !M» in ojier-
 atiun. AH of ihoe*- factors it M-ems to nw are nwkinirsoiiU' ini|iaft U]MMI
 Uie pro(>leni we are facing of a slowing uji. if y<>n will, of the guar-
 anteed Itian program.
    We. would hot* that during tlie month of July, as we i^-a; tliat.
we would Iu>pe b^st <-f al! tliat we would stv a marked improvement in
thenutnlierof guarantM'd loa>*s.asa rcsuit of tliosethi:ig»hapi>ei)in^
And if there is not a marked improvement in it. tlien I think the (Van-
mi*ioiu"r has said we i.upirt to examine ways in which we would seek
tiomci:bai>£«>. either in the regulations, or some change in thr law
    Senator IlATiiAuv.r. Well, you mean you i-annot tell us now wi
it is t hit law, the rvjrulat ions, the ticltool.* and tlwir a''<-n-<litation. or
tanks and tlirir n-lu<tan'ie to loan the money, tiiat an- at fault, or
whetherinayfieall fourareat fault.
    Mr.^friKiirAf). M'« do not know whxfi oiu* it; at fault. We jurt *xy
that Tn s'Miv! inKi^ur*1 'JM-st'otlier factors have mtliwri-T*! »he dn>f>. \*
*nun~** we ^et a iiKasan1 on that, we will kiK»w if we are. yinnf to move
totrard a. m>niia.l. a. MIOIV babinced protrram in the guarafrti-e*! loan
pru^rmti than WT^JIS.C at tlw mofiwnt.
    .Vnator JL*TJf.vW*r. Could you jr'ne us a date when we could
>*»«;«» r-<V)ii»nrt^iiwnK fr».-m th" adtriini-^ration on !••; J>laf ivr ••hai
    Mr, MrninmuL K wrwiLl M-»-III to UK. S-narnr Tutluway. on
           f tiavi- jtirf t>har>-,{ u-tili \tn:, tlut. we t-U '•! be able in nuke
        aj?-c>-nitnt is to tSri- nnj'j"t of IhoM- fx>loiv on flic probk'm by
       iidof Juty..
                                      31
      Senator HATHAWAT. By the end of July, k will be too late, consid-
  ering it has to go through this committee, the floor, mod the conference.
  I would think we need it before the end of next week.
      Dr. OrnvA. Part of oar problem, Senator, at the risk of having
  Senator Javks say we are not leaning far enough in the saddle, we arc
  not sure rrhat the answer is.
      It may be that a change in the regulations, a change in the laws,
  introduced in July, would do more harw br September than good.
     Wo do not know what the problem actually is. in terms of a legisla-
  tive area.
     We think a lot of it is misinformation and reluctance of banks, and
  &at is why we are trying to mount this awareness of public informa-
  tion campaign.
     We do not believe the test that was enacted in the law would have
  the efft-t- titfj. we are witnessing in the statistics only, so we are looking
  at other ways and other techniques that are not legislative to try to get
  this problem to where we think it Mongs. That is why w are express-
  ing thisreluctanceto you. sir.
     Senator HATHAWAT. Would you not agree we would be much better -
  off if we had not changed the law, and left it the way it was!
     Dr. OrmcA. The conditions would not he as they are today, yes, sir.
     Senator HATHAWAT. Do yon consider that as aracommervlatMuf
      Dr. OmxA. WelL sometimes it is hard to undo what one has
  done. sir.
     Senator HATUAWAT. That is our problem. You could recommend
  that it be undone.
      Dr. Omxx In the sense of the timeliness for this academic year-r—
     Senator HATH A WAT. What about a compromise: we allow 'how with
  family income of $15/100 or under, not to li*ve this needs test, and
  just apply it to thuoe over t hat amount!
      Dr. OrnvA. That certainly is a possibility tint is worth consider-
  ing, sir.
     Senator HATH A WAV. Do you not think you could consider (hose two,
  and othr possibilp ies. and get some recommendations back to us, say
  by the end of June ?                    .
    * Dr. OrnvA. I am sure that we will do our very beat to do jtnt that.
      All I am trying to predict for you, sir, is that it may r«ot be our
  recommendation that vou need to change anything this year, because
  of the situation we are in.
     Senator HATHAWAT. Well. I think with th« figures that have .been
  made available so far. and I have not *een them nationwide, but I
  know in the State of Maine, the loans 'have fallen off by about 15
  percent.                                                        .
      Dr. OTTIXA. They have fallen off much more than that nationally..
     They have fallen off by 40 percent.
     Senator HATHAWAT. This ic only at the rnivershy of Maine.
      Maybe at other schools in Maine, it is higher, and it comes up to the'
  national average.
      Anyway, h seems tltere is enough of an indication that we should do
  (something very shortly. So we do not have to study it once more, the
  only question 'now is whether you could give us a eerie* of rvxwi-
- mendations that we would have something to consider. _
     Dr. OITIVA. Wf will be very pleaaad todothat,
      [The information referred to follows:]
          OCMRTMCMT OF H£A1TH. GMJCATION. AMD WELFARE
                      OTlCI Or CC'VCATIOM



                             JUN JLUW3




•ooorabU Oaiborae fell
nviln»n, SobcoBBittM on Education
CcBBittea on Labor and Foblic Ifrlfare
Onited States Stnate
tBtshiooton, O.C.
tear Senator Pell»
In »y ny«*rinr« tofocc your 11*11 laalttti la«t «w«k, X proai**d
           pM OB I«9i«l«ti«« clun9*« in the Caarant*«d LCMD
       by th* «nd of tb« Booth.
As X hM« r«»i«M»<5 the •ituttiae sine* tfave, I lw»« COM to th«
eooclavioo that no L*9islativ» rti»r9>i «r« n«c«»««ry or should b*
••d* »c this tiM. M* hop* that ovr i,-»ar«1yi to «ncour«9B 9X*«t«r
ptrricipatior. by tb« finaacial oo*wmity will bn •ffcctiv*. Under
aoy ciroMtanoM, X b*li««« that legislative action at this tia*
could only lead to More uncertainty and disruption.
  Since there is little that could be done legislatively to iaprove
  the situation by September. X would hope that after Me have been
  able to assess our efforts in the fall that ve recxasdne the issues
  in the light of possible legislative changes for the next school •
  year.
\~
  Kith best regards,
                                 Sincerely,


                            s VXwhn Ottiaa
                           £^Xu.C. CosMissie
                               of education-designate
                                     26
   Senator HATIIAWAT. I)o you haxv any coninvnts on the guaranteed
loan program as a program. regardless of whether it is this version, or
the older version, or some modified version ?
   It has been suggested that we aliolish the program, and have a direct
loan program as we have in XI)EA. only on a larger scale.
   Dr. Orris A. You an- suggesting that we consider tliat as on«» of tlie
alternatives?
   Senator HATIIAWAT. If xou would have any comments on this tliat
you would like to make right now. I would like to lu-ar tlicnl.
   I>r. (hriSA. Our comments on that program. I think would HIM very
miK-h sloop the saiiM> iin«-s as our prior comments that siip|M>rted the
BKOT. prognun.
   If tliere is a national program in which any student n'«rardl«-ssof the
institution lie chooses to go to is eligible to jtartii-i^ato in an unhiaspd
and very open way. we would have a fa-ling that was u better way to
CO.
   Where the (Mirtirular institution did not have the problem of
wbetlier ;t had the money to awanl. but it was a national jtoliry. and
a national amxint tliat was looked at. so my sentiments would he to be
op|jQ»jed to t liat ripht now.
   Mr. MuirlH>ad. |MThai>s vou would like to answer tliat.
   Mr. Mriicnr.\i>. My leeiingon th • matter would U- in tlu> lon^ nin.
if «v could really make available loans to youngjM-oph- for higher edu-
cation put poses, tliat *»• would lie much better servf.l if tve ha<l one
prant program, and on*- loan program. Furtlieniwre. in my judg-
nient. we would lie niu«-li hett<*r wri'nl in ti-nns of seri'ing the hit fret
of higher education, if we did not haw to nut a loan program »n tite
budget foi a Fe>]eral ••apif-J rontribntion. If we rotiM turn to the pri-
vate iiiarkctplati-. and provide the loans to stu<lents. and haxv them
generate to all student*, we would I lien, it seems to tin- make a much
more effective use of the Federal resoup'es in snp[»ort of jiigher educa-
tion.
   S-nator HATIIAWAV. Senator Javit.-. do you Jiave any further ques-
tions?
   Senator .r.xvn>- I think what I would like to do now is hear from
tlie othfr elements involved, tin- State agem-ic?. tin- tankers, and gei a
lirtter prusp of the Mtnat ion. and <-ome lu«-k jn-riiajo to '.ln-x- witnesseK.
   Senaio^llATJiAW.\v. All right.
   Gentlemen, we thank you vi-rj' much. We would appreciate it if you
would stay to hear th«- oth<-rti'>tjm>»ny wr are about ton-i-i-ive. anil JMT-
liaj«yoti can comment on it.
   Mr.OrnVA. We will U-triad to. Mr.C'hainnati.
   [ 'Jin- [;n'{M»n-<l tJatviiR-jit of M r. t Kt i na fol lows: |
                                 27



ran RELEASE won




                                   t by
                                  Ottlna
                                 r-designate
                     U.S. Office of Education
           Departa*at of Health, Education, and Welfare
                            Before the
                     SubcoBVtttee oo Cevc^Lioo
                        oa Labor and Public Welfare
                       United State* Senate
                       Friday. June 22. 1973
                             •:30 •-•.




Dr. Ottilia i» accoMpanled byi                                     -'

     Peter P. Hulrhead. Deputjr Co«ii»»loaer for Higher Ediuatf -o
     VJlifaa M. Si«oM, Director, DivUion of Inawred Lo*oa
     Judith A. Pitoer. Acting Dep«cr Aaalataat Secretary for I«gi»latl«n
       (Education). DepartMVt of Health, Edocatlon, and W»lf-»e
                                       28

Mr. Cbalnan and Meaton of the SubcoaBlttee:
     I am »«M7 to •»»•"• hefore yo» today to dUeaaa the Mat** of the
Guaranteed Loan PregraB. rorkaoe first • little background information
night be in .order.
     The CiucMioa Mill tiiit» 0f 1972 wr« »1(<M4 loco law on JM* 2). 1972.
with am •ffcctlvt c«t« of J»ly 1. 1972. TW iaiw4iat> effect on tte
Cu*r«it««d StiUaat lo»» Pr»gr>B •»• • »h»t Jo»n of tb« prograB on J»ly
I uhlch cootUmJ UK 11 th* Uavaocc of ••» racvlatlon* for tte
of k«y aarta of UM «•••••••(•.
     Tb« ^rograai f«»«m< af*T»tlam» with cb« Joly II BublleaCloa of-
            to loplanomt l«Ki>L*Clo«i Affoctlna «itgi»lllty ro^«lr«MnC< for
        lac*r*»t tcaaflt*.         "                    .
                         "^        -
     T>M aajor profit Ion oC dx ragitlatlon* wa« tb» ••« r«*DOMlbtttc; of
•rfucactona) ln*ctt*tl4MM Co coapct* expected faBtiy cnotrfhvtloa a«4
                          \ ,
to yeoaeaygrf a lotm tnnixf to cfae lender. The. ar.c«««a2]r calcwt*tl«u
aod e^e rei'neaiaJition uere to •• Mde on a •«pf)a9M«c*I «a*lle«tloo font.
II ». loan In a»y tfemt iM* rectMBended. the Federal tiucreat kciafU*
•uould Iw D*ld vo eke e»f-tre aaoMtt approved by the leader, jaxiiam in
       of th» 'trcaneaadid loan anoaar vcmld V warr«aCe<* ooiir in
                       J«et(fied »r the lender.   If the acfcool n«J? •«
rtroanrndacioe for a loan (zero or a negative figure), tne loan tn»
not ellglbU for any Federal intereat •u»«ldf.
                      of the nev vroviaion* during tke bcfgbt of the eonial
                                               29



     Icarflaa. ••MO* ka4 a algalf Icaac laaact ea tka pracraB. Tka aav aracaavraa

     thrrw ik* »ragra» iato aaaaral coafaaloa. laaaara aa4 ackoola alaply

     war* aot akla to aracaaa Bill loaa of aaallcatiaaa ua<»r • caaylataly

     MW Mt of |roaa*«laa la tka lialtad tlaa avallakla.                 la. jthoM tmt

     c»«ti utera ackeola van abla to »rnc««« ••pllcatloaa. ck« furaali

     for •>t«r«ialac tte racoaaaaaM loaa aaooac yroJuraW rtaalts nfcleh

     m*U r*latl««ljr fa* •orroKaca allflbla for Facaral iataraac aaaafica.

          Aa a raaolc. Off tc« of Hacatioa, Scata CtMraataa »>aaf1«i, aa4

     jrour offlcaa «ar« flo*4*4 trftti Mil     «U tatafcaaa frca, ataaaaca. faallUa.

     tauten an4 »ehooU.          Volaaa of taaaa la JvLy HHH! Aar«t 4rnaaa4 cloaa
         ' , ^•     \ '• "
.     c« 40 aarc<i»t fro» cha aravtowa BIBHK. TW fraaUgtt annad co arov^aa
    s • "_               . ,
      tr\.\ti fcy aaa4te( cha Ce«fceaa « rc^aaac for
                                                           .
           fclw COM'*** e*«f>oa<«4 wttkta forcy-aiaJK hoar* witk a Joist flaaaUrlo*

           »«t back cbc af facclrt aace of c<rtaia acactconr itrovfaioai to
                       .                            - "> .        -                     \
     Kareb lr 1«J3.          .                               ,    ,
                                               \v                               •-
          TW rcgiOacloo* •nbliakni ' oa> Aaguac 22, 1972, ra«c0*atf tka »ra-

                  ral*a of tha aroa^ja), aad «•« loaa vulaaa. facraaaad o*ar cha

     prior jraar la avary movtk (tarn 7iffaa>«r chroogti Paantary of rhia year.

          Tka t*rlo4 f raa Uta Aucaat chro«a> lafat Occckar «aa Acvocad to                  ,

     aavaloplag ravtaa4.r«k«»I«tloaa vklcb wouU <^4r«aa tha prablaaa «iit»

     cha orifUal lotarprtutlaa af tba <aitn<a««ti.               M lac^raaaacjr aoliey

     grouf waa aatabllabaa' aad iacaraatmi orgaaiMtloaa aoJ ptraona »»C«I<«

     cfea (ovafwnt w«ra coaavlxatf.       Tbaa* affarca raaulta4 1» tka Occakar

     2i, J*/2, (MVlUatio* of aroaoaad rnU« «f facjiog latcraat kaaaflta



          Tbraa aajor cbaaaa* •«»« aad*,        Fvrat, cka co»i of a*watioa waa

     co U datxraUaii Irr Cka a4ucaeio*il l«a(Jcvtioa aatf ao« «^i^a< t«

             kooka aod •ur^Uaa, tr»muft,t*tMi coae* aarf aaraaaat r«*aa«aa.
                                       30




 Second, the school MM given flexibility to adjust the compares1 expected
fanily contribution to • "realistic" ssnuut.     Finally, a loader eonld
now make a nabsidixed loan In exec** of that recosmended by the school,
provided the lender b«d MM baels for determining that tte school'•
r«n«»i«nj«ttoo MM mot r«*ll»tle.
        Ourln« Jmu»rj aad Fvbritary of this f**r, thv Office of Education
«od Stat< - tncy ittff* cood«ctad over 2SO workshop*,     \n4rt* rad
schools tkroufbouc tb* conatrjr WIT* brl*f*d on the o*w procedures.
Progrja Stat»» staca lurch I. 1973
        The Cuireacecd Loao frogrtm hu» been opcracloy MMUr the MW low
for only throe aoaths.     The cctacbcd table soMisrlza the recent ezperleoce
of both the federUly Isswred progr*B aad the State «ad private
cuaranteed loao procraw.    The cori>lsed March, April, **d Kay vol««e
were dam about (0 per«eBt, as coByared to the *•»* period of last
rear.    Dollar voliaw wae off 37 percent, but the Buster of loan*
a i) percent decline. The federally Insured program has dropped 34
percent In dollars and 41 percent In maters during this period.
        The extent of the decline in lender participation is even greater
than these figures indicate, since an estimated 30 percent of the new
federally Insured loan act'vlty is accounted for by three large vocational
schools functioning as lenders.     In addition, in Florida, He* Mexico,
akUbo**, and Texas, the Scate is the largest lender, but with loans
ptlMrlly United to students attending college vithfa the State.
                                                                                 4

rrellmlnary observation* al*o *bov that vocational *chool *tudent«

in particular have been receiving a high percentage '' i. • loan commitment*

throughout to* year. Only the federally inatired program chow* tht*

•ignlflcamt Influence of vocational education lean*, alacc it !• o»ed

by then* school*. Mhlcb generally work oo a nation-wide ba«l«.

      The record of the flt^       *>>ree Bostha !• dlaapaolotlnc.   The Major

change* In concept* Incorporated into the October 2tth Proposed Rule*

and into the final Kefulatlon were expected to have a positive Influence

ia thr total process.    Malic the expanded "COM of education" definition

baa alleviated the problea originally experienced In that area, the

other two «ey caanfea have not been alfnlf leant, in providing the flexibi-
                               V
lity eaviaioned.

      Ana!y*l« of a sanple of 7,377 aiippleBentary application* proce*aed

•hove that financial aid officer* nave decreaaed the expected family

contribution for 1} percent of the *tudent* eligible for Interest benefit*.
     \_
Similarly, lender* have nade mbcldlxed loan* exceeding the *chool'»

reconamdatlon, a* permitted uoder the third major procedural change,

to 1.') percent of the ctudent borrower*.

Sue«r F<jiOO» for lecent Decline

      Ideaily. 1* order fully to a**e*« "what 1* happening," Information

1* needed oo *tudent« who have cho*rn not to apply and on loan* held

up by school» and/or turned down by lender*.        IB the abtcnce of »uch

data, neetlnf* have been held with Of(i<v*-of Education and Stjte agency

o f f i c i a l * v. dl»cu*« the total problem and to get the be*t judgment
                                      32



•f thaaa staff uaakara aa ta afcaC la Cafclaa. alaca.

appaara OB cka follatrlac varlatf eaam.

     1.    Durlaa, cka thru •art aarlod la aaastloa. laatlcvctoaa man

•accrcala ai«»t Faaaral allocaclaaa aster cka callafa-kaaaa' acaaaac

riM»cl«l «14 BrocraM.       U aMlclaa. CM f«Mtiag l«v»l for CBB Basic

Craac rrogra* aa< aoc kaa* a«ta»lia>ii, aa< cka aatall* of It*    oaaracloa

wr« aoc vicaly avallakla to iaattCatiaM «a4 •r»<iati.        Flaaaclal

•14 officer* liar* aaaklo to <«raratat a ataaaat'a aaa4 for a C»»ra»tii<

Lo«a la tha a>»«ac« of laforaatloa raararitaa. tha achar aortleaa of

a •cudaac'a fiaaaclal aU yirtiga

     2.    Soaa atwaaBta ar« aiavljT aac •aalflag for a raira»taa< Laaa

bacauaa cha aaaai aaaljrala raaalra* <l»cloanr« of faally lacaaa aaa1

••••t aaca.

     3.    taaaara aaa> Co aa aa»acia( cka racaaajaaaatf loaa aaoaac. vkick

1* clatf to allcialllcjr far Faaaral Interact kaaaflu, vicb Che ctaaaac'a

oa*4 for a loaa.     Scaaaac* wick a «aro or lov loaa raeoavcaaacloa gaaaral-

Ijr ar« aoc facclaf liaan, avaa oa aa •aaobala'lMa' aaala.

     <•.   Soaa laaaar* ara faallag ClM ll^oUlty aa.uaasa tmt ara walclaf

to •«• kov cka aavlr-«acaallaaa4 Ccoaeac Loaa Harkaclag Aaaoelatloa

("S«11J« MM") trill aaaraca aafora lacraaalac tk* «lsa of Ckalr acaaaac

loaa portfolio ,,

     J-    Laaaara aay faal cka racaac aa4 ahar* lacraaaa* la lacaraac

r»trt ba*« «aaa     h» »maa aareaac Cnaraacaad Loaa laaa actracclva,

•vca irltk cka (facial allmraari.   Tka •facial allotraac* raca la a<j«aca<
                                        33


                                                                               *
 eeartarly to reflect cai'reat •naarary eaaa'ltloae. The aext aajaaeaaat

 la cha rate la arhat-ilri foe JVM 30.

Outlook

      The aaxt Cue aoajtha arc critical for the Caaraateec' Staeaat Loaa

frof raa.   The raaauae' ceaadtuaat of the aatloa'e lane'laa, oaBHBlty

 U clearly an<i< c« aaaara cootlaaaa' arofraa a^aaaloa aa4 eha availability

of a ooorca of fa*4a for sdllloaa of poaCaaeoatory at*4a>ta.        la order

to iicnaallafc chla, tka matrcaaat of Icalch, Edacatloa, mat Htlfara

will •Portly be l»»»rM«a. a aejor aattoaal oroMotloaal rmfutyt.

la a ctort aarlo4 of tla». «• kooe to contact »«raoaally aoat of the

a*Jor \tmirr» la tka rneatry la aa effort to laaara that they are faalllar
with the eew »roe*<iiraa for thia frograB. At the aaaa tire, «• will

be •eea.lat, Jarre«e«< »artlcl*atloa.

      «'ftclala of "Sallla Mae" have Ia41cata< that the aav aacoaaary

aarkat «f, ,1 be oaaratlag la at laaat a aoaaat f aahloa by late Beaver.

Evaa llalc«4 »«rchaalac or v»raaoaelac activity obo»U have aoae effect

ia etlavlattaR oaw loaa volaae la tin        for thla >arn«tin achool year.

     rrrllalnary revolt* of aa Office of Eaucatloa telaoaoae aunray

la4U«te that leader* My be vllllag to Make relatively acre aoa-aabal41sa4

lo«a* la the future. With fewer ataaeete aoallfylaf for raaaral lauraat
beaedta ua4er the aaodi aaalyela. • ahlft la aee<a< la lender policy.

     Survey reaulta Udlcata that about 57 aerceat of leaeera aake

both *ub«141sad aa4 uaaveala'lMa' loaa*.      The teaaeacy to aake both
.type* of Jfrar* aeereaac* vlth the level of eertlclaatloa. for exaaale.
                                      34


                                                                           7

all lendei* with 10.000 or worm loan* Bade aon-*ubeldlxed loan*, bvt

                                            «•
only S3 percent of the lender* with 500 or ! • loan* Bake loans to

student* act eligible for Federal Interest benefit*. Lender* In Che

100-or-le** range represent 92 percent of the lender* in the total

progran and bold aa estimated 30 percent of the loan* Bade. Many stodent*

who dc not qualify for Federal Interest benefit* will therefore experlec>-e

difficulty In obtaining a loan ante** •pedal effort* are Bade to eacoar-

 »g* the Mailer lender* to make •on-subcldlzed loan*.

     About 20 percent of the lender* anticipate a chance In the noabcr

of non-*'.&*ldlced loan* they are now Mklnf. Sone Indicated that the

ouBbcr would decline becauoe of the additional co*t* and paperwork

Involved and a policy of loaning the amount recoaBended by the ccbool.

lut tvlce a* many lender* felt (hat *oee Increrx would probably take

place, partly a*   "!*ult of the new regulation* and the de*lre to

aceoModate upper lncoa« cuitoaer*. Lender* generally were unable

to predict what overall effect the new legl*latlon will eventual].;

have <m their particular operation.

     The general po*ture of Che Office of Education and the varlou*

State ageocle* 1* to provide all poxlble a**l«tan>-e to lender* and

•rbool*. The pact three BJCBth* have provided the ncce**ary Claw for

the new regulation* to "take bold" In tine for the *u*jaer period. Now

the nece*«ary lending Industry conBltnent, the Implementation of "Sallie

Mac," and a liberal lender attitude toward non-cubcldlzed loan* arc

tbr e**entlaJ elment* for a**urlng cucce** of the program under the
nrv leglfltiioa.

    We w i l l be happy to ancwer any queitlon* you sight have,
                                        \"
                       «l.\C.V.l • ! •. "iv".. •' "'.VJ mw-.V |>J                                                a
                           <v. •••! ••:;. x .sa.ii. .M'KIL. ::.\~ ,727 WM
                                                                   i

                        fjAiju'j i:. ^-vv>                                                          STA1T. t rr.TTATE
                            " Ii';-_:.p.                                                        (cvA'-urni-uui I.OAUS
                  -      »                          $                                   *                         $
»i«rd. rn?            42.79i                  l9.775.7Ki                            15,79V                   14.577, 197
             W3       23.7-*'.               .•Mt_:-!£x1*fl                          8.17S                    H.0l7.3jf>
                      IB,'/*^                l'i,lK7,^. ;                           ~7.42T                    6,iC4,641
         *              44Z                       41Z                                 47Z                        4SZ

Ai-ril I"??            30.53?                3I.655.'.R'J                            9.7V9                    9.S90.466
        l'»73         ii».:>>''             1 1 7
                                             J J J!:JK'1!                            5! 270                   5.215.913
  Lcr's               19,.". 1               14.x/o,7J7                              4.52H                    4,374,148
         i                 53.'.                 44^                                    462                     4CZ

May 1977              48.771                 44.323.177                             17,902                   '9,305,855
     197J             33, 5K                 ^.7M.::»3                               9.8'j;                  I«,fi30.0i4
    !>".«             15,2i/                  9,176,3i»                              8,010                   *,t7i,tUJ
       T,               3it                     2?Z                                   '.s:                      452

!l>r. U-J'.iv "72 IZli.O'^r.                117,7S9,'>19                            4J.Vn                    43.473.51B
:iir.:i-"jy '75    7''.,'77                  //,Jld,K;o                             ^i,iic                   2.'.B>a f 31«

Thu-t o«».             ''S.M1)               •'.0,^.'>0,703                         ) <1 ,9S9                19,615,^00
  !.• 5                   •.!/.                     ^                                   46/                   45Z

                                                 rM'r.' -i r i.'i'.j C""- 1 •" JjJ'jjy." '» » '
                                   Nursl'iT                                 "                   H'lllirf


Kul.h                                43                                                              42

April                                51                                                              45
:;.,>•                                3'.                            •          .                    29
                                      43                                                             37
                                 36
   Senator HATHAWAT. Our next witness is Donald Payton, executive
director of the Georgia Higher Education Assistance Corporation and
State Scholarship Commission, and president of the National Coun-
cil of Higher Education Loan Programs.
   I think it would be profitable to have Mr. Tombaugh, executive
secretary of the National Association of Student Financial Aid Ad-
ministrators to also testify along with Mr. Payton.

8TATEMER OF DOXALD PATTOV, EXECUTIVE NBECTO& OF THE
  GEORGIA HIGHER EDUCATION AS8ISTA1CE CORP. AID STATE
  SCHOLARSHIP COJMISSIOM, AID PRESIDE!! OF THE IATIOMAL
  COflVCH, OF HI6HEB EDUCATIOI LOAM PROGRAMS
  Senator HATIIAWAT. Mr. Payton, you have a statement for the
record, and without objection, we will put your entire statement in the
record at the concl usion of your testimony. *
  We rrould appreciate it if you would summarize the highlights of
your statement so we could jret into the questioning.
  Senator JAVTW. Mr. Chairman, I have the statement from the Xew
York State authorities to be inserted.
  Senator HATHAWAI-. Without objection, it will be inderted.
  (The information referred to follows :1
  Senator llATHAWAr. Please proceed, Mr. Payton.
                                         37




riL^^S^'i^r'                    *M) IS,




               .». c.


              tar

           Cfcftft flMttttk ffff 04fc0O&0 Mft4 iM^MV C0 k9 4^ flB0ftAI
      »   1C 111 l|BM0flM0 C0C ••
                        MMl

   1C i* MB •CTMK MiaiM. CM* M •Uwt M> MJi to
  rMMMy ky CM »3.           OtfiM •< MKMlM. VM




                            lU^OCO. Witt CM M^iCiM «C •


  MMlMi* ftf ClMMUl «U •MUM* CMM Ctf MM CM*

  •CMMC* »1U MM C* CM* Mt« MM »U1 M
                                -2.                  Jaa* l». M7J


                             af a*' aaaliaatiaa Cam aatf • aajala-
                                      at «Mk OytflB ca MM aa
                              apalia'CJaa aatf It
                                  haa Ct« aa* af Jaa* Ca all aartl-
                                1 laattctctaaa U cka Stata. la
                           iia» Cka tacaa.- aajHraMaa fan aatf taa
                             ia cka pragna will ka aaa*.
                            af aaalicattaaB :~ ca» Call
flad tkaca aw a aaaaw af aaylleacljaa kalac aacaraM aalaly
                                        kaaa caaylaCa* la lea aafiiacy.
                                      i Cat
                                    •U&at
1C U aarljr ta xaallf ka acxtala af all ara>iaa> aat aa aa faal
tkat wtta aaaay aackata aftia kaiag any BMtviettw Ckac al
aay baa* aaa» rfUClaalCf tfcaa Canawly ta a>n laiai.




tka aaa cricatla* far aasy aaall aaaaaa a( laaa*. la fkaaa la-
•Caaaaa, lufclag ac saaaaai, ataaaata aiavlaafljr aaa* ajaUUla*
                 aticarta Car Uaaa af aa ca |l,50i/ «i«k fall
      •C paU. 1C t« awy 4ifflaalc Car aa/ laaaar Ca aaylaU ca
    aCaJaac ar kt« »ia»iti afcy aa aaa U llaUatf Ca a aaallar
    •Ully feaaaaaa caa adHala aa aat aaaally »aa» Cha Ctaa Ca
          ea aaaaaMaaaciaa aica Cka acaatat, Mwala aaac ka
           ca a*rta» acaawu af ckair a»rki< af
Car a

aCaaMag. la iaataacaa akata a taaily ka* aMI<iaa attaaiiai
alttaraat aakaala aa aaa fiaaiac ckac taaat ia a 4Uf
                    aan aiailar
                  3W


•**»!*•                                      , W7J




          «• «U
                       99 0fttV04 9V
                       M* fcy




              SU'OOb D. HOLLISTER,     Jr.
              E/.e.jutlve Director
                                   40




                           Juae 25, 1973



The Honorable Jacob f.. . Javita
L'nlccd State* Senate
Senate Office lu^lding
Waabingcon, D. C.

Dear Senator Javita:                                           •
L»*t week in reporting Co you about font of d>» problem* con-
cerning the guaranteed' loan prograa w«. neglected jj» oention
•ooathinf above itudenca <iccaadia| foreign univer»iei«*.
Under jche currenc lajl»LaClon tb« need for * loan
by a fcbool and only choae loana'.wtiere oced if abowo are eligible     .    |
for Federal int»no«r t>en«f 1«. _ ib«r« are no. exception* Co Chi»          •]
portion of the law and therefore ic applie* aot only ro calle^M             -,
within the (toice^ ,Scace* but al«o to-individuaU attending                  '
foreign
From Vcw York 5uta M have a nunfaer of indivlduala attending
foreign imiveraitlea aapecially foreign •epical achoola. In the
past due.po the fact that tbefe were independent atudenta or caa»
from families with adj IK Cad 'incooa* that uere below $15,000, thuae
individual! have been obtaining loan* with iattiraat being paid oa
their behalf bjr the Federal Covernwanc. It appear* that if theae
iadividuala are to receive further loenj they may be able to get
loan* provided the lender ia willing to nake the loan with the
«tud«nc paying hi* own incereMt. While lender* are doing tbi*
to too* extent it ia our feeling that aooe *xc»pcion ahould be
•ade for foreign «cboole.
The original lugiflation authorized the U.S. Coaai«*ix>ner of
Education to cone up vich whatever rjlea chat Bade aenae uJr in-
dividual* .attending foreign *chool' and cot expect a need* analyfi*
co be »c«>«pli*hed by a acbool in anothur country.
                                        Sincerely yi
!                                           41

                       mtamu. comeri or gienx ttvaaio* tour noauaa
                                                •asm
                                           1*7;



        Col. JajH* O. Hortlm, fncative Director
        Stadcat lo«n CaaraatOT foundation
        ISIS Heft 7tA 5crMt, Suite 515
        tltfcfo Cock, ArtUM* 7«02

    OtMBKCTICtrT
                 J. tutoceo, Xneoeit* Mractor tlm»ai*tf ttft-ftttiAtat,       KUZf)
                     ftatuat tout Fooaimtioa
        tit Aiylam Stnft
                   Com»ctlcot OtlOl

    oujunxe
        •Mtwrd 3. Ptaty, Director
        D*l*x»n Itiftifr education LOJO Frogrmx.
        c/o »iqt*r fdaciUooil Aid tdvitory Cofmittion
        too Vtft Miath 5tr«re
                     Dtluttn 19101

    ntcnucr or coaw«J*
        Aotert A. JKCoraiefc, Director
        p. C. C4oc*tlon*l AssigtMoc* Office
        1339 "t" Street, ».*., Room JOSO
                    D. C. 30034

    CKKS1A
               t. fiyton, txeattiv* Dizuctot

        G«otgif Klgbcz education Atgitunce Corporation
        cvnonrr ABDRCSS: F. o. to* MOOS             ADOKKSS ATTOI jtiue
        •~—~— ~ ~^     * ctfitol Hill Station       ~9 l*W«iaP«ri«rw
                         Atltnt*, Sa. 30334         3117 MortHltk* Pirlarty
                                                             Georgit 300$4
    IIU10IS
        Htt. Carol VenncrJahl, Admlalstritive Director
        Illinoi* <*<Mtfnt*e4 iota Progrim
        10J HUmot Kotd. Pott Office Pox 33
                   Illinoi*
    UMISIAM*
        Kichtfi if. Petti* , executive Director
        lttxjiti»n» Higher Uucetion AMtlfttnce Coimlttioa
        Pott Office fox 4409S, Ctfital Station
        Mtton Rouge, Louilittu 70104
    KAHC                                                                              I
        Hatert t. .Brown, Director, rodeftJ-Sttte ft.-lttiotf                         I
        ttuctllontl end Cultural St^yie^*                                             I
        Wuc*f/in Huiltinq                                                             \
        AvyiutM, lUlne 04330
                                                  42



outrun)
    Jfmn ». IOMM-, Jr., fncntln Director
    M*rylta4 Hiftttr Cdccvtioa Lota Corporation
    1100 G*lltara anna*
                          11311

    g»lf» molmt,
    KtcMcbuwet* «i?hrr Itacttioa litlfttaot Corporation
    ill Aittln touting
    toman, XtHttctmtftu 021 If

    •u. ^14 J. Jortt, Dim-tor
    5Cudmc rinincltl Asslstjnc*
               it»t» WocjtJon M^
          Off to* Av 420
                        4l*r>2

            i f. H**mi*fpi. Zirrcfor fintocifl         Aii-Coofdlnttor
    tboofujn Stoitat Sttric*s Cmttr
    Ouinrtlty of Hfvtdi—Kfno
    tmo, ***•&* IH07
             \
et* tuufrsiKitt
    His* t'.eiaot Piov&irtxa , Etf^ucin OLfcctor
    t** Hutpthlr* Miabfc ilxttlon AMllliinct foundation
    Thiff Ctpital StrrfC
    Concord, ant Htap*hirc OJ30

    <ttlli*a C. *v*t9r,
    K*v J*rn'<i ttigh-t tJuci'.lon AstJtunce Authority
    335 *<">t Stttr 3trf*t
    Trrntoet, Nor Jersey 0$61t

                      ts-r, KxfcutiYT Dlrrctor
    *ni (irk Hlgn** '—ition Kltlltinc* Corpormtlon
    jO Hal! Ho»4
    Altany, -ifv York. 11205

       Sun C, Ofxiiuny, ttfr-jc. I if fllfe'.or
       north "jeulisa ;?ǣǥ Cluc&eijn Aisitt^r.z
       tivt Vntvi-rtlti/ of KartH Cuvltni, Swci
       Pott fiitic" tux iV/dH
                            i Ctru'.in* 3TA4
OHIO
       folrrrt. T, Znlqltr, f.gffr^ti'ff   Dif^atvr
       Ohio JcujT/t £O4D 'ZjKrtii.r. 3 ion
       13 tf'tftll H //ft SCftmf, i'tflCT   711
       Cf>lus*buSf Ohi" 4J2t5
      Miter willltMf. Lou Officer
      OUttxmt Stiff Ktftats for fifter Education
      CwrMteed Student Lout Tiagnm
      111 StJtf Capital
                   City. OltlfhOf»   7310f


      Jeffrey H. lee, X«vcBtl*e
      Oregon St»t>t Scholarship Comtlislon
      144$ Htllifftt* 5U-WC
              Otmyort 97S01


      Kaovch K. Knt»r, brccatirc Director
      r*anfylr*ni* tlfl»r C4oc»tloa A**tfC*o
      Tom* Coa>-
      «jrr/«b«rj, P«nn»ylv*ni«       17102                                                                    j

uoce tsuao
      Hn. *\t<jvnitf P. turo*, txrcativw 5«cr*t«ry
      Rhode Isltoi tlyhfr £duei£fofl Assi^CJnce Corpor«non                                                    '
      1*7 Vfitmittftar mil, Koom 414, roit Oftic* in 57f                                                      I
      rioviame*. Mode r«l«nf 07*01
ranssu
      Ceorjff r«lley, £jrecut/ve Director
      Teniw7*«a EdixMcioa £ora Corporation                                                            .•
  • C3-J01 Cordrll full tailiing                                                                              I
    t**livillt, Tanntsma 37319

VOOtot.                                                                                                 j
   X u n l ^ f '. Svarsoa, £x«cutJr« Director                                                         I
   Vft-niit Student A**i«uuice torpor<M'oa                                                             |
    1»J Col.'-^c SL»>et                                                                               I
    fur.lj.i7rw, •/•rnont 05<3;                                                                       j
                                                                                                       I
VIRGHIH                                                                                               '
      Cfartr* V, Hill, ftftrjiiv Dlrrvtor                                                             \
                                                                                                      ]
      Sutr- cducttion A*si*tt>.-f Authority
      CUtWXT KDPRESSl        J116 Vnlt.fi Viryinil «JnJc fid*.       ADQggJS AfTCT JtfLT 1, 197.'.-
                        -    Xictamrt, Virylnl* 3J319                Suite 111, Profofticmtl witg,
                                                                     Ml ttmt ritnklin Su«rrt
                                                                     Kldamil, Viriinlt 23211          \
                                                                                                          i
«ST     VlKGINft
      Kolxrt Low, Scttoltrshi? Kiatnttttttor
      vttt VJryin.w fotrd of Kig^nti                                                                   ,
      c/o H. '/j. Collide of Cetitujtr StuJmc                                                         '
      Itlftitutr, Krat Yifjinii      7'jlll                                                           \

tnxwsta                                                                                               \
      Kt<:tiMt1 t, Johnston, D*pvty ttacutivr rectfttry          tfratturt-r,
      Dirt* Ion of Stut~n'. Support
      Hitcontin Hiltvr Ctw;ft.it>raS Ati.1 totrt
      11 i Uf3t Hilsuri Sttf^-t
      Htdimon, Uiiconstn 'jflOl
                                       44



                            TK.




COtUCf tUURUHTXOft   I9C.
    Omfti I. t**l, Eneatin tinctot
    Col I mft roauUtia*. Imc.
    1X7 Ctmmi «««»•

         comet rtsrtwe
    »CT riaucUI «
    toft Dffie* awr 7<7
    lorn City, leM
    Or, Jot /tawy / Darcetar, riatmdtl »U ftofam. Uaatioaml IffTYion Division
muianu. tsaocuTiar or stmtrt rnaumi, tto JUHUZSOUXCIS
   Ulm raiiy, olnetv of U4i *o4 Annto
   Umimmltf of »lm*oati
   133 Jutff If 11
   Cola*>U, Ulaoati ttlOl
COLIKI arauuct aauaama* MUD
   trlMOi r. Oaitt-Jtnn. fn*U*at
   Co:i»9* tatituou titmlratioa tout
   lit Srmc* tvtaut
   *m/ tor*, I. r. SOOlt
                                    45
      Mr. PAYTOK. Mr. Chairman, we appreciate the privilege of being
  invited to appear before your committee today.
      The council, as you know, is composed of 25 State private and guar-
  antee agencies which administer the guaranteed student loan program
   in their respective States, and with your permission, I would like to
  introduce those present representing the Guarantee agencies.
      Following the conclusion of my remarks 1 would be nappy to answer
  an? questions that you might have, and I would hope they would be
  able to participate also.
     Now, at your request we have come here today to discuss the current
  situation in the loan program under the Education Amendments of
  1972 and the regulations promulgated by the Office of Education.
      We feel thai, this hearing is most timely. We have seen strong
-indication of potential crisis in the program once again this summer.
  Our council met in Washington last week to discuss our concerns on
  this very Issue. Our executive committee met once again yesterday
  so that* we might bring to you the collective thoughts of the
  membership.
     As you well know, the guaranteed student loan program was imple-
  mented in 1965. From that date until July 1 of last year, the program
 operated within the i*ery simple context that all students from families
  having an adjusted income of less than $15.000 were eligible for a
  subsidized educational loan.
     Perhaps slightly contrary to some testimony you mi^!:' hear. I think
  in our paper we have presented to you, you will find this ttditement to
 be responsive to the particular questions submitted to us by Sir. Wexler.
     We feel that this liearing is most timely. We have a very strong
  indication from our States of potential crisis in the program immedi-
  ately and during the summer months.
     Our council met in Washington last week, the full body to discuss
 our concerns with what is happening.
     Our executive council met again yestenlay for the purpose of bring-
  ing together our collective thoughts to present to you today.
     Afi you know, Mr. Chairman, the student program wag implemented
 in 1965.
     During that period of time, more than 20,000 lending institutions
 have provided loans totaling almost $f> billion to students from all
  walks of life.
     During the past year, loans totaling more than $1.3 billion have
 been advanced to 1.4 million students.
     These figures vividly illustrate the imjwrtance, of this program
 to the Nation.
     The Education Amendments of 1972, however, imposed upon the
 program a need? requirement heretofore applicable priniarly to gift
 aMfistaix* programs, As vou recall, the rimfc asw-wnient procedure.*;
 embodied in the regulation* i«*ued by the Office of Education last
 July were unworkable, and the program came to a Complete standstill.
     Due to the crisis of thesuimnerof 1072. the Congre** rolled forward
 the effective date of thone wrtions of the Jaw until March of thin year,
     ft was our lior* at that time that congressional hearing* would be
 held during the fall to consider modification totne Education Aniend-
 mentfi of W72. To the contrary, however, n reinterpreteion of the law
 WM undertaken by the Office of Education, and new regulation* effec-
 tive March 1,1979. were promulgated.
                                                   46

    We now have had ' ' • _• months oxpoi i'Mioe mder the neiv legnlations.
 Tin- most obvious jt'ect of those now regulations has l>een a marked
 reduction in the i .milter of students who have received loans, either
subsidized or nonsiilisidixcd. as compared to the numltor of student?
that rec'-ived assistance (luring the san o months of the previous year.
    Purina 1 Maivh. April, and May of this year, compared with the
same months of last year, the mnnlier of students receiving assistance
under this program has declined 4?> [wrcent across the Xation.
    Wo know that there JM,» reasons unrelated to tho needs tost which
contribute to some extent to the reduction.
    Thev include the longer pro -essing time required in order to com-
ply with tho new procedures, the uncertainty of funding of other Fed-
eral programs, and the recent rise in interest rates.
    Tt should IK- roinemljerod. however, t h a t this program has coexisted
and even flourished with similar problems that occurred in prior years.
    W. must ••oiieludo. therefore, that tho 43-poreeMt reduction is at-
tributable in large pail to the new needs test requirement imjiosed on
fhe progiam. We feel that a trend has lieon established that will con-
tinue throughout the summer months and the next school vear. It is
our consensus that we are confronted with a jiotentia) crisis in the
student loan program approaching the same magnitude as experienced
last simuuer.
   What concerns us as lunch as the volume reduction at this time are
the report*; we are receiving from lenders that they "ill make few. if
anv. nonsuh-idi/cd loan*, and that they will rarely exceed the amount
of the s<'h««il iv<'/i;iinicndaf ion.

      Aren't thev allowed to do t h a t under the regulations?
      Mr. I'\YT'iv. A lender is allowed to exceed the computed amount,
the rcoominejided amount made b\ the school. | -xivided thev put nota-
t i o n and do-uinent^ in their reeord*. explaining, u h v t h e v excccited it.
         •nator HATH \ \ v \ v . Pid the lending in«litui ; ons inform you why
t h e v are not going above the figures?
      Mr I' MTOV. r'or \ arious reasons.
      N'o. I. the C'ongre—• put thi*. into the law. we are going lo fr.Ilnw it.
      I f ' l i i - . i-. -.vha f ll.'e si-liool -r.'ite-* I he need is. t h a t is w h a t we will lend.
     S . - j a t o i r f v i i i s w M . The recommendation give*; discretion to go
abuVe it '
   Mr. F * \ v i " \ YC-; but the recommendation ai*>o gives the whool dis-
orctioii t<i recon,inend a higher amount, vhicl 1 T -MU coming to in a
     A further reason u l i v the lemling''onin. j liiy will iKrf exceed 5s
t h a t tli.-v do iiiit v.ani i<> h a \ e to put a statem-nt in their rerord asto^
 w l i v t!ie\ ex. Jed the a m o u n t . the\ fear they will IN- audited by tJje
I'l-deral bank e \ a i i > i n e f s at a latei date, questioned, and perhaps lie
• •rilici/eii /«.i lending mon- ( L a n w h a t an educational institution
lecoiiilDclidod.
    T)n aiialv-is. « • lind the eurrent d u t a suppoils thcsi> claims.
    S"oii-.iib-:ir|i/ei| Inan- rcpie-'-nt le> t l . a n J'I percent of the volume'»f
a p i i l i i - a t i o n - [ii-ii e--r.l d in ing t lie la-t •'• months,
    \\'e do not i-vpi-.-l ( h i - , [.ereentage lo iii<-rea--e cignificnntlv. More-
oier. tin- i- a \ e r \ important point, it Is our l«-licf t h a t the slight.
                                               47

&r Kr tJ*r fert that **(«• Vnftrrt frrl a
                            **s<
    fwMtd to tw in*>li~3rV for      . • .4tnvi.il
    • fwrth*t 6rs$ t^rMrt»i«Tw«,-»«w --.'rt trwixir \«>ry IHtl*. if anv. con-
                                             wrv
  ft bats »fe» fc^^> fw;*^ that W^rs »TV nr^ «r:.!:in«- to rxcifx i the
         rrrttawnrrr-Wv} Kv t'nr ^-^ool in mnxv than !«"> p'tvent of tw»
          fart wKw'ii ••>• f^rtWr «"tvnj»ttivif*l hy tH»- rv^vvlalion tfeat


  \ >4jr>v5c fcat<V by oc»r «%' «xxr uartnttrr ,»lalif-« Tvwal»i that;
                                                                                           ?j
                                                                                           •>

                            It V,ao ' Tiv^i- tr,-r»> sjn-vui-i.-i^uv usi yrar.hut

                      : rt««'^v*r-.<rtf J*^esf Ka« i»l i.'^X
                      f fir*- T*P* pn>vi>>w.- i-- ;}ia* >?yii.-Tx: o!i«l«iUtv for s.




  TV- ncavor (v«|*uls^>« rri->«|» Ivr.;


  .\ sCo^^lxt fv^^t\t • t?r- ^*VT ;*j"'x^v* ^T ' " i t* t** T^^'iiaTv^ *
        f tft- * i >^ ^* ciJ^*^ to *fc~*5v ^' •* Tat»^ tJ>* r*^i"s"T*xi n«Nsf B ^t>i

        t>^TV-.,Vrfi:r j \>W!
        <»V »r XT-> it«iT>-.»:

       >*ii\ to^-.-Ja*!-«-. v^4* p>—r!\ !»"-!»»7^. Ur , « :- - . '-^ 5 .i
                                                               r     - ,,f !?„.




                                                                   n iut» •!<•*




  It   -4w;,l JK.. \s      rv'.rri'a, r.*, T ' ; j.' t'• -   s'-j-S'T     :• J' : '   ••   ~ '-..»»] f.W
                                        4S

       In I'jrfu of th«s- fa»"js. it is our «»ll«vtiw opinion, with the exception
  of tin- I'nJHsJ Studont Aid Funds, In«-., a private "iwrantee ap-ccy.
  » Jut iniaicdiate^rps nm>t br takvn to instcrv the continued availability
  of Wn fnudstostudontsdejipndfnt uponthis program.
      Mr. C!iah7«ai>. vxv are «i«5n2 to make a positive nvommendatioa to
  t:v> i-oRiniitf«i\ l»ut I would like to pnv»>do that by making two posi-
  tit • negative rvotniu^ndat^ui^.
      \W »t» not nN^onmtrix) t Fat anotlur moratorium u|«n use of current
  prott^iun^ i»- inij«os»>l as wa> doni- UUM Aurusi. It nras ad'l'JSaiW«' last
  A«is>«. TVV tin not tliink it t ad visible now.
     .Vnolhrr SMI asain, off ay»in~ situation if IM* l<an prajram, a^ain
  A-lavini; ti»» offt^t of »*wm»n; n-«ula»i«His. will do irreparable harm to
- IcixW .-^j{'j«ort of tin- pn*^ranu
      Furt'iH>r, xrr do not nvnnui en\I that a ^nlut ion lie >oupht to the
  ; n»l'!rtu I-y sivkinj: y«* ac«4h<r adntinuiratixv interpretation of the
  •-umtii !aw l»\-a<c»- ot' lit,- «•«> :(inu«-<l u:»vrtainty *n-l anxiety that
  will iiievitaitly nvah with no : s>vnn<v that a s»\fc?fa<.tory answer to
                   will be found.
             National Omn-'il of I|i»li«-r Kd".-ation knan proprams recom-
                            a--f ion 1«- »ak»-n b t!x< Con^rv^ to
      t any r«»mi for a:i\ <!oubt.tl)«*ir intt-nt with n^ro-t to this prapram.
      \Vl».-n Initially fa.Vd with this pnJ>Unn las fall, the Council snu«hi
                  f tin- |>r««J'k-ui with a ot»n.v{< j»>(«ilariy nanted the -15/15

    \\V .^iitiuui- to vi«on»us]y >uj»j«»rt thi> i^onivpt as the best means
  f a'.»cj;ny fm«uv«-n>i».
   S:i«[>'«y i-xpbJn«>L fin- ~li 1- pt»j"»-ar wouUi permit a student
 n,;**v a<ijus?«>>i family ir,.x«m- i> kst; than ?15.OftO. up to ?i30»\ would
 laVkMoiivnionstratra n--«>l fortl^- bryranxiunt.
    Any jAudent who?*- a«ljit>t«^l family in«txi>e L- ?13.'W>\ or more.
  iKilC l»- «-l:ffi3.1r t-> olitain a >»l«»idb»d \>wi of up to ^i5»T> if he
                 l tiiian--ial »xvii for t'»i" aatount of ban snagnt.
               -. a:iv stihl«-:it iixiM «o><k to «}<ain a non-Mti4cILzrd loan
                                                                   .
    \\Vf,-»-Itiiat.Mr ("iuirr.ian.f hi>~>Jmi«m i>M>undon its merits.
    I: .l«r> n»ir .i»ni\ j»rvi ••««>iy «-5:^n1»!»> jaud.-nis any lienefit*only when
                -s >j«x-it>i-all\ uarrjnt. \\V havr iimcidenxi this re«-«cn-
              carefully •»vera U»yTj>iT : fwi<if time.
   Wr stand U}*>n »t.
    >fr.<'Jnin»-an. I ^iJ-ant t{».-n-~; if my statement andtheresnlotion.
    \V.- w.tJM»- iiif'f'V toazotii-raJiii •{•v><%<n>khat \««u may hare.
    S«aii>f H-IMXW\V. V'»ur ^a««-arc!»f ha.- l«>-n nui'ie* a fart of the
  x'TvL-*1 tt Liintl^Tv-in irstitfality.
    Mr. l*\t t»>\. "Prank \»u. Mr.<*'vnrnu;i.
    I UK' pr» }«r>-»i sJtaTrnj-'fit i»f Mr. i*«ytf >n follow.. : \
                          49



        COOMCZL Ot ftfmtm EDDCkTXOK &QM MOOUUIS




                   Donald Taytaci



                         of
Bktiooal Council of mi&cT UcnUOB ZA*B Program*
                         •nd
                          Cir»ctor
                       of
Georgia Bibber Edooitiot: A»al«t*tx« Ccrporacioo




                    Before the
                     tee oa Edacaticc
                     c^ tbe
      Coemittc* on l*tcr UK! ?nhlit Mv
               Ka«'"Jt.Tt.ia=.   O. C.
    JO. ^larSXWS. 8SEK51&S Or 7HT

             It is ali-ay* a privil»9e io- acc&ers oi tb* Satioskl Council
    of Higher D*.3C*SioJ; loan Prc^iw to appear before the Scbcoonixtee
    or Education. The Council is co=pose£ of director* of tveaty-fiv*
    »tat* «.-K; invit? ^jr»=iew *?er^ics wix> *d=ini»ter the cysjir*jit««<!
    *twi«-=t lev*--: procrar i- t.^ir respective' states. With yovr pcr-
    »i».ti.oa. I vould liic to ratcodacc dx>*« present reprntentia? the
    9Cjir*ntti: j-:csri*J.
             At ycsr req^wr-t, w^'re ccme herr to<t*y to discusx th* curreac

    »:t-»»ticc in ttc       IIVIE prs«x«= vr-4tr tic Ediiration Ars*ad=>»-at» of
    1<-~J    *3>i tlic r.-rjlaeiors prc=ttl=*te<J t- :hr Office o! Eiucattoa.
    V: f t r l th.;t tMs Lfar:r.a is ro*t ti=cly.               We have s«c= *troaij

    laiicaric-r cJ p>5tcrt.iai crisn i= *'jc procrar once »<;aii! thi« srrssef

    Oar Cc_r..r;.'. r«rt ii    fc'jjr.iritcs   '.s~' wc<rk to d:sc^« our coac«rns 03

    thi* v r r y it»»?.       0-ir Jjtccntivc -7os-.itt~c swrt or.cc aifair yesrerday

                                                                         i!:ti   oi the



             A.1 yoc «•*•!! <?-.-%r, t!» ^urir.tfcc ;tud«nt I&jn f-rcirar was

            lc-r=tfi is 1S*5.     Fros tSjt ijt^ -.atil Jsl,' 1 ci list -y"*=. ti
        -Tran rr<r*t«NJ vitfcis rJbc w—/ tir-;:<- --.r.rext tluit. Jll                 students
                                       ijii'(rj irjC-rr^ cf lrr-                                  .1
                 for-r-

    G. t i r e , r-^fr: -i-A- J 5 . C C 7 It-rJ.r.-; ir.it,v:.t:<   . .>---.• ;ccv;i*-i Icja



    L-;rM.-r -.: ••• ..•:••:          . :-.-• -. w . \ J ^ : ; - j r ^ r c f-^s ':.!
i
                                  -2-


have been advanced to 1.4 tillion students. These figures

vividly Illustrate the importance of this program to the nation.

The Edocatiea Aaendcents of 1972. however, iaposed upon the

trooraw • ae«d» requirement heretofore applicable primarily to

jiit assistance program. A* you recall, the Deeds assessnent

procedure*. caboJl.-d in the reflations issued by the Office of
         .\
Education Vast ,'uly xere cnuorkable, aial the pro^rae ctrt to a coa-
plete standstill.     Due to the crisis of the sower of 1972, the
Congress colled forward the effectire date of those sections of
the law nstil Rarcb of this year.       It was ocr hope at that tiae
that Coc>r«t»ioril hearings wocld be held duriaq the fall to ccn-
aider t3-*if Icaiion tc the Edgcation Aaenteeotx of 1972. To the
contrary, bowev^r. a reisterpretat^on of the law was undertaken
by th>> Oflice of Education, and ocv re^vlations effective
March 1, 1?73, were pro=»il<jate-l.
     We now hav« had 1 1/2 Booths e^perieoce snder the eew recc-
latioas.   The aost obvioos effect of these a#w Te^ulations t-^s-
been a Barked redaction in the nwber of fft.deats who haw re-
ceired loans, either subsi^ired or &on-*ubcii!ixed, ** ec^jrei tc
the E-jcber of stud^ats that r^ceivrf «c;is:*nr* dcrini t-V1 t -*
months ol the prc-.-ij-is year.   Pisrin? lire!;, nrnl, «.-.5 r_«y cf this
y^AT. <:ocp«rcd with th* s^s* PCTll^^ o; lj--.t -/^''» t"*1 sari-"''
of >t-iderrts rtdfivirj; osixtascr u:.-irr tti-s -'
<3t ccrosi the uat'i-T.    K* %>«v thjt ».Scrc ar
to th« r.<vtlr tr;r vhiTt rsntrib-jtr t,^ «•«•*• <-x»»r.t tc
                                 -3-



to coBply with tha «•» procador**. tha oacartaiaty of foadiag of
otbar fadaral moijraaa, aad tin raeaat rlsa in iatarast ret**.
It should ha raMBbarad. *3»a*ar, that thi» pcoqraa has co-aKistad
•ad avaa flovrishad with siadlar probls** that occurtad in prior
yaars. Ma aost conclod*. th*r*fox«, that the 43% rvdoetiea is
•ttribetabl* in 1«T9* part to th* naw n«>d« t*»t r«qair>i>ant
i«fft>»«d ee th« prograa.    M* f«*l that a tr«ad ha« baan catabliahad
tha£ trill cootltro* ttironghmit tb« ii^air Booth* aad th* naxt school
jraar.     it is oor coof»nsp« that va ar» exanfrontad trith a potantial
crisis ia th* stodant loan proora* approacbiag the MB* aajnUnffa
as axi-taricacatf Last saaMr.
         H^t coaeams as as •odb as tha voloaa radactioo at this tla»
arc tha imports wa ar* raeaivia^ from leaders that tbay trill aaka
tmi, if any, ooa-sobsidixad loaas, aad that tb*r "ill rarely
r»c«ad tha aaoont of tha school racoapandation.       Oo aaalysis, t«a
find hat corraot data sopports thas* claias. Muu aabitdixd loaas
raprassot lass thaa 104 off tha voloaw of applicatioos procassaJ
dorio? tW last thr*« apaths. Ma do aot exp«ct tMs p-rc<nia»
to iacrvasa sifaificaatly.      Nor«o~4r. :i Ji ocr balivf that tt*
slight iaeraasa ia th* aanhar of aca'Sabsidix«d loaas hair? aarfa
is accoontad for by tha fact that ao*» landars faal a •oral Obli-
oation tow*.* stsd«ats vho pravioosly obtaia«d a subsidivad loaa,
bat wtie tMV BSV oaae fooed to ba inali^ibia for *n additional
•8b*iciiz«d loaa. «« faar that first tiaa borroM»fs trill r«e»iv«
         little, if »ny, coasideratioe for a aoa-*ob«i4izad loan.
                                 53




It has a*ao b**n foond that lenders ar* not willing to «»cni1 the


• fact which Is fvrthar compoeaded by tba rewlatioe that schools
are not adjaatinf tb* cony* Led recommendation in omen ereater
aemtnr«. A snrvmy •ads by one of o«r member states revealed that
approxlnataly 50* of the students who previously received
sidiced loans w«r* no looocr eligible for a sob«idiz*£ loan
tb* new needs test provisions.   It was also found tb*; *7t of those
•tadeat* bad adjusted family inconss of l*ts tbsn $12.000, and that
Mt cf the stadants bad adfrstad fanily incomes of lass than $15,004.
Ttoe rirsnlt of tba new provisions is that stadaot eligibility for
•a svbsidlxad loaa is being determined by a riold conpatatioo of need,
and, since   leader* are r*i«&ta*t to make map- subsidized loans, most
stndents who are compxbcd by tbi>s* rlyid formolas to have no meed
will -not be able to receive a loan fot any iawant. Tb* M)or popa-
lation eroop beina affected in each cav«s is the moderate income
level •TOO?, -tb* ^roop that has had to depend almost exclosivwly
am this proaram in tb* past. A stodent ,fcom the low IMCOM ^roup,
wbo p*rfcaFS is our greatest safaa't risk, will be able to oenon-
»'rata the raquiratf need, and the bleb inco** stndmt will, in
eon* eases, have, scf <ici*st inflsenc* with his lender to obtain a
ncB-subsKSixad loan. Mbil« v* »r« awar« of tb* fact that i'. way
not the intention of no*e parties involved that tb* n*tr provision*
reduce a stndwit's eligibility fi»r loan ««*istaac«, bet merely
perhaps linit hie eliflbilitf for ine*r*»t benefits, this h*« not
                                -5-


     the practical effect Of the ECW needs test provision*.          Tfc»

events of the last ve*r have Illustrated beyond further question
the Council's historical position that. coder th» current progra*,
eligibility for interest subsidy and eligibility for loan funds
ar» inczficably linked.
     T«t anotbcr c&noara i* tb* expected rise in oar default rate
as the ruMber of aoa-sateidised lo«a* increase, however slightly.
•ecacte aaay Jcoders trill not defer collection of inte'rst. and
thi* i« economically underctandable, Btanr stDdents with non-
Mbvidized loans will be forced into default because of '-heir
inability or failure •:- ca** interest paynents while they are a
stodeLt in school.' It will not be a bareain for the voverostent
to attempt, to save 7» interest in these cases, bat yet have to
pay, that interest plue 1001 of the principal when the student's
loan ooes into default.
     In light of these facts, it is oar collective opiliac, *ith
the exception of the Onitsd Stadent Aid Funds, Inc., a private
guarantee agencyr^ that iasndiate steps east L* taken to iarure
the o ot>.naed *vj.. '. .li-y of loan funds to ctodrnts dependent
ttpoe this proved, .   .- do not recocswnd tfcar anotker ac/ratorica
upon a«v ot current procvdttres be iapnsed as was done lit-        Jawf
Acotfccr "on a^«i9, off a^air.* Eitoitloc in t^e lc»= proorac,
*4*ln 4i*!ayin4 the effect   r>f current rr^ulat.-.oos, w i ] l tfo Jrr*p*r«- •
blr tuns to lecJi»r support of the ytoafmm..     turthcirx we do rx»t
reconucnd that a Million be tc^ht to the procl«r. by -^.-Itino yet
         adaieistritiv* ir.t^rDictation of tXc current lin
of the comtinaed uncertainty and anxiety that will result with
   assura       that • satisfactory answer to the problem will be
fuumd. TW Rational Council of Higher Education Loan
L-acommin ?s that e»vti.tive. action be taken by the Congress to estab-
lish, without rc-xi fcr *=y doubt, their intent with respect to
this program.    Mhen initially faced with this problem last fall.
the Council sought resolution of the problem with a concept
popularly n«.me.d the '15/15 proposal.' Me contino* to triooeouvly
support this concept as the best means of avoiding future crisis.
Sbpply explained, the 'IS/15 proposal* would permit a student
whose adjusted family income is less than $15,000 to borrow up
to a Sl.SOO subsidized loan without the requirement of submitting
to aa assessment of financial need. Any such student seeking a
subsidized lo«n of more than S1,SO«, up to $2,540, would have to
demonstrate a need for the larger .amount. Any suuient whose
•djosted family income is $15,000 or more would be eligible to
obtain a subsidized loan of Op to $2,500 if he demonstrated
financial need for the amount of loan sought.     Of courMi, any
student could seek to obtain a non-subsidized loan without t^*-
requirement of submitting to a need* test. Ne f«*I that •- ;
solution i.t souai! on its merits.    It does not deny prwioucZr
eligible seudeetv any tx-n*fi-.« of the former legislation, aocS
it off»r* the gr««t«r bcnef.t* on?v w>»n cirrums*.«nceit »pocifiralt/
                                .':
warrant. Me havr con--.-*-r-'. '..s rtcrxwee-latioB careiut!? over
* long period of t'.- . '— cotitider it ^ntirtly probaLl* that
                                -7-



within a ver> few year* a family with a S15.0M incon* co«l< be
eoMioerad tor be n»idy, and a SI, 300 !oan woeld be a nero fraction
of the marf aiidiJ to •*«*. coll*«» eo*t*. »b* *15,MO
Cavily tneemt fienre l«ei«Let«d !• 1M5 ba» bM
by i»flafrio» Attiitf t*M pact eiaht y**rs. Cvam if a
b*Md* program is th« «i»tt of tb* CM^T*M, tto '15/15 propo**!*
rill,    itMlf, attaia that »tatos vitbia a «ry ahort ti»» witb
la^latloa aad tb» iacnaai*? cwat of |io«r urimiliij education
              it ia tod^y.
              aomclmtlng o*r tactimar, «M i«a«ld fa*l ramiaa if «•
                  on tbia eo**itta« tb* or««acy for iavadiata
actioa by tba Congra**. Application* for this fall taz» fcr« aov
}»»t bayinnlny tto» proc««*l"9 cyel*. Mr cctiaata that !•*•
than~taB percent of our potantial applicant* Lav* ao«9bt ai4 a*
of tbia data. Tba Major •bar* of potantial applicant* will be
on oar 4oor*taps ia late Jol.r and Aoewt, a UJM when tbi* body
will not N: A^ ;c*»-:-7«.    If we are not to once a^ain tarn away
•any of the** *twde(it« j«*t day» before their cla*M* are to
beein, then we arc« rc-jr ««rli«st ccRcideralion of oar racon
nend«tion.     Tt i» our tir» belief that action by the Conor***
before Che *on«er race** beqin* i* necettflary in order to avoid
another *an**r-*i«ril*r to the oo* MB basely survived la»t year.
        To farther illactrate tht ardency of the problen and the
orowiof coeoern of •tat* official* and legislative bodies, we
wo*ld like to br*na to your attention Senate CiMcurrcfit Kncolnftion.
149 raoaptly adopteJ at tha 1973 raavlar aaMioa cf tha
Caoaial Aaaa*bly. Tba rc«ol»tiaa e*pr*«»«* tto* conc«m of that
body about tb« lavoaitioa of tha naad» ta«t rvqvir-taant in ttaa
Caanntaatf Stodmt Loan fro^ra*, a copy of which is attachad
Irkcato, and which I would lik* to read to tha Cnaatttaa.
             So..* Ion. 1971

    sawz osasxnTT stiK^rHw so. 149
1
    sr sa. JQSCS A:£«;-iu?;u£EX7A7iv;£ A. JACSSO:: A» cowaw




                                         A cosanwErrr RESOLUT
    To ur{* an<! r*<;i*c*c chc Lou!*iaiu dcicsacior. to

        of tin Ui.itt<J Sc»t;j to re-w^>batr federal fc-;uir<acat»

        wicb rctpccc ^o Icis»_fgr. coll«;:r scurf en; ».

        UfutCAS, £h# n«v ;-J,«-ri; r<<;uirr=o: of th* unltora "Seed

              $7s:<--" V.J-- «Z:-..' =»::<£ suiny siuicart wlio <;ualif;d for

       jrgg»i^.-L-f?.^!.'";r   ''I''- -'• 'ric- ••'•irv; 41^;
        VKTKCAS. •' * nt-J cr^7»-a -.» rv.-H: i-.j ^ar^iliips en =»n/

              v-x) w«! f-.sa.-.e;^. is.U;--:c ir. *ri>:r to ecr.iii.-^



                 . it is in Ow i..~.- •<.'. &;" th-: Hitr tail rare
                                        59

    WEIEAS, not only does the stiff I i a s _ o f _ I o a a » _ 4 ^

••ay student* of • higher education but also deprive* our
•Cat* of the- leadership which could well result froa these
•ore leareed citizens.
    •QlOgrOx;. ZZ n RESOLVED by the Ccute of the Legisla-

ture of Louisiana, the House of 2eprc*catativ*s concurring.

that all =c=bers of the Louisiana <!elec3tioa to the Coa^resc



•very effort to actively seek a re-rvaluatioo of the "Xecd
Analvcis Srstea" ^rctcatly bciai; employed in tde (r AC tins
of student looa».
    W IT rTXTL^a ttSCKAnD that copies ttf this Concurrent

Kesolutica l-« ir»&>=Jttcd to <*acb M.-nixrr of the Louisiana
            ia L^« Coojr^j of tlicj^lted States.
                                          60

  Senator HATIIAWAT. We will now l»ear from Mr. Tombaugh.
  Mr. Tombaugh. your statement will be made a part of the record at
the conclusion of your testimony, and you may proceed.

STATEMENT OF »Tnr*»n L. TODAUGH. EXECUTIVE SECIETA1T
  OF THE KATIOVAL AS80OATIOV OF STDlttJIT FHAXCIAL AID
  ADMOn&TKATOBS
   Mr. ToMBAmH. Thank you.
   In order to identify those factors wliirh might hare led to the de-
crease in the volume at the insurance provision level, we have at-
tempted to enumerate those |x>ints along that path which might liare
caused the decline.
   In the first stage. the number of applications being submitted to
the scliools for certification seems to lie almost constant with a year
ago. or perhaps some declint that varies from State to State, the larger
schools seem to lie experiencing an increase , and tlie smaller schools a
decrease in the number of applications they have received to date as
compared to a year ago.
   There are many reasons for this, and most of them have l>een covered
here, the uncertainty of what the schools are going In lie able to provide.
and their inability to help has frequently generated the applications
of tlie past, and so far this year, not many schools have !<een able to
say what they can provide. and thus the insured loan applications
havr not liecn forthcoming.
   Tbi-rr is some indi<-ation students wlio have applied in the past be-
«-ause there was no needs test are wit doing so now. simply because
the families do not wish to reveal the financial situation, or pay the
interest, whichever might result. Then f think there is some indica-
tion that perha|M< comparing tta- volume to a year ago might l>r a
little misleading, iterance tlirv was a great splurge of applications in
the -1 or >1 months imm*di*t«>ly before la* July 1. by propl«> who
wanted tc avoid having tlie^needs test applii'd. Tliese people have no,
real in<it>tive to s]iee<f up tlwir a)»pli<-ations this year, and that may
be a portion of tin- decline that has rrpresrnti-d itM»lf in these statis-

    In term* of flu- number of application*-' rliat ha«v actually lieen
pnx'«^*je«< by tin- instrtijtiotis. tf^x- an- «lown over .a year ago be<-aufie
»f flu- additional tinir '.' i* taking to <lo tl-i- tuttl analv-is: Hiort- irn-
fortant ixtlu- a^lditiotial time need«'<i to g<-t tlw infornutvifm rpqui^^
to ii»> fb»- analyiiis jt«-lf.
    M«>^ of thwr stiMl^its are apnlying for guaranteed fo*n only. ar»d.
t heref f»v. tht- t*'\tint\ fiff* tu it a I (•••»< I v have the in format 'wt\ ofi hand
(nun UM- parent*' statement or any otl»er ri^hanHn:. *. they have to
go l/o-'k fofhe NtiKiftitjiryl his family. a»k for the.j«|<litional infoniia
tx'ii, ajid t\»*rr is a '•'*>*i<br*l>\f tiiiw lag liefon* tin- infonnatioti can
'• f.ia'le avaiiabl'-. and the analyt»i« can be 'U»iw. MI That has slower}
<iown tlie proiv**. Tlw additional work load in the financial aid offiw
lia_« C3UKMJ muttf IwckUig to develop, certainly in it <-»K>ijgh ti> v\\i\*\t\
iii»'firtir»"J«'l»fJ»'. but if M-onld account forMomeof il.
    TlfTf is HMfi .• ifi>i/cati/Hi that tumie U-riiJjT^ Irtvc iKit IM^IHI [»r»x-<t^
ing »iw a[>j»IJ« jU^Mii. that li> • been siilxnitt/^l to fl^rn for th*1 fall
           r* tJorf * liey are waiting until aft«T July I. and this niight v-
                                    61
count foe sonic of the decliiv except them is no reason to believe; they
would be doiug that any n.ore this year tlian they would in the past
year, so it does not seem to account for a great deal.
   As has been suggested earlier, the main explanation seems to be the
number of loans that the lenders are approving, ome tliey have been
submitted, and are putting into the process, and my testimony indicates
some of the reasons that we think tl it might be coming about, the
confusion lietween the subsidy eligibility and the eligibility for the
loan. Whether it i» real or imagined, it is frequently given as the rea-
son the bank cannot nok*> the loan because of the sdraol recommended
amount, but that is not i!»e casr. and the fact is that there is so little
interest on the part of the leaders in the unsuhgidizcd loans for the rea-
sons already given.
   There has always been throughout the history of tlie program some
limitations placed on loans by t ne lenders as a -screening device to keep
down the volume, and A at TO ti.tt those limitations have expanded as
the money market has tigbtt,.M over the past 2 or 3 months, to the
point where in some locations if is almost impossible for tlie student
to meet all of the qualifications tfcat the banks are imposing over and
above the needs test and other related certification activities, and I
would simply refer you to a coup e of attachments in my testimony,
one from HoiltnsCollege in Virgin a. which does not identify the lend-
er, but I think represents a general attitude that all tinaiKial aid oficers
are encountering across the country, and then abo a second attach-
nient from one of the major lenders in California, indu-ating what lim-
itations beyond the Federal qualifications they are attaching to loans.
California is somewhat unique in it* dependence UJHMJ the community
and junior college for the first 2 yean of education, and particularly
in that segment of higher education, there is considerable restriction
placed by the lenders with respect to eiicii'ility for the ioatv.
   Senator HATHAWAT. Do you have an;, recommendation* to make?
   Mr. ToKBArau. We are certainly not in disagreement with the
 IS/15 proposal, and we did vpeak in favor of it a year ago, or last
Rummer.
   We do have mow concern* about changing the procedure right in the
middle of the year again, as took place a yew ago.
   That if our onlv reservation about a ciuuige at this time to the
suggestion of the higher education loan |»rograi?i pmple.
   Prrliaj* one partial solution might he to nuke the unsubftidized
loan more attrariive to the lender, and there are tome way« of
doing that, and how HT«<ife that migiit l«e. we are not prepared to
•ay. but it might be a'partial solution to the (>roblem.
   fVn&tor HATUAWAT, T>iLe what, raise the interest rate!
   Mr. T«9f»At«H. Bv some aort til xweHener oti the imuired loan to on
courage the lending community to'tiiskv the mwobsiJized loan.
   &»feator II '.THAWAT. Anything further?
   Mr. TOMHACCH. A good 'deal of the |>r<iJ»lrtn may nvol ve itjvlf in the
iwwagr of tin*, and allowing tltr application* to work tltpfiui*!ve» out.
   There dor* not •mil to U> from t\w firwrvial «i«l ofireni I have
talked t.o in the last '2 day* a trniufHiouri overwfwlnihig ronrern that
kid* who reallv nwd loan« are tjein^diiiied thifn, tmf tkat in in a frame
of rvffmxf (hat «j»«'i»li7r« in ne^dy itfudentir in t\w traditUMtal wnar.
and mav not be rr&iljve of thr tuiua! dra> i')d for t(w ioanw in thv
field. '
                                       62
     SenatoE HATJAWAY. Of course, these people disagree with you. they
 say the program is originally designed for middle-income people,
 mod it just is not sen-ing their needs under the amended law.
     Do you think that at the lenders you mentioned, after July 1. thr
 there will be a great upsurge?
     Mr. ToMnxrcn. I think we will make up some of the decline that
 has been experienced to date.
     Whether or not it will make a total comeback. I am not prepared
 to say.
     But perhaps not, because it would seem that some students who hatv
 applied in the past, because the loan was nrailable, and the interest
 was subsidized, simply are not doing so now because they do not want
to revral the financial status, or pay tlte interest.
     Maybe those are the Joans the Congress wanted to see fall off. because
th*y really weiv not needed and were being used for other purjKwe*;.
    Senator HATIIAWAV. In vour statement vou prn|»ose the so-called,
 15/15 plan. Wouldn't that go Iwck to the old" law. Mr. Payton ? I* that
 what you arc recommending ?
    JUTr." PATTOV. Our Council lias been pecouwneodjn/ the 15/li> ap-
proach.
    If we merely go ttack to the old law. that would constitute the first
element of our proposal, thf same students! would be eligible for non-
subsidized loans as before, but it still would not make it |M*sibU- for
a student attending the very e«f tensive schools to obtain 9 loin, sav
 up to $2j>00. without the sewnd element of our proposal, and ii< addi-
tion, unless you had the second clement, you would U-elirninaJin;r tho»»
families who might liave an income above $].r>.<m«i. «i«o havt* multiple
children in coUe^e.
    I know of one orthodontist who admittedly make-; $4>'>.""<>. and. Mr.
Chairman, be has 11 children, and 7 arc in college at the MUM- time.
    Senator HATHAWAr. Vou agrw with Mr. Tornl>au<rli Hiat tn^-ause
of the new program, that is one of (In- n-asofis thaf tlM- rjuniU-r of U«ns
ii>?4 dropped off. and thin will work rtwlf out in thf nesr futun-V
    sir. i ATTOK. The current divlinc pioi-es- is 4S r^rivnt.
    We agne that in pem>ntage. this ruij;!'* reduce jfsi>lf to RXIM- extent,
but not rather subst»nti9lly.
    We feel that the trend that has Wit shown m i l l continue rliroutrlHMjt
the summer, and in the next *-\vt<>\ vear. \*«»t>*- of the needs test
procedures. -
    Senator HATHAWAI-, Vou ntean that i> just delaying you in making
the evaluation f
    Mr. PATTO*, yo.fir.
    What Jam rtatinjrinthartlie^ pen-enr d*vliin-1» loans iM'irigjruar-
anteed or made available to taudents in ouropini<:)i will r/>ntinue.under
the current procedure*.
    The pemmtaa* might decline tit l/i r*Trip;il or .".r» [lefent. buf even
if it decline*tff 25 [MTfient. it w a veri --iil»^»;t<i»l I«»M. of partiejpif i'-i
in the program.
    Senator JfATHAO-*r. Whvdo vou think tlu^vill continue. *fir^
     Mr. PAYTOK. Simply because under the current law and regulations,
the needs; test pro-- duns which historically were designed for, are
being applied to a loan program, not a gift program.
     This 15- a loan program, all I want to do is borrow money, all I bor-
row I will pay back, the same rigid formula is being applied.
     The only difference being that once it is applied, the school is told
that for one of six or sex-en reasons, you can recommend a higher
amount, and then the lender is told that >ou can exceed the school's
recommendations i f you desi re to do so.
     The school* are not prone to recommend a higher amount, only about
 10 percent of the applications to date hare embodied a higher* recom-
 mcpdat'on by the school, and we are speaking only of those that were
 processed, so we arc not talking about the 43 percent that hare not
 rpme through, they hare been already excluded somewhere along the
 live, for whatever the reasons may be.
     We find too, and this is happening repeatedly, the scltools are (tiling
 students, and some are even attaching statements to the application
 forms, that we compute your need for a loan to be thus and so. $300 or
 $400, butyonr lender can lend you more.
      The lenders are complaining to us now that the parents are giving
 them a difficult time, for not exceeding the school's recommendation.
      The lender does not feel he is in a position to exceed it He feds as
  if the law, the Congress has told him to follow the school's recom-
 mendation, and be does not feel comfortable in exceeding it, potting a
  statement in the record, and waiting to see if whether or not some
  Federal official or auditor will question bis judgnwnt later.
      Mr. TOKBACGH. I would say the school* respond to the very same
 rationale.
      They do not fed the regulations and the law provide sufficient justi-
  fication for them to make tlie changes that they are being expected
  to make, without jeopardizing themselrt* at a later time when th jy
  come around, and they are audited, and they k.nc asked to document' and
  explain why they madft that t-hange, so we are just an consciour of the
   potential audit exceptions being taken later on *s the tender? *re. One
   of the basic reasons that one of these loans might v.eii ue justified is
  because the parent* are unwilling to provide the support that they
   theoi jtkalfy can afford to provide, and yet it has been made very clear
   to us that is not an appropriate reason for reducing the contribution.
   the parental contribution, and while the school* hare to justify their
   reactions, they will not reduce it,
       Senator HATHAWJ y. Mr. Ottina, do you have a comment f
       Dr. OrrnrA. I wa» going to comment, I think you are hearing an
   t^fTf°f correspondence in terms of what is happening out then. The
   statist ics in this particular occasion ar? very close.
        I think you are hearing the same kinds of accounting of what is
    going at^XfA the hypothesis of what is going on, from all three of the
    wit MMM you haw heard thus far.
        We do'diflfcr. w you notice, in what we think oujrlif to be done, hot
    il sewn* to be the hack fact* »•» in the rorrrttpondMia?.
            me comment that«iie needs tent is not just applW to the grants
                                    64
   The direct loan program also has a needs test, the work-study pro-
 pram also, so it is not just the grants programs that have the needs
test
   Senator HATH AWAY. Could we obviate some of th«* difficulties with
changes in the regulations?
   Do you think that could he done ?
   Mr. TOMBAC-GII. I think some additional rla.ity in the regulations
to make them more documentable so that both the schools and the
lenders would feel more freedom to deviate from the traditional needs
test would i)e helpful. Whether it would solve the entire problem, I
aid not prepared to sav. bat it certain I v would encourage hot>> school
and tender i-eductions in parental contributions, for the reason that are
very dear and true to the students involved, but which we do not
have the direction to do it at the present time.
   Senator HATHAWAY. Mr. Payton f
   Mr. PAYTOX. Our response to that. Mr. Chairman, and I believe it is
shared by tlie Council.-we have discussed it. we feel that basically the
 regulations are just about as liberal as the law. the amendments of
1972, would permit.
   That law has already been interpreted twice through the issuupe*.
of regulations.
   To have it reinterpreted with a third set of regulations, seems unwise
to me.
   We feel that we would rather not be dependent upon a new inter-
 pretation by the Office of Kducation. and that it is more proper for
the Congress itself to state clearly without doui* who in eligible for
nonsuljsidizes) loans, arid who is not.
   Senator HATHAWAY. Mr. Commissioner, do you think yon have been
an liberal as you possibly can be?
   Dr. OrnjfA. I think we have made it reasonable interpretation of
tlic lawund the regulations.
   Any regulation!! of course can !*• improved, and we can find ways
to clarify them.
   It seemH to nw tliere is another is,-ue that we might just bring out
*m rhc table, and that is tbe <juesfion of deviation from whatever
the ifiiide is.
   If you have a guide, and you propose a guide, it seems to rni- that
you expect in most caw* a guide will lie followed.
 . Wf would tvJ exfiw.* tliat *»0 fierc/'nt of fliem would deviate from
the guide, and KO you have that basic querf'urn of what \* a reasonable
«?xf>c'-fation of d"t*ution—ix it 1<> or I'» \nrtvitt that i* n-asonable.
or should it be #» or 6"'.
   That ix one thing.
   S«wid. it Meems t/* nv tfw Congrew ha« inoWd -lid sooi? tn^xune
of r I should 'n- ipplipf!. arid tlwy have *aid it very cJ«irJv. The
ouwr ba«ir: queKtion r«JM>di>y th*- gpntUirian bw jn wfiet^-r $ir»>Njr>
ix a presumptive nnedti u-tst In and of jfwlf. or wh<*ther tlwye »rp in-
Ntanreii wfiert- you muxt l/¥»k behind tliat ?ir./Xtri. for wiall fainilie>;.
or other kind* of <'i minima tin*, nhen* tliere are large anw*« in making
» loan. V'»u c»n U'll that 'how ar»* w-ry jiidjnrx>iital kindK of jjwiwiofiK,
  Thank you,
          r HATHAWAY. I auppow the fa/-t that tlwy are judgruentjl
           IK on«- of the rea*»n« why tin- Joan* hav«- w* \***tt
very fast, twause it takes some time to make all of these judgments,
ver
and if we could make the law and/or the populations so detailed that
and
 it comes down to a yes or no answer for everything. I suppose
they could be expedited, but that Is sometimes very difficult to do.
   Well. F thank you for your testimony, and we certainly will con-
sider it. and as you noted, from both Senator Javits and myself, we
are very anxious to do something stout this very quickly.
   Mr. PAYTiix. Thank you. Mr. Chairman.
    fliif pivpami statement of Mr. Tombaufrfi and other information
subsequently supplied for the record follows:]
                               66




                           R

                           > L.

                  UILUIlfK SECBDUff

IttXXflHL ASCOdAXIdV Of 9SOUOff TOttVCZAL AID ADMIUSfltAXOIS




       soun OMUTm <• LOOK *•> rntic WLTASE




                      JUE 22. 1*73
                                            67

Mr. Chairman and Member* o( the Subcommittee:
Vc are pleased to have the opportunity to pro.lde observations about tbe current
atatui. of tb« Injured ttudent loan program fro* tbe perspective of the Institutional
financial aid administrator. There Is an understandable concern about a marked de-
crease In the niirt~*r and voluac of loans Insured during the past few mouths over tbe
record of a year ago. We hope we will be able to shed some light upon the possible
cauoes'of this pattern.

There ar« cany factors which can influence the number and volume of Joans reaching
the stage where Insurance Is committed. Taking these potential Influences In chrono-
logical •tqiience. they are as follows:
     1. Tt« number^ of, applications sub»ltted to tLe Institution for initial
         processing. We have Bade a very hasty survey of about fifty colleges
         since being invited to provide testimony.         Applications being subnltced
         by students appear to be about constant with last year at this time.
        fru schools report any significant increase in applications and several
         report a decline. Any decrease might be attributed to three factors. ~
    a.) lauured loans are frequently generated by student? falling co obtain
         •ufUclcuit financial aid I ton their Institution. Because ci the late
        appropriation and allotment of federal funds to institutions for KDSL,
        CW-£f , and StOO, and tlve mbx^ncf oi regulations governing th-s« programs,
        rnnny iK.litjolj luvi- iv/t yvt advised thvlr applicants of the aid available
        to th*-n. Kjrcilly this would have b>'<n door befnre r.-rt, ml t^ov (ailing
        to !>::.(• ivr adequ*!/* (uixls would hjvt< airt-jdy filed an intun.4 loin


    1>.) Tvr-' IB »<MT indication time w Mi.il 1 pfrcciiCJ^f of Btudincc >.-/.pr«-^«ln^
        lnr-fiC in ubtjioinf, -in iosurcci I<un arr not fcljuvlnf. cliruu;;!i upon dlc-
        r over MI/, tlut -th»- intfr^Bt mitvlJy J;, now contlns >> (-t. up'jn tin- (.u^n
        of .1 ilrunrlal fctat^ftent .   It vutitj .]?;— ar tluc *r>v- (.mill", err
                                                   68

       not. co »pply rather than reveal thc/r financial status or pay the Interest
       tbeaaelveit.
c.)    Sow aid officer* have suggested that a comparison of volume co la»c year •
       ac thin tistt might be soacvhat misleading. There "as a noticeable splurg*
       of loan applications l»»t year during April; May, and June, because o( the
       anticipated change In Che lav vlth respect to the eced analysis. Ho such
       incentive to early filing exists cMs year and oay account for sooe of the
       drop in ioi.red volume.
2.     The number of application* actually processed 'Jf_ the Institution. Our survey
       does reveal a small bicUof of application* on hand la the. financial aid
       offices, but less than might b« expected due to the substantial increase la
       tine required to process each form because of the need analysis required for
       the interest subsidy,        lose of the forms on band la our Mirvey schools were
       bring ,'•<•) d pvotlof receipt of sufficient Information to do thr need analysis,
       »Ince the b-tcic ImurcJ student loji. application form does not collect In-
       forcjtion nftiifd lor .his purpose, and tu^la>*[ tJl data Bust l>r requested.
      TV r.orr cooprtrfwnslve jpplicatloi for- now being designed ay the Office of
       Education should all 'Vlate this problem in fast cases. One Big Ten uulver-
       Bity h.n» processed 1,172 applications since Karch 1, 197), and if holding
       454 for addicir/iul information. Tliiv ratio tvtsas to be fairly cosnon.
3-     Tly nunbci of jppltcjtlons ffocfKjifi by thy Icnd/T. Th<rr« is sone indica-
       tiua th.it lender* jrr holding applications for the f jll uccvct^r until aftt:r
       ^uly 1, ^roci'MinK only vu=nrr )»'!.vjun loatu before tluc Llo* . Tlierv is no
       -ippjcc.nt rcjis^n tlul ciils i;]i^L-li! IK- nore prcvuj.rnt [liiu yejf tlun i^^c, .


       Tlii- n;j»l.i'r and voliijt* uf ajiji_[u_.it_i.int •i£j>ruvpd by tli^ Ii-nJi'T. i.j fur ;i-j
      -ran tell, most of tin- d^i-r.jjj" in lo.ino Iniuri'd t» d.ito nuit be
       fi> lufli Ifwr len&rt apj.n*v.ij- .11:1! .i(ipruVdl': «f snaj U-r l'nti>, Tlir
       {or tlif i jctf</n jrr pi..iy 4rJ v^r^'d.        ^frmf of tliu c^'j^^u td'.'nrlfird by
                                                    (59

      financial aid coanunity are UICM-:
a.)   There it obvious confusion la the lendluc cocoonHy al>out the prv^cut pro-
      cedure. They do not und«r*tjad need ana'/sis. They are confuted by the
      regulation* pertaining to Che authority of. the lender to Increase tin: amount
      of che scnool's recooacndatloa. do not understand the acceptable-basis for
      doing co or the docuacntatlon required, and consequently are Infrequently
      doing It.     There has been very little contact Iron londer to '.chojl, how
      ever.
b.)   Th«;" It apparcac nlsundcrktaodlng about the distinction between demonstra-
      ting eligibility for tlic inccrtst buunldy »"i the provl«lon n( the state or
      fedecal guaroatee. Lenders frequi-ncly advisr ncudunts that they cannot aakc
      the J.QJU because of the ccliool'* -0- rccoawnuatloa for Int^r-'st ;-ayn«nt el-
      iglbility. S>ocw of this nay be unauar<tnco> of thr facts, but -.oae S««DS
      ccruli Io be an excuse for not partltipatinp..
c.'t Tborc It nloost no lender intcjrcsc in unuiibiidlzrd Join--, in pare uc Ic f u l l .
      The only reason given Is that tin- rare of fvturi 1» inuull Icli-nt to cuvor the
      iddlrional coxt of collecting ilw interest fro-a tin- burrovvr-
d.)   Tlicr'.1 .•>:«.• sc^Tal otln'r liolt.icinns being u:4«-d by KnJ«.r^ to taitvvti lojn
      applicants. Aaoaj*. th.-» arr:
      (1.)    no lujnj co 1 rc^lim'.-n
      (2,)    fvquirfd arcount rt-lat lunr.hlp ol tf-drnt .md/^r p.r<-nt
      (3.)    rt'Bid^nc*1 Xn I-'Otl^r'*; cocr.urity fur v*rlr<l l*:n/,th *^f t li-*p
      (i«.)   ii-' l':-iiij to ^I-i.-i ^r.uui'ur*
      (j.J    lojii 1 i, It*. un-V-r Jr^al r-jAl-^'j^*;
                   SiOO tu j<i:ili'r <.uj;<v '.t'l'I-nt'i
                  SliOO to unJ.-rir.iJ'j^ti".
                  JiiOO u n l y In grHilujt. .itO l-'kf vti.-l':i(<i
                                             70


Tlu'vc restriction* luivc clearly been oo the increase ax the noucy
n«rVet ban tightened up over the past few •onths.               Although there is
no conslstant pattern, we receive report' of leader* reducing their
volure or discontinuing participation altogether, for a variety of
reasons.          So*c lenders «ay it it a problea of liquidity, other* *ay noc;
»OM aay the;' cannot Justify the losses incurred in administration,
others report they are naking » fair return; tone, blaoe it on the paper-
work involved, others aay tliere are eore pressing need* in tlie cosounity.
uho *u to *ay where the problem" rest*?


In concluding our t*»iiaony, I would refer you to several attachment*,
including a Bollinj College neamrandum «hich reflects the situation
reported consistently around tbc country, and a Well* Fargp Bank policy
statcavnt vhl.h illustrate! the lender restriction* being encountered
on a broad basis.


At lltr oaoe tine, vr would caution the subcoornltcee againiit concluding
that tlw progran Is fatally ill because thr volume is down.                  At I«a3t
a prrtlun of tJt- decline can lie explained by the later f i l i n g of appli-
caclanfi witi* the bLliouJs. for Llir reasons given rarlier, the longer
pro^c • ting ti*e at 'he icliool Iwcauue uf the need analysis tu be p»r-
(urc<-d. and th« r>Tlurtancr ol both tlie school and the lender to adjust
tin- tuciitionjl nct-d analysis rrBultn becaufic nl tlw anbigulty Involved,
coinh-.l with the li,ic at an audll exception at -1 later tlmr. Must -il chi-ce
(.njljl'-rj w i l l corr cl rlitmstrlvra with tlir pjubJir of tlisc.       Tin' final one
w i l l r>'<;uirv <>unr I<->-.l3]jtlvr ur re, ulacorx r< flnoir^'nt* to hriug about
I J r u l rri>olutl»n.


lli> llriuncl.il aid l u n n u n i t y fctandr. ready tu li-Ip vlr'i thf IM-I tii'i oolutiunt-

ill Jir/   u.ly    v,. ,   4n-
                                                     71




'".        . ltea».]*w.ur- . _                                         '     Jtini 12,1973
l'"ro.--'     _Sut late

                                                            baok.


                      ( iuve bad • tali with a loan officer at a local bank about CS.
                      -i
           find »o»p disturbing.        As you Lnou, In nose case* we Bust Bake a rero r<-cc*0rj.i!n-

           clon Cor our applicant* who ar« rtctlvicj aid LCCAU»C we will have met Med, -~Ad

           4 xcro r«Lf»»«uil*tioo for appllcaacy vho arc not receiving aid bvcaiuc no nec<! J»

           a^puard.        Wa ax< c*^liaf our vcudentf In a *>*aorAQdtm attached to any batik forvs

       «c receive «hy M- <re required tt> do tbl* and that thf amount they my borrou is

      . left to tit* bonktr'i diforttion and it fubjuct to policy at the bank, to u'niffi

       thf mitidfnt fiat applied.          We can place code nutiwrc on the bank form to Indicate

       tlie r«j«o«(«) *e {eel the •cueeac abould receive the fund* wbicli Include:

       (4) uaaoclelpacad aedlcal t-r other extraordinary .expense*, (S) non-liquid asMi.r.

       <£.£.. Uoex eaultjr), »*d (t) canoot MCC expected coatributlon from Incovc.                  All

       of ct>e*e, v* feel, are ralld reaaooa for fftmllle* Ui apply for a CSL.             In adilicio.i,

       tliere Kill be »eo]r applicant* who will apply fo            ">an» wfao vlll not viab to

       re^*lM Xatareet braaflts.

       '          Thl» officer tella Be that hit Institution will ;o strictly by our doll.ir

       ••ounf recoameadatloa, that the return oa tliribi loam elMfly doenn't warrant tU"

       tint required to justify their exceeding ^nd docuacncini'. tlw »ciionl'« rccuu>r-ii.!< ..

       anouat'        Also, ro coatUecatioa will bi £iv?n 10 «p|.llcatlon'-. fron fo>Ili<"-

       <u«u«lly chose in tie bich^r Incone 'jrjci-.'.o) M.o, for on» n-^con or snollifrr.

       cwinot vwet die expecfd concributioe" iroj loccm- a-id v;il apply for * CM, wf_.''.in

       Interest benefits.           1 fff told that t:iic Irudec'r. jxilicy cotiform-. ^"j»m;!/ vu:,

       tli»f. of other local bank*.

                  It appears to •« t'.ui »ucl> >nlwv «i<j ;,avn tli> >'.'f><-i of put tin,: u. >.• i

       bed a sltuatloa as lait *iuo-r, -.rd . r , - : , y.u kliould ijiov K!-JC j I,InJ b^ njy I n.
                                            72




                                           FA11GO 13A.ISrK.


         ftfl CIHIt*
•4 liMlMMMffT >»'f f
frM M«»UKO. CMJ'OMtl* • *"»«


fell-? Fargo Bank policies pertaining to loans granted undor the Kcdoral
itisurc3~Stud<:nt LOP.n Program
1. The applying student or his parents must have maintained a deposit
   account with the Bank for at least six months prior to submission
   of the application forms.
2.   pue to administrative difficulties resulting from "cross borrowing',
     an application from a student whose previous student loan is with
     another bank will be declined. This will apply even though a de-
     posit relationship exists.
3. The Bank will be strictly guided by the rfCoraynUation of the school
   in the determination of the amount ot a student's loan, subject to
   the limitations of oUu-r Government or Wc-ljs K«ir«7o Dank requirements.
   In other words, the loan amount will ordinarily he the name as the
   fiqure appearing in item 121 on OB form 1260.
4.    The ciaxiwnn loan amounts for any twHvc (12) month ooriod are as
      follows:
      (a) Jl/SOO - for undergraduate students attending four-year calicoes
                     and universities, (including rrcshmcn)-
      (b) $ 500 - for junior college and vocationjl/prODnctary school
                     students.
      (c) $2,500 - for graduate level (including medical, dental, and law)
                               students.
5.    ruxinun cumulative lifetime amounts are ac follows;
      (a) $ (,000 - (or imdcrgruduacc students.
       (b) $10,000 - for graduate students.
6.    Ttudcrt loan applicants must be under 26 years of -ige, unless there
      are extenuating circuit inccs,
MOTf; - 'the student bhould bring his Aoplication to tho Wplls Fareo Bank
        branch of accost, rclotionship. From theru the application wil!
        !•*.• forwarded to the Junk's Student Loan Center for all subsequent
        processing. Vot jjifjuirics to the Student Loan Center, please
        pbone: (41S) 39C-4105 or (415) 396-0127.
NATIONAL ASSOCIATION OF STUDENT FINANCIAL AtO ADMINISTRATORS
                                     CE\- «i oftict AHP PLACEMENT SERVICE
                                                }'i: f/r Sfv*:. H v:
                                              iv«»,;>g.'..-.- 0 C



                                           July 12. 1973
Mr. Stare Vexler
Subcommittee on Education
United States Senate
Washington, D.C.
Dear Steve i
Per our discussion of July 9. I am providing the notes whie.i I
recorded during telephone conversations with financial aid officer*
around the Country concerning the current status of the Insured
loan program. It is from these comments that I drew the conclusions
reflected in the NASFAA testimony, indicating that the decline in
volume of the program to date could in part be attributed to factors
other than the need analysis requirement disqualifying applicants
unnecessarily. The comments are intended to represent either a
single institution or a state consensus, as indicated.
Srand Valley State College - Michigan.
   Received 108 applications March 1 to June 15. 1972
             91      •         " 1 • " 15. 1973
   Backlog of 15 applications
George Washington University - D.C,
   Received 133 applications March 1, 1972 to June 15. i.y/2
            256      •          "     1973 to •       1973
   Backlog of 110 applications awaiting parental information
Pennsylvania Slate University
   Processed over 8,000 applications last year
   Applications coming in currently at rate of 125 P«r day
   Backlog of 1600 being held for further information as of June 15
State of Florida i
   State program "ill not accept loans which do not qualify for
   interest subsidy, which excludes many students for loan access
   from $10-15.000 families. Very few banks will accept un-
   •ubsidited loans. Backlog in schools as result of need analysis
   requirement, both because of missing information and additional
   processing time.
Indiana University*
   Status as of June 15. 1973 i 1172 processed, of which 878 had
   need. 29* did not. 4 54 applications being held for additional
   information. Volume up from last year, wh n approximately 800
   «ere processed in same period, atnfcs not too familiar with
   new regulations.
                            -2-
Stat* of Ifebraskai
   Application* probably down In volume over laat year at thl* time.
   SOB* backlog of application* in school*.
£v*rgro*n Stat* College - Washingtoni
   Application* up about 20%. not MUCH backlog. Moat banka ham
   ceased lending of have Many raatrictlona. Largeat lender in
   Stat* i* no longer participating.
University of Floridai
  Application* running *lightly bobind la*t y*ar. about 300
  backloggod. Proceeding time in *chool 1* three tiM* in-
  creased id involve* much coun**ling with family.
Stamford University - Alat
   Soa* bank* holding 1973-7^ application* for proc***ing aft*r
   July 1. Bush to M*t laat yoar** July 1 Chang* may have dis-
   torted comparative statistics. Biggest need i* common, coa-
   prehenslve for* that eliminates necessity of going back to the
   family for additional information, thus delaying processing.
Stat* of Coloradoi
   Volume of application* •ubmittod to schools about earn* a* last
   yeari large backlog of form* in schools,
Stat* of Montana i
   Volume of application* down (lightly, *omo backlog.
State of Idaho i
   Volume of application* up in larger schools, down in aamller one*.
State of forth Dakota i
   Volume of application* down, some backlog.   Still feel the program
   is helping those that require the aid.
Stat* of Illinois i
   Volume of application* submitted to school* i* down considerably
   over last year at this time. Substantial backlog of-application*
   which have boon filed due to processing time. Jfcny application*
   picked up at schools hare not been returned for proceeding yet.
   Lender* ju*t not making un*ub*idic*d loans, school* mad* tii*
   scapegoat.
Midland Luthern Col log* - Nebraska!
   Only ^ as many applications processed «* lf«<t year at this tlmei
   number submitted to school i* down considerably.
Paeadena City College - California«
   Bank* «ili not award to frewhmen. which eliminate* &0* of
   junior college student*. Loan* to junior college student* re-
   stricted to 9500, account relationship requirement also hurt*.
   £ank* denying loan* to non-residents, athletes, older student*
   in spit* of positive schorl recommendation.
                               -3-
 Stato of ariioaa*
    •Banks loufcing *or oxcuoaa not to a*ko
 Sta.» of Orogoni
   ..pplicationa raeoivad fey oeaoola down aoa* over laat yaar,
     lot BMh baaklag. Stwaanta aiaply Mt aaking application*
    <ia bafara. forhapa due to lat« Mlwol n»tlfic»tl«n» •! otter
           «f »1A. tanka ar* friatcatad. dan't ur.d«rataqd th*

 Ttera w*ra alao cantaeta in Cklahoaa. ttasouri, tte California
 Stata Onivaraity Syataa and tte Onlwaity ol California, all
 of which prodwaod tte aaaa typo of «oa»an+.. Rono of tte aid
 offieora rwflootod a crlala altnation. tlthough all wora eoneornod
 about tte additional workload bo ing r»a.uirod by tte now proeaduraa,
 in aavaral eaaaa at tte aaa» tiaa erfleo operating fonda ara frozan
 or own rodueod. all fait tte n«od for additional ataff to avoid
 tte application backlog, but f»» had boon ah] a to ataff for tte
 incraaaad daaaad. ttera wa* a faoling tte tte laana woro aocoaing
 a>ort difficult to COM by, bat no: particularly bacauao of tte
-nood anatyaia Jroo.uiroa«iit. Many oxproaaod tte opinion ttet any
 additional clrMgaa ir.' tte program -now, -howa»ar, which would affoct
 tte bank proeodvroc would bring tte pragmas to a halt.              - -
Tte financial tid coaawnitj- ia not oppoaad to tte '15/15" propoaal
teing advanced. Va ara emearnad, hawavor. about tte potential fcr
amking any ehango teroro tte Congroaa raeaaaaa. and tte uneortainty
ttet would roault froa atartIng a ehango ttet could not te finalicod
teforo ttet tiaa.
Sincoroly,


Richard t.
Bxacutiva Saeratary
                                      76          >-
  Senator HATHAWAT. Our next group "' witnesses are the repre-
sentativos of the Aiaerican Bankers As- relation: H race Ditnagan,
president of the Pint Scale Bank of Cai ilhcrsville, MJ.; and Harry
Drolct, senior vice president of the Con> ecticut Jim:k & Trust Co. in
Hartford, Conn.
SHTEMEET OF HORACE DUHAOAH. PRESIDEET OF TEE FUST
  STATE BAMK OF CABUTEERSTCLLE, MO.; AND HAEET DEOLET,
  SEHIOR V(CE PRESIDEHT OF TEE COOTECTICTT BAHK * TRUST
  CO. IV HARTFORD, COKE.. REPRESEETDfO TEE AMERICAN
  BANKERS ASSOCIATION
     Mr. DBOMT. We do not have a prepared statement, but I would like
  quickly to read some comments we nave written, and devote the rest
 of the time to questions and answers. In the final analysis, the let Jcrs
 make the loans.
    This is Mr. John Rodick with me.
     Senator HATHAWAY. Wbat is his position?
     Mr. DKf>i,CT. Manager of the. student loan program at the Connect!-:
 cut hank.                                 . .
     Mr. Chairman and members of the suhcommittee, we are pleased
 to have this opportunity to discuss with vou whai we feel could he
 problem areas for the guaranteed student loan program. I am I fairy
 J. Drolet. senior vire v , sident. the Omnect icut Hank & Trust C<\ of
 Jfnrtford. My colleague- is Horace Dunagan, president of the First.
 Stata 1'ank of farutherjville. >fo. We appear here on behalf of fhe
 American Bankers Association. If I may. I would like to introduce
 John Rotlick, inanaf.fr of our educational loan department, who is
 familiar with the cut rent technical aspects of our program. Mr. Duna-
gan and I appear here together bemuse we come from States that
 operate in different fashions. ('omiectiriif o|H-mfcs under a State guar-
antee program, while MiiJKouri operates under the Federal program.
 We felt that the questions the rornmitfre meml»ers mi^it ha^e rnuld
r/mceivablv-differ with respect ro State and PVdrrnl programs.
    I am sure the Congress has takrn cognizance of the rwent figures
issued bv the Oflice of Education showing a marked decline in both
the numU-r of student loans and the dollar volume in the period March
to Muy li>7>t. iii contract the SIHIII- (H-rifHi in 1DV2. In a s(»ot check with
some of our memlwrs. • ve liave not lK»en nble to piri|>oitif the «-ausie of
this flc-»'linc. However; there are » number of ipiite reasonable conclu-
sions thnt <»>uld account for the downturn:
    H) Sc}io»»Is nnd lenders processed ns many applications as possible
prior t« fhe Man-h 1. 1D73, introduction of new regulations by the
Oflice of Kducat-ion.
    (2) The introduction of new regulation* has confused students,
schools, and lenders.
    (3) Mnny families clnim they are nimble to fill out fhe documents
necesiuirv t<> nwef. t he needs a mi ly nix texf.
    (4) M^any schools :ire Mill unsure juxt whut funds will be available
for student aid.
    ('>) Marked increase in the amount of pu|xrrwork for the wlwational
i nor i tut ions.
  However, the purpose '"'k this hearing is not to speculate about the
volume in tlie Iwst qu*(icr but to address ourselves to what we think
are potential probKus, and hopefully, to offer some constructive sug-
                , '
  Ore of tli' major problems that could surface is in regard to the
reconuncp'Utions for interest benefits to be made by tlu> educational
                    lenders.
  1>i> regulations iswd under the existing law' provide :
  Vh« loan must not exceed the eO/'bl* institution'* recommendation unless .
the bull for the lender'* record*. In addition. In the crnne of a studrat with an
adltutrd family Income equal tr> <>r greater tli«n £15.000. if the loan exrwd* •
the ellgibte institution'* recomtncudarion. a portion of the intercut on *nch loan
will ho p"'d . . . onlr if prior to making the loan the lender consult* with the
eUgtblv InntitnUon with rrftpect to the Uttr.'- recommendation. The Imder mo< _,
keep a record of men consultation.
   From limited experience we haw seen ' nat both the/ Inancial aid
officer and the lender ate reluct unt to aujuar- eithor the tx[nvted family
contribution figure or the instiuit ion's rccomr.endation.
   Tlie. lenders bvir.vv t hit the tjnancial aid ofliwr In- made an ana', sis
 of the student's need*, as required, and knows what aid is available to
him. Consequently, they fi*el con-strained to abide bv this recommenda-
tion. A number of our members would like to sec tlie Office of Educa-
tion i.sue sonv guidelines to lenders, similar to those i ued to the
financial aid off'ic?n< for determining "what can the funnly rw»'r;L-
calty contribute v The lenders would titut such guideline^ helpful
 when they wish t«» iiK>ve Wvond the s^-hool's rtrommeiulat jiin.
   In rcs|H.i-t to tlitis*- stiulrnts whoiv adjusted fa-.iilv inroinc is over
$15.(MK». the. regulations require roitstilttttioii with thi- sohool liefore
the loan may In- mcreuM-d. This is real I v u )>ure rnse of window dn>ss-
ing sinrv the lender does no' huvc lo defer to the s<%lnK»l calrulation
Itut merely keep n record tli:if lie did fontnct the si'horil.
   T!u> nlxm-, ;>rol>tetn sevolves ar<>uiui the so-calleil needs analysis.
Thes^ tests wen* devised for us* in grant and sdiolnrship programs.
and \vc ftH'l they an- not a realist ir uiialysis when von an> disi'iiKtiinr »
loan program ulk-rv »he tttn>|i>nt ii «i«' ••_"•»::;.? !i\inacif to ivpay the
amount liorrowed. Conseqiicnily. we suggest I lint a new needs analysis
!»• df/elojM'd for those slndents l«»r rowing, ns ojiposed to those, recei •
ing irrutit- nnd $cholarshi|>ii.
   \Ve would rt'sjH'ct fully rf(|iii'sf the siilx-oNiiiiiftee to study a projMisal
that surfaced last year that would grant interest siilis'idie* without the
                                                                 '      tho
needs n an lysis test to those student!- whose adjusted family income is
under $]5.(>00, and would subject a Indent whotu- adjusted familv
intronu- is nlxnc #!.'./HK) to t'te needs I'lalysia. to ded-rmine h'« el'gf-
l»ilify fora sulwidi'/uul loan.
   In additf' n to the prolilem we n^ilrd rvganling tlie nceos tr«t. we
also an- nu-are of the long delay this hn.« hrou^hr aU>ut in pr'sceiuing
the pujx'tHork, One lender in California told us that it wn'j taking 1'2
to It wtk.*ks ! mm the date the original |..I|MTK were filed with tl;e edu-
eational institution until a 1'mnJ loiin conmiitiiient wiu received Six to
eight weeks of this titiif was wn.Hiiinrd in ohlairving the traditional
needs analysis. If we project this delay into July and Auguct when
the volume xhoiild r*e iiifivuitiiiir. we can anticipate that uorne utudenti
will wait until late fall In-fore they can be a«»tired of llieii loan.
                                      78
        Another an-* that has caused us much concc rn is that of the increas-
    ing default rate in this program. We would like ta • aggcst that, in
    addition to the lender and the financial aid officer counseling the bar
    rower regarding his responsibility.-the lender fountain a continuing
    contact with the student. Also, we recommend :nat the Office of Edu-
    cation develop sonic helpful guidelines t*> assist in the collection
    process*.
       We would !>e remiss if we did not. point, out that many lenders are
   complaining that the length of time 1*1 ween claim of defaulted loan
   and reimbursement, in sow cases. is» up to 4 inotitlis. during which time
   the lender receives neither interest IWT the use of his customer's monev.
       If the Congr«» fee.ls tfeat we c*n be of any assistance in making this
    program more viable, we tttoul'j lie more than happy to make ourselves
   available-                         ,
       Mr. Chairman, if you ha-.* a«iy questions, we will lie happy to try to
   answer them.
      Senator HATIIAWAV. *<fr: Dunagaii, would you like to make i brief
   statement f
      Mr. Di'NACA.v. Sepjtor. he made the overall statement for all of us.
   We. discussed thistYmg last night, and I talked to my people in my
   bank yesterday abr.ut st iident loans Mist almut all day long.
      We" made o'ur jina. student loan in 1!X>2, at that time under the
   I'.S.A.F. program, J was very simple, it was done in i»y office, it was
  so .simple. 1 did it myself.
      Yesterday T talked to 3 or 4 dn7».r"nt people in my bank, and it has
  gotten 50 complicated, that the people "... my bank would like for
  us to withdraw from the program, and I have )u.>t told them we are
  troing to rlo it, that is. stay in the program, and we would itur** it up to
  other people for technical information.
      T not'nv this morning, everybody seems to wonder why it. .is not
  working, and yesterday in asking this question, somebody kept talk-
  ing aln»ut the forms U»mg complicated. I said what forms? They cot
 this particular torm: thev said, "do we have it?' They said no, it is
 mailed from the irollegc. 1 said. well, go gel me one. so one of my vice
 presidents drove out to the country and got this form from a family
 who had a student in school lost year in .fotie.4ioro. Ark., under the
 program, and this year the loan had not come lack, and we wondered
 whv.
     This student's mother i* the secretary at my liank. and his father
 is an engineer, and it has been in their home'about 4 weeks localise
 they do not know how to fill it out. and I looked on my c!esk yesterday,
 and I thoughttfiinuy it is not that complicated, but the more. I looked it
 it. I could not read it. I could not read it with my glasses on or off.
 HO I thought I would ritad it on the plane, tn I got on the plane yester-
day and looked at the form nlxmt an hour. I wtid well, when I get* to my
 hotel room, f will understand it. and I looked »t it Iiurt night, I did not
undHiYtBiid it, and this morning, waking up early. T wait still unable to
tmder.-itand it. I -A-oiild like you to look at this: The*- j»eop!c were «o
coitfii0>d that tlwy thought, well, we will keep our iw» in M'hool. hut
we will probably do i» uome otlwr way. f'roblemv like thin are why
fewer students are taking cdvanlnge of thin program.
     Tn our «mall town, we have vtudenif who now are prolwbly working
in xhipyardH ur doing common lalwr that nonnally would have gone
                                    79
   to colkgc 2 or 3 years ago. People just do not life to admit they &
   not understand soot-thing, and they feel embarfarsed. trtjfcawae con-
   trary to what somebody aid a while ago, our bank has never since
    19$£ never turned down any student loan from my county.^'e Jiave
   pone into high schools and "told the seniors, if you want to go into
   i-oUegv. ymi can get a student loan. Now they come into the bank, and
 ' we «»ive thorn Ihese forms, and they send them off. a"d then vrt sever
   hrar from them again, and nn« talk Aliout being a private enterprise nro-
• gram. They are not out forms, and I just do not understand it, now
   something co»ild rturt off so simple 10 years ago. and get so compli-
   cated iodayf
       !Cow it is niy understanding, as you find it on that form, that a
   computer will tell a college how much money to recommend for a
   loan.
      Senator If ATHAWAY. This is not t» Federal form you have given me. "
      Mr. I)I-NA«;AN. No.sir; but it is tied in with your Federal program. I
   had rover seen that font until yesterday. If we make a federally in-
   sur- ! loan, before the loan is processed, the parents receive that form,
   and they an- a^ked to fill it out to determine the amount of money that
   »riK he approved by the college.. •         * -                       __
      Mr. DKOI^H-. Well, this is the form from the American college \tsdt-
  «»,': projrrwii.
      Mr. Sin'iiu»nx. arc \ou faitiiliar with these?
      Mr. SIMMON-*. Tliat ia the ACT needs tent form, i lie parentH of the
   family havv to romplete Uiat in order that the college can provide the
  nerds aawdnnent and make the recouinu>ndat ion.
      Senatn.- HATHAWAY. Hut this is not a Federal form ?
      Mr. SIMMON*. Ko. sir. that is not the Federal form.
      Mr. DfN'ACAK. Hut to get a Federal loan, the parenis do have to fill
  out the form.
      Mr. SrxMoxs. That is one of the tests that can lie used. This is one
  n*i«ds trtrf inif i iay U- p«>rfonrml. buried 051 the data there, and the
  analysis mailr of It. When it comes back to the institution, they have
  an indicated «-xjxrtfd family contribution, that is the compnted
  amount.
      S-.-nator HATHAWAY. Tlien in effect this is a Federal form. beca..tss
  I his is one of (he ones that you will honoris that correct?
      Mr.SiWHovii.lt is one of the test* that may be used.
      Senator HATIIAWAV. What are the others?"
      Mr. SIMMOXH. Tlierf is oru» by llie colie^e scholarship service:
  tln> income tax method that may be utied. There are a number that have
  U*-n npprovrd that they may »«•.
      If is not a P'^li-ral fornu
     Senator f IATHAWAV. For the record, so that wr could look these over,
  could you supply the different forms that are accrptable?
      Mr. SiM MOXH. Yes. sir. we wou'd be delightcd.
     Senator I IATIIAWAY. Thank you.
      I'ilie information referred to follows:]
                    '•••-""•.     *•

              r« tha far** for two of .the «ust widely-wed fIt

      analysis services, tha Co* lay* Scholar*Mp Sonrlca aod tfca .

        fastlnt fmqrm.    In addition, a largo niMbir of lMt!tMr<ons

of Mghar ••».•• tlot> hava davalnpad tbalr own nudi analysis procadHroB

«W «MC«ss«r> form.    Th«s« pnK*d«r«», «ww approve by UM CoaBlssIonar

as a basis for naad a>to«lnat>on~for othar Fadaral stifiaat assistance

pro^raM. also bacoma accaptabla for datamation of noad for a Fadaral

intarast subsidy undar tha Cuarantaad Stadant Loan Prograa.
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 .
     Mr. SnicKOKR. I Jam nut ^ersonallT acquainted with it
'- I4m.tcyiunf.fd with tfo fact ACT has them.                       .- - '.-
     Senator HITKA.*",?. I yr?nt*p know if that is* typical one.
     Mr.SiiocoYS.Iander8t*!iditis.              .     ,
     Mr. DCWCAX. I bad never seen nor beard Mr. Payton until a. few
  moments agQj bat ts a eonntiyvbanker, it seems to me that *!» pro-
 gram he outlined would 1telp the students hi my county to get their
 loan and get into college.
     We *re not Wd at anyone, and what ve would like to -do, from
 the tipie the student says he would like to go to college, we would
 like him to get the jnoney, get into the college as soon as posslble^b^
 cause w e know o u r nejople.                          - " . " : ' "
     This cootpnter thing, 1 would like to know more about this deal
  Apparently this telts,if he asks for $1,500, this thing comes back, aid
 says, weU, you are entitleJ to $900. Now they come up with Uiat figure,
 I dotrt tfnow. Some of these kids, we hare*known them for 12 yean.
 and we have talked to them as freshmen, aud have granted them lotus
 in the past, hut not this year. They fail to qualify under the needs
 analysis.                      '      ,
     I wish in our bank that we could tuake a loan to the students that
 we know, and send in one sheet to tlu> Federal Govermnent.
     We can make $125.000 SBA loans easier than we can make a $1,000
 student loan, and with less redUpe.                            .   .
    Senator HUTHAWAV. Let me get back to Mr. Simmons, would yon
 say that is typical of tbe forms that are required by the various
 organizations that you wijl accept!
    Mr. Suncovs. I chink it is typical, although with one difference, I
 am told—it is made out on a mark sensing basis, checking the various
 blocks, and so forth.
    As I say, this is n private organization, that provides the needs
 analysis based upon tLe data the family provides to them, *nd then
 it comes back to the college.
     It is not a Federal fonu. it is one we say they may t^e, and it is
 one of the two larger ones in the country.     "                     \
    Senator HATTUITAY. Is there a Federal form they can use in lien
of that, that would be simpler f                                     :L:
    Mr. STKKOVS. No, there is no Federal reeds analysis form they may
 use.         >                                               ,
    Senator HATHAWAT. Well the effect is then that you aothorize x
 number of forms from different organizations that* can be used to
establish need!
    Mr. Simcovs, That is cornet.
    Senator HATHAWAT, And that they all provide forms that are some-
 what like that one, which appears to be quite complicated!
    Mr. SIXKOYS. Mr. Tombaujch of Lie Association of Student Finan-
 cial Aid Administrators could probably tell you more about these
nerds analyses than I rould.
    Mr. TPMBABCH. The inforoxition that 5« wjuested on this form is
typical of that that. j« cot^rf^t h >wrrer. t)ii» one has the apnearance
of being much mon* eofapUcated. because the family is asked to trans*
lativ :h* mformation onto a mark sense form for more rapid process-
      At the company, and so consequently tbe tune information is
                              .      .       .       .
 th«*, bat it xainpikMied^rby the factvthat it is put onio a
                                                             .           .
           fpr\'ibm{Hi(^'reMibi£, and that adds greatly to the <com-
                         '
                                     family.     ' '' ' ' '
   Senator ifarUftWAY. Wdl, you "mean other organizations ^
 LaVe that sftme airtd of 4brm, they could answer the questions modi
                 ' '. ' '   ' ' '.                   -       ",      '
            Toioufctm. They collect itfe same information essentially, but
  it is iop JL diffeiyut format, that is not mark sense, and read directly
  b y t h e computer    •••••'•'     ,- - f_ . ".                     • ,•
   , Mr. DrviOAJr. if I might, }»wt for a moment, Senator, I coold not
. noiienUnd *fby m> jpeopie watted os to get oat of die prqgnm,and
  so oJMTof the |tirf*>i5o luslMttu to school on this progr«mf*pped this
            . we^**v« •& student who just recently completed oollege,
 owing fi^OO^Uiat is the total they owed for 4 years.
   The tJJS. Government will pay * percent on $1.<MK) of this loan,
 and h« has to pay the remaining 4. pereuJot, it isTpferotnt of the other
             '                           "       '
  There is ah endorsement ftt. of^^me-qouter ptrcent on $3,000 of this
 moaqr- There is no fee <m the other $1^00, and $^500 has his special
                                              "
                                                         .   _    ..._______.
     A thoosand dolla-ts is guaranteed by the old USAF jLrogeam we
   were under, tbkt was a pretty pood program in our opinion, $2,000 is
   guaranteed from the Missouri Office of Htgher Education, and $1,500
  « guaranteed by the U.S. Federal Oovecnmcnt federally insured loan
  prpgnniv and, believe me, sir, we ha\T a herd time keeping people'
   properly trained to keep op with this in knowing just «meVe,we
  stand.
     Really we do. I am not trying to be funny. It is a serious matter.
     We have hind thter students, we sent to college under these loan
  programs.
     I was.&mkinff somewhere they would be sharp enough to keep op
  with this ihing,lMit as of today, we have not found any easy way to
  reaUy^keep up with this, mod this is one reason that banks are rdmct-
  ant, some banks are reluctant to enter into the program.
     They feel like they are bogged down to start with.
     Senator HATHAWAT- Do^ruu-have any additional recommendations
  to make, in addition to those which Mr. Drolet made!
     What abont interest rates!
     Mr, DTVAGAX. Our bank has capital issued for $500X100, we have
  $400,000 total volume of leans from 195 students, with the amount of
  work taken, I do not think «* *iH make anything on that. I think we
 .will .probably lose money on the student loans, but we feel like this
  k a gr«at thing for our community, I think it •« wonderful we have
. insured loans, and if we even went broke on it, we would continue
  theprogrsin,            "
     The only reason we would get out of the program would not be
  because ot we are not making money on it, but becaose we are just
  uoftbl* to keep up with the recordkeeping that is mroired.
    They are not very profitable. We are paring as high as 7% per-
  cent for money on certificate deposits, paying more than it percent
 on Kedersl funds, and of course, it is not. too funny to make it at 7
  percent when yon ate paying more than that, but even though T think
• .£-•?.      ...   -                 98                     ' '    -       -.:;
  interest rates at the present time txe a little low, that is not the biggest '•
  complaint that we «i*ve.                                           .        •
      It is the paper work, the redtape, slowness in time of getting the
  loan approved.                         -;
      My recommendation would be, to let the banker make the decision
      If the college has certified, the fees and tuitions are going to be
   $1,100 for ti»e semestT, and we know the student, let as make the
  ioany say it goes to the 15/15 proposal, we know who these people
  are, we Know whether they earn $15,000 or more, if the}' an *n the
  border line, we can ask them to bring us an income tax return, and
  check die gross income. I think if the decision could be made on a local
   level, it could be made fast                                    f
      I believe the college would be happier, I knor the student's parents
   would be happier, and I think you would have »lot of oountrr bank?
  entering the program who am now reluctant to enter into H.
      Senator HATHAWAT. So if we could eliminate the paperwork, that
   is what you would want most T
      Mr. DUWAOAV. Sir, in our little bank, we make $200,009 loans on
   one-tenth the paperwork that is involved in some of these loans for
  $1,000.
.. _ -SenatorHAXHAWAV. Either-one-of you can *nrwerthis,irat do yon
   know what the participation is in banks throughout the country, on a
   percentage basis, how many banks accept and how many they reject!
      Mr. DCJTAGAK. Of the loan studarts?
      Senator HATHAWAY. Of the applications.
      Mr- Dn»AOAK. We do not reject any if the college has recominended
   that this student, or certified he is eligible to enter, we have never
   rejected
      Senator HATHAWAT. You are talking about the individual banker f
      Mr. DPVACAV. Bight, sir.
      Senator HATHAWAT. But you do not know, representing the Ameri-
   can Bankers Association, what the percentage is throughout the
  country!
      Mr. footer. I might add some encouragement, vith our local mar-
   ket in Connecticut, which In many ways bears a resemblance to what
   Sail}- Mae is, to what that will be like, this program hu« been running
   for if« second academic year, the net effect that has had in Connecticut,
   is to keep t tie doors open to every student that app) ies. and if there is *
  technical compliance with the program, my guess would be that no
   one is denied a loan.      _                   ~i
      Senator HATH AWAV. In ConnecticutJ           --
      Mr. DRourr/Jfa Connecticut, and we *re hoping for the translation
   of that sort 'of rendition trlien Sallie Mae gets np and running, of
   course.
      Senator HATHAWAT. Some banks have a policy of not loaning to
   student* over 26 years of age.
      Do you know if that u widespread 1
      Is it true in Connecticut and Missouri i
      Mr. Daoj^rr.It i« a new concept to me.
      Senator HATHAWAT. This is hurting tome of the veterans returning,
      Mr. Dsounr. The programs in both the federal and State guarantee
   funds support graduate tuition as well, and I have never heard of an
   age criteria.
          ??&i:&. /^mi^'^ff^-, ' -^
            ' " '   • • •    •   •
                                                             .; . ,
                                                                  •
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                                                •

                                                      throogboot ^»»c



  Senator HtnuwAr. Vou «re feon the American. Bankets Aaaocta-
            ''        '



  Hr, DBOucr.Coold I«AI<Mietiung1intenn8of * negative veoom-


oar atea, they hav« had as many applications for loan funds 4iusf«ar
as in the past, die mill is grinding way slowly, and anything that
and *riiich would create a question as to the statas will com* to
upon all of us in September.
   I am suggesting we seek greater appeal in going to a 15/15 ooDoept,
perhaps with gome modification, but not at the price of stopping me
flow this summer.
   Senator HATHAWAT. Thaok you.
   Before you leave the table, Mr. Sumnons, do you have any comment
on the testimony, on the recommendations particularly made by Mr.
Drolett
  Mr. Soocovs. This is with respect to the paperwork, and so forth!
   Mr. SIKKOVS. I think that problems occur any time you change the
law, and therefore the regulations. We did have to publish * suppje-
mental form for the needs analysis, and right now we axe working
on consolidating that into one form, and the same is taking place with
respect to the State aoeocy program.
   Hopefully we will hare that out very shortly. Certainly we would
like to reduce the paperwork.
  Mr, DIOUT. Senator Hathaway, you have one of the two needs
   This is the other one, and we would like to leave it, and it cows
close.                                                            . ~~
   Senator HATIIAWAT. I would appreciate your leaving that with us,
   Thank you very much for your testimony, and we will certainly con-
sider your recommendations.
   Mr. DKOCTT. Thank you, M>. Chairman,
  Senator HATUAWAT. Our last, group of witness* cnues from the
Student Loan Marketing Association, sad they ire Edward A, Me-
                                       100
      , chairman of the board; Joseph W. Barr, memberof tho board of
 directors; and Edward A. Fox, presidentof the Student Loan Market-
""- Al»ociatjoiL. '''". '••'-. '' ' . ' . . ';   .. .'    '•.••' : - • • " ' ' • '
                               iittee,gentlemen.
 St LT£KEIT;«F EDVABD JL MbCABE, *sr*n»r*it «F 1SE BQABD
   OFSTUDEMTLOAJTMAfiEEOTG ASSOCIATION; JOSEPH W. BABE,
   JQSMBEE OF THE BOAED OF DIEECTOES OF STUDEST WAS
   KA5OZDTO ASSOCIATION AMP EDWAED A. FOX, FBESHEIT
   OF THE STOTEMT LOAM MAEKETOTO ASSOCSATIOl
     Mr. MC€ABE. Mr. Chairman, I have a short statement vrbidi I will
  fiki for the record.
     I «wldsommarizeit,or read it, whatever yoji prefer.
     Senator HATHAWAV. T would Appreciate your summarizing it. I
  really have to leave fairiy soon. I tootran hoar's leeway from my 'other
 chore,but Icantake-nomonetiian an boor.
     Your prepared statement will be made a part of the record at the
 completion of your testimony.                                          --"-•.T . - - > - .
     we. MoCABt By war of unmet *ate introduction, I am Ed-                               \
-•ward A.-MoGtbe, and I am a lawyer in WashingtcML and i serve as                        j
 dbairman of Che board of directors for the Student Loan Marketing
  Association.
     We had expected to ha, e Mr. Barr, the former treasurer-secretary,
  and oar gooa friend, with as, but unfortunately he has to attend *
  funeral, and he had to absent himself, but he would like very much to
  hare been here with us.
     Mr. Fox at my left is the president of the Student Loan Marketing
  Association.
     By way of general background, the Student Loan Marketing Asso
  ciation, known as Sallie Mae, is a Government chartered private cor-
  poration established by Congress in 1972.
     Senator HATHAWAT. You are not in operation yet ?
     Mr. MoCABe. We are, yes.
     We are just getting underway.
     Perhaps a hopeful note we can bring to your hearing is that we are                     !
  beginning.                                                                            .I
     We have been operating since the beginning of the year, a great                       I
  deal of our time has gone into the necessary organizational steps, bat                    i
  we areas I said a moment ago. now operation*!.
     Mr. Fox, our new president, came on board officially on May 14, He
  is assisted by A headquarters staff of 16 people at the present time.
     It i* important here, I believe, to review the general operating pol-
  icy, the general operating philosophy of this new corporation.
     Congress established Sallie Mae as a private corporation to be op-
  erated for profit, to bring a measure of liquidity relief.
  We intend to do all of these things, and we believe we are already
 well under way.
   I want to emphasize. Mr. Chairman, that the board of directors
 views this corporation as first and foremost a financial institution, and
 w« intend to operate it as such, we intend to function, and on this I
 detect not a glimmer of dissent in our board of directors.
                                ua «. vtry few .weeks, and '-«$ think Shis
                            'pe will *oooanoe«D
                                        ' .          ..         .
         y after titct, iiopefally «s <euiv as late,: as the latter pact of
                    l)y Jneans of                 we &ink we ican <vff«r

nlief .«« wooid imng, t^ouue wur              its finaot^ oommktoe, and
JMr. EOT, mr preatimt,, »nr «1i
nation of diat wr ouwstxMi
                  widely ttoough
                       .    •   . -* ^^ 1
                                              mod education, will serve
whose need to bortw will find lenders with the nctesaary ' funds for
                                                       "

  Senator HATHMTAT. Has flits ^nnouncemait been made!
  Mr. M jCvit Votbeyood this,
  We have talked informally with some of the education groups.
  We *ne really conferring on the point and time rigat now, Mr.
-Chairman, when we will oe ™«ir"ig -
  JSeuator HAtnAWAT^Ttie bankuu; community does not Icnow about
    Mr. MoCAV. Tha tis right They ace informally awtre, bat no mow
than that, informally aware of the plans w» .have been making, and the
work we hare bsea doing, but we view this Tuly, August/^eptember
fSort of onrs as something of a phase I in our program, and I want to
emphasize though that we have no intention of resting on our oars at .
thepointwheEe we have set the first phase in motion.                  - ''
    We intend to continue moving, and I would likp to think we will do
 it with the owflt skiUfnl blending of energy and prudence and speed
we esa master.
    Keatt Jjuutftry wflj fating another semester, aad with it another wave
i<f faDrrow'qgand financing requirements.                         >
    We faopt to be active and helpful «s I indicated in time for dus
eoorinc Septraber.
    By January v* want to ks more active. In lookuL; ahead to that next
stuomer. when »f> will be then looking toward Jtet school year ihat
begins the following September, we hop\» to be a*fcr ir«**)*y more ac-
tive stilL
    Senator HATHAWAT, ScslujticallF, you would notjeacpect us to haw
an impact entil at least tL« second semester, February, and possibly
                                  102
    Mr. MoCuK. No, Senator; I think we can have an impact for Sep-
tember of this year.
    Senator HArHXWAT.Owehis year!
    Hr.McCABK.Yes,sir. :                                 (            :
•- There is quite an imponderable as to the fcvel oftuiit impact, but
 if we can move into the warehousing operation, I referred to a moment
 ago, do it with some substantial volnn*, then to that extent, we have
brought this liquidity relief to the lenders who a^e literally inundated
with this paper that they have accumulated, this $6 billion we have
 referred to a while ago, while I am not in the banking business. I would
 liketosay a word about that$6billion.
    We do hear, and understandably so, a lot of complaints, dissatisfac-
»' on, we all feel it at times about whether there is, whether this or that
 program is doing the whole job, all that it might, and I do not have
 answers to that
    The only thing I would say, however, is that every nickel of those (6
 billion navecrxne from some private lender, somewhere who was under
no compuktoD of law to make it available, so while the program may
not be per'ect, we are talking now about this underlying program
 which we serve,'and which we are not directly involved, may not be
 perfect, nevertheless it is an awfully good one. it has done a great deal
of work, a great deal of constructive work, and I do not thiiik that we
nughl to be too ready, too quick, to be too critical of those who have
 made a go, and as I said, every nickel in the mix has come from a
private lender somewhere, and I hope and expect that they wili con-
tinue to do this.
    It is our hope that with this new corporation, to furnish a secondary
outlet, secondary market, the warehouslnii opportunity that more
money can be made availably, s. ix*ter 'rrnover of these obligations so
that hope folly the len&n .-ill continue to do and grow in Hie kind of
job they have d<3a« thus far.
    A grVȣ many things we could discuss, Senator, but your time is
fh JIT, and your target* a»« necessarily narrow at the present time on
tome of the immediate problems, and if Mr. Pox and I can offer any
hell) or answer any questions, we will be glad to do so,
    Sniator HATMAWAT. If you could go into more detail as to how yon
think the winouncenunrt of this program that you are going to start
buying up locns in August, will necessarily stimulate the banking
commt'jiity to process their applications quicker, and gri more loans
available 'or this fall t*rm. that is our immediate concern.
    Mr. McTABR Well. Mr. Fox can add some thoughts here.
    I would like to say though
    Senator HATHAWAT. The bankers have known there was available _
as s matter of law
    Mr. MrCAK. Tfoy hare known that the law provided for the crea-
tion of this mechanism.
   What tb*r have not known, and what the education rormnunitv has
not known, and indeed wh»t we haw not known until we could crowd
in on the problem i» HM timing, wlten *r might come out. snd he in
tfce fnarfcetpuue witt",•«,- -e sort of relief, this is to the liquidity of
having.
   Ther* is noi mii^h w t > . , '• do about the paperwork, that is not in
oursr-a.
                                   103
    S«?atorHAiHAW/t.Rigbt.Iui»dersUndth«t.
    MftMcCAB. That •* another set of problems, but to the extent we
 «f irbring tbout some of tf is liquidity relief, and have that well pub-
 licized, and we are relying strongly on what we bear from die lending
 4YnnmnFHyondus,«iM from our financial director, that this will be a
 wrv important step.
    Jyanstor HATHAWAY. Could you now state just how much you are
 "-oing to buy up die loans for.
    Mr. MoCAvr. How much, did you say, what are the banks going
 to get!
    Mr. Fox. Broadly speaking, Senator, the fact that we can raise per-
 haps flOO million, in the equity markets to support a corporation of
 ma jy billions of dollars, in die typical government agency which can
 fupport that kind of equity, die speed widi which we can get that kind
 of money out, it will depend on creating operating controls that will
 be functioning accurately, and with no toss of control, we feel we can
 start to satisfy some of die needs that are developing through die ware-
 housing mechanism, die lending, and sometimes we hope about by die
 latter part of this summer.
- It is up tons to determine and our taard to approve those moneys
 that are needed, and that we can deliver satisfactorily and properly in
 support of hijrhar education.
    We cannot put an exact dollar amount on it, but in » period of time,
  I dunk it will be a considerable amount, and as we go out to raise diis
 capital, we will be selling pri Jiarily to diose people our programs.
    We will be able to reach die users of our programs with die nnanc*
 ing announcement, with the public relations we develop pertinent to
 the offering of our equity this summer,
    We do plan to get out the message we are here, we are in existence,
 and we do have the money to satisfy the security bonds, and that will
 be brought all around the country, regionaify, educationally and
 financial institutions
    Senator HATHAWAY. In hundred million dollar equity sales, but
 there is no guarantee return!
    Mr. Fox. There is no guarantee as with any corporation.
    We hope we will be profitable.
    Senator HATHAWAT. Like a saleof stock t
    Mr. Fox. That is exactly what it is.
    Senator HATHAWAT. Is there any other method of financing it, or is
 that going to be the only method f
    Mr. Fox. No, we do have alternatives.
    We can sell our debt directly to the public, we can «ell our debt to
 the Federal Financing Bank, when that vehicle is created.
    We have other alternatives of raising preferred stock, supporting
 capital debentures, a* other financial 'Corporations have in the public
 ."•etor, and we can u».-"»when we need to raise funds.
    £<>nfttnr HATHAWAY. I'o you have any basis with which you could
 state what ai> -quity hr'der would expect in return percentagewise!
   Mr.Fox.tTo.
  Senator HATHA*-AY. "Based OR comparable experience with such as
the ope: ations they 1 tave in Connecticut, for exeuiple f
  Mr. Fox. That would be considerably sm
                                  104
   Sallie Mao could ultimately tie «iru!*ibillion dollar corporation, and
based on the money markets, based en the amount of leverage the
corporation gets, the amount of debt it can market relative to its equity
sire, and I*sed on the profitability, its cost of funds, its us? of the
funds, you could speculate on the potential earnings of the corporation.
   There is the example of the Federal Home Mortgage Corpn which
has operated successfully, which has supported Federal progrknw.
   I would not want to speculate of how quickly it might be profitable,
but we ho|>e to bring it to a profit, ana this could give us an opportunity
to gut even mnre money to supjwrt higher education.
   Senator HATHAWAY. Your equity return would be comparable then
to Fannie Mac?
   Mr. Fox. It will not. have as broad a distribution. It will be sold
primarily to those qualified to be in the program, to a limited
distribution.
  "Senator HATHAWAV. Mr. Drolet. what is your reaction?
   You already !iav«« your mechanism in Connecticut through the es-
tablishment of your national bank.
   What is your reaction to this?
   You have two competing mechanisms here, as far as the banks in
Connecticut arc concerned.
   Mr. PKOI.KT. Considerably they could compete.
   Senator HATIIAWAV. And you welcome this?
   Mr. DBOUT. Well. I think our State program, it was created by
the State Treasurer, in response to a need to make f nds available for
student loans.
   It serves as an investment vehicle for general funds for the State of
Connecticut.
   It is not a stock corporation as .Sallie Mae is proposed to be.
   Senator HATJIAWAV. I see.
   Mr. PROIXT. I would like to give an initial reaction to the prospect*
of some relief in August, if I might.
   Senator HAT-HAWA*-. Yes: please do.
   Mr. TttuHxr. Ik-cause '' Mie riming that we have cited, in almost
every bit of testimony •'• ;norning. warehousing loans in August
would hare to be a fun>v,...i of loans already having been mad* and
ati a lender, I L.-VC questions about the method in whidi they ..ould
Ite traded, wliether they are eligible and noneligible loans, whether
they both will IN* treated in tlie same fashion, whether State guaran-
tee loans w i l l be treated in ti»e name fashion, loans generated in the
dire<l programs, and things of that nature, and until we have some
pretty broad indications of those areas. I think the fact that Sallie
Ma* itself will !•»• up unJ running noon will not accomplish to make
loaiiK acrow» the ItoarH. until we know well in fact that we will have
a liquidity which Sallie Mae offers to nil of IIM.
   Senior HATIIAWAV. When will thu in formation be made available,
Mr. McTal*-?
   Mr, M'^'ABR. We have another me«*tifiM -f our board of director*
ofi July.'»Mid 6,
    I would ho[»e. it irf u little hard to anticipate. becauMH there are a
lot of uriaifu in working with underwriting grouptt right now, and
 w* do not want to eoirx > .it anri put nii»if«erK or detaiU on things too
MWWI. but we <Jo wnn; , .oplc to knnw now that we are about to break
out. into the market.
                                   105
    Xow, n-* do not know at what level, although it will be substantial,
 but I would think that we will have an announcement which will an-
swer a number of these concerns, because we are working on them
daily, and we ought to have that Announcement within the next 30
day*.
    Mr. Fox. I would agree with that, and on« of the difficulties we- face-
 is the wide variety of the types of State and Federal programs that
exist, and becausr'of the number of changes and methodologies of in-
terest payments they have created, a number of programs having gone
out and bfting able to buy and warehouse different types of loans, soiue
are totally guaranteed, 'some arc not, snme have different .sources of
income, some from an agency, and some from the individual. *
    Some of them are guaranteed as to principal and interest, some arc.
only guaranteed as to principal.
    Some are guaranteed only at 80 percent, and as a financial insti-
tution, it would be wrong for us to arbitrarily go out and initiate pro-
grams until we have a better understanding of what, these various
types of programs are.
    We understand from one of our directors in California, that there
are 60 different types of loans in that State alone, and that makes it
verv diffictiit for us, since we have been in business about 5 weeks, to
make the kind of decision how wr arc going to buy. what we- arv.
going lo buy, and how we are going to lend.
    It is clear that we have to have some kind of a. program quickly,
and we hr-ve to do it not only exneditiously. but also prudently, and
we are hopeful in 30 days, that at least a minimum program with some
relief can be announced, that can be built on month by month, and we
think we can give a significant amount of relief quickly, and as soon
as we have things in place, we will be making the appropriate
announcement.
   Senator HATIIAWAV. You think the information you release within
the 30-day period will be able to encourage the banks to make more
loans?
   Mr. Fox. I am encouraged to believe that a functioning Sal lie Mae.
with it* explicit desire to make fun.Is available will have that kind of
effect.
   The specifics of the exact programs, I do not. think they are quite
as essential as the fact that after many years of the 'leffire on the part
of the financial institutions, an existence"seeking to lie err.ommcdbt.ing.
it will be an existence to give some institutions the chance to make some
loans.
   We are going', have to I* more ron-rete than that. The fart in that
we are h"re. and we will followup the annouiwidcnt as quickly as
possible, and that wili have an effect.
   Mr. MrC'ABK. Senator, we arc assured by the lending community to
the extent, we are in touch with the lending ommunity, and through
our diiwton*, we are assured thu* thin is so.
   Thin is not just, our own nenonal opinion that Mr, Fox and I have
pxpmuted hem, but our lender contort* have awirrd us that our mov-
ing into the market will in<Wd !M> a nignificant help in freeing up more
mrmny for loaiiK in September.
   Senator HATH A WAV. Good,
   ("The prepami statement of Mr. Mcf'alw with attachment* follows;]
                              106


               Statement of Edward A. McCabe
       Chairman, Stud*nt Loan Marketing Association
            Before £he Subcommittee on Education
           . •     >      of to*
       Senate committee on Labor *oA Public welfare
                       June 22. 1973             '

       Kr. Chairman. speaking for the Student Loan Marketing        j
                                 v                                  i
Association and its Board of Directors, we appreciate your          j
                                                                     4
asking us to your Meeting today. We at* very interested in          i
                                      v,
the work you arc doing, and we are anxious to^help the guaranteed
stu>leitt loan program in every appropriate way we can. . .    .
       For your record l«t me identify ourselves.   I aa
Edward A. HcCabe, a partner in the Washington-Chicago law
fin of tUMl, Fark, HcCabe « Saunders. X serve as Chainun
of the Board of Directors of the Student. Loan Marketing Associa-
cion. I had hoped to have with •*, and you had expected bin,
•y fellow Director and friend of aany years, Joseph N. Barr,
who is Chairman of the American Security and Trust Company of
Washington, D. c.   Regrettably, Joe tuist be at a funeral this
morning and can't be here. With me is Edward A. Fox, President
of the Student Loan Marketing Association,   Us. fox and I *ill
try to answer quest'on^ about our operations.
       By way of.general background, the Student Loan Marketing
Association — Sal'ie Mae — is a government-chartered, private,
for-profit corporation established by Congress in ">T2. It
                                                                ""••23
                                                                   V-- \i




      '.        -        - " " . ' •               > . . .
will serve •• • secondary market and warehousing facility for
student loans, v*ry .Mich -a» eh* r«d«r»l Vatiooal
Xsikxriatioa — Vaaaia Ha* ~ «(o*Ji for tb* Mortgag
t(«lli* Ha* will brine a Maaur* of liquidity r*li*f -to landars
who hav* by now accuMilated an *nomcj« aanunt of th.* 1007-
t*m, low-yield not*t which ar* characteristic of guaranteed
atudeat loans.           '.
       The lay establishing our new corporation provides that
Sallie Me wij.1 be governed by a 21-*e»b*r Board rf Directors
appointed by the President.' Seven Directors are drawn froa
she financial cosMunity, seven fro* the world of vducation,
and seven represent the general public. On Dacaster 29, 1972
the President announced the appointment of these 21 Directors
%nd designated M to be Chaioun. At this point, Mr. Chairean,
I should like to offer for inclusion in your hearing record a
copy of the President's announcement, because it. lists the
name, address and business activity of each of the 21 Directors,
       * »m very proud of this Board of Directors, Mr. Chairman,
and pleased to be a part °* its work. Zt has a great range of
talent, experience, dedication, capacity to help ~ and aa
isipressive willingness to work hard. Me are working as a full
Board, and through Committees as well. We hav* had four meetings
.• . -• .- ;. •    ;_   -: / /.. 3 -          -•     , ' -

of the Cull Board, with virtually 100* attendance, the Most         _:
recent Meeting being. June -15. ~our next Meeting is already
set for July 5 and. 6, and anothei* scheduled for July 26 and 27.
       Within a few days of the President's a- nounceoent      —
tKat is, in early January of this year ~ Z visited by telephone
with each of the other Directors, discussed in p«-oeral tenet
the work we had before us, and particularly a<iked each one to
'» think&ng about the people we would need to run this corpora-
   •n for us.   in those calls, we also arranged for the first
formal Meeting of *-he Board, Prior to that Meeting, we sent
each Director a briefing book on Sallie Hae's Job.    This bad
twen put together fog us by an interagency task torce, in the
Months following passage of the 1972 statute that c ated
Bailie Jfee.
       Directors took the oarh of office at the first Board
Meeting in Washington on February 9, 1972.   we addressed our-
selves at that first session to a rauebei of very necessary
organizational chores. We .decided that our first and highest
p>*;orJty was recruiting and electing a Chief Cxecutiv* officer
for the new corporation. To Move ahead with that task we
appointed a fi/s Msahar Executive Search Coasiittee fro* the
Board, consisting of Myselc> Joseph W. Barr, Cassandra M. Bimle,
        T.-



                                 109

                ..- -        _ 4 _ ••   •


 James 3. O'Lmary and Allan W. Purdy. To assist thJs Committee
we retained the services .of on* of the nation's leading execu-
 tive search firms, Bcyden Associates of Mew York.. With nomina-
 tions »ade by Board members-and others* JLn the weeks following
we et      d the qualifications and credentials of approximately
 70 candidates. In dn* course w« reduced this number of highly
qualified people to four, and ultimately redhead it to OR* ~
X>ur unanimous ^chcice,. Mr, Edward A.. Fox -- who was appointed   -
by the Board at our meeting of April 27. I enclose for your
 record. Mr. Chairman, a copy of the release issued on the
occasion of Mr. Fox's appointment. Mi. Fox took office on
May i.4. and at the present tim* is ksmmmj assisted by a head-
quarters staff of 16 people. In addition to Mr. Fox, the
Board has to date elected one other officer, Timothy G. Green*.
ou£ General Counsel. We anticipate che appointment of one or
two key additional officers fairly soon — but in general I
would say it is our intention to function with a fairly small
.staff, retaining che services of outside specialists »s particu-
 lar needs aris*.
        Vow, a word about our general operating policy — our
operating philosophy, if you will. Congress sstablished Salli*
Ma* as a private corporation to be operated for profit, to
                                   »0

         •'-"-'.                T * -                                 - .." '
         '._>-.-• . • • ' - • ' '                -       " ' -.       ^
            V .                          ~. .


'serve/as a secondary market and warehousing facility, to bring
 a measure of liquiditycrelief to tenders in the guaranteed
 atudent loan prognua. Ne intend "to do all these things and
•wepbtXieve we .are already well under way.          I vant •fcoCjmpbaaize
 here, 'Mr. Chairman, that;the Board of Directors views this
• corporation as first and foremoat a financial institution.
Me intend to operate ic as such. He intend to function —
, ~»t on this X detect not a gllsuer of dissent-in the-Board           ~
 as a successful financial institution, one in whose competence
 all participants in the y(*rw»teed student loan program can
liavc full confidence.    Our primary goal is to.be a sound,
 successful financial- institution.     To the extent we do that
 job well, other desirable goals are also served. Chief of
 those other goals, in my view, will be the continuing availa-
bility of loan funds for deserving students who need to borrow.
      . We are viry aware that the timing of our activities is
critical — particularly this suaner. I expect that in a very
 few weeks — somatime in July — we will announce an equity '
 offering-of perhaps 9100 million. Shortly after that —
 hopefully as early as late-August, and probably by mean* of '
warehousing — we think we can offer hard-pressed lenders a
 substantial level of liquidity relief.         I don't want to
                '•'~\--- '-,'• " . ' . - « -
                   "^ ' ^ \           ,
                                                   '             '"-   *
                                                                           " .' •
• speculate now, Mr .^Chairman, -on the probable dollar'level ot               '
. that liquidity relief — because the Board and its Finance
 Committee, along w£th';ot;r President, are all leeply involve* in
 a thorough examination of that very question at the present time.
^      Jfe hope, Mr. Chairman, that information about iheta
 first steps in our program -.- circulated widely through' uanklng .
 and education— will serve, both a? encouragement and -stimulus,
 so' that 'deserving students *bo*neeU -to borrow, will-find lenders,
with the necessary funds for the school year that begins in
September.
       We view_this immediate July-August-September effort as
a sort of Phase I in our program. But we Lave no intention of
 resting oa our oars at the point where i*e have set that first
phase in motion.. Mot by anv means. We intend                a continue
moving with the most skillful blending we e                *ister of energy,
prudence and speed.           Mext January trut*       .nother school semester
                                                                               I

.and with it another wave of borrowing and financing requirement*.
As X indicated, we expect to be active and helpful in time for
the September semester. We want to t« even more active and
more helpful in time for next January's semeitftr. By nt'«t
summer^as we then look toward the following September, we
propose to be more helpful still.
                              112



      'As we see it.   that's vhy we were established.
       There are May *or« things Mt^oald discuss h*x«,
Mr. Chairman.   Th«r« »r* details of our operations *M sdght
•xaiBin* toq«th«r — as, for example, our <mrr«nt activities
with a very prestigious group of underwriters.   However, I
think it might serve your purposes better if Z were to con-
           V


elude ay rnmnnnts at this point so that Mr. Fox and Z might
respond to questions.
                                          113
Vr - • -

   , ^     »X>* IMMEDIATE RKLCASC                   DECEMBER 29.

                       Offlca af tka WklU Haaat



                                 THE WHITE HOUSE


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              New Yark City.

           WiUUm I. (aaacar, af »«• Yark CUy; Pracidant, fir** KMlaotf
              CUy CaraaraUa* «U fir** NMiaaal City »«k. Maw Yark Cily.
           OavU B. Haraar, af CalraU, MUklcaa; Pr««l4aM,
              MMUMl »Mk, Datrall, MUUfM.


           Jalm M. Ikwiar, af ft. P»«l, MiiMMMU, VU« PrtfUtnl »u4
               Traaaitrar. M»««U»*>» CulU^v, •«, !'•»!,
                              114




ft. H*wr4 »r««*«. ut CUrn***. Calltente: Pr****t, Tk* CUramnt

AD»*. W. P«r4r. *f C*taa*U. MU**aii: Director, St»*
                                    l, Cihm*U. MtM
               . *< Aa»tte. Tun*: D*M,
               a M<
    •f T«u« M AaMln.
MervU J . .W. CMk*. *f BArrioftM. Rtefe IiUW; Pr«44ul.

                          , tUw T*rlu Vic* Ckalnoui,
           Mftrtmai. to« Pnp SdMrt, Nw HoeWtU. Mnr Tatk.
CelU O. Ca«-.fk«U, •€ tUM**r. M«v HwipcUr*: Prafa***r W


                                          L«BB U»fk«tl»f AiMcU-
                                    M«U, im. Tkcbtotte


•dMr flaucUl

TlM btorlia k«r>4 •( tXMctor* wltt •rna«« >•' ••
•f CMMOMB aa4 yr«f*rf«4 (Uelu aad Uk«

         cteck •{ tk* A*«vciMi** kM »M» f«rekM*4 ky «*»fitl*»«l
                        r «tk*r OMMUI U<U»jtl«a>, Ik* lMU*r* W
                                                 wUi *U«t
                                                     •< ro
•r* ktafcj •» Mk*r fl«Mrt«l :n»lt»rt*«i will •t*el ••«•§ •*••«».
Tk* PM*U*M wlU •••rtMtkr r*iMUU( MVM DiMCtw*, «*• wOl
k* r*vr*MMMt*> •< tk* fcM»
                                                     115


                                               MAMKCTIWO AMOCIATIOM
                                               •mrc «••




•C tk«'

                                                     eUri«i is •
ter                                            : 4» t» k«r» ,*•!!, ferric* At* otk«n«iM tea to
                                                                     at •* IMS. »• AAV


                                ttn.



            i ky   (to                         vit» Mr


                                 v. r*c«r*
           Mr. Ita, J4, kM WM wick tto                                            If70.


                                                                         >&JM


              burl* Mr*ctac                                                ky


           X* Mfctof OM AWMMMMt, NT.

tt   ffM   Aft kOACMI,   ff|f    kAtikfEOWMl    to

MMM M CkAC M* «M «AC (Alii* AM «ff                         t* A AMUl KATtr *+   M took

to MMktof wick kta.*
                               le

                             A. rax
           nmoa IAM MABurziK ASMOATXCM
                        i, o.c. . •*

      Edvazd A. Fox, -»«» «•• s*i*ct«d ** tbs first President
 of th* Stttdsat Low Jftrfcctiaf Association on April 27. 1973.
      A aativ* of JNw York City, Mr. Fox hss b**o in go*«rn»«nt
 ••nrie* sine* 1»7J. tat «Mn July 1»72 aad bis IMW •ppointamt,
 k* MtT^tf 'ss th* Xatsrik Dixsctoi cJt th« Off ie* of r«d*r*l
 Kewmtt Shariag and h»A tb* responsibility of organising that
 operarioo and preparing for tbs Intttal dUtribatipa of

                     ,               «»»iy»nnt fro* his post
 as Rlroctor of ricanc* of tba Vad«ral ROB* Loaa Baaks «>hsrs
           since UT70;
      Prior (.o joiaiag «h« Board in 1JT7*, Hr. fox w*» Vies
 Praalocat of fcha Mnaaeial terViess sabsidiarjr of Studobaksr-
 Mortbington Cocporatioa with rssponsibi litias in ascot •anags-
 ••at and oorpnrat* finanro. Wm bad pt-«rlpo«l/ bs«n eorpor*t«
 •anagor'oC iBrootvants and an offiosr of yarioas aabsidiariss
 of ths Mobil Oil Corporation.               -
       B* attoadvd diost* School ^^tf ~jr*c*iv*d hjy A.B. d*gr**
. iron coraoll Oaiv*rsity sad his N.B.A. froa Bav York Oniv*r«ity.
 X* has contributed article* to tb* riaancial Analyst Jooraal,
 th* institutional Investor, and tbs r*d*ral Boa* loan Bank
 Board Jouraai.
      B« has b**n a gu*st l*ctor*r at B/rvard, Bsv York University
 and Coloabia Uoivarsity Graduat* Schools of Basincss and for th*
 Aa*rie*n NanagoaMit Association, and has taught classes at
 radaral City Collsg* in Na*hi«gton, O.C.
      Mr. fox i* Married to th* foraor fatricia t*ak* of Croat
 Hack, MvYork. Thsy hav* thros ehildx-oa and liv* in Boefcrill*,
 Hsrjlsad. Bora July 17, 1»3«, in Bsw York City.
                                        117


           tj^U                                     —   —     ~ "             "^*'" "~
2-W»3«*tl« OT/I2/7J
ics ipnmzr CSP
 ?.is«aiJT«o «c« TXn »EV YO.IK
                                              55 Maigramil I
IIP 8»I3




JM STEPHt-1 VEX
                    OFFICE 3LDC




             OiTT AID D5SS VHJCH OMB4TES IH ALL 50 STATE? *17
t; c-ic or THE OLDEST AM HOST Dmasi?i£!> H.ITICIPASTS is THE
              TT'IOEJT LCAII PflOCH^I. IS APPA>JLE9 THAT SZRIO'JS TKU'ir.HT
                                  t, THE
IS 3CI1« 01V£l HOV TO CHAIc.tlt, TH 3'JLES FOR THt>
MICRE)^ LAST S'l?ai£fl HADE HAJfB AGO HtCESSAat CKSt^S It TKi
  1
LA '. TMt FIRTT ^ET OF HEC'Jt 4TI01? TKEIT AEREKATIO OVJSIVi CO
?1 THAT F-JPTKEB COtr.RZSSIOMW. ACT 101 VAS flEEOE.1 TO 1AIL O'Jt
THE KtnOMR, REV SECULATIOIIS WE ISS'IZ) TO 3E EFFECTIVZ .'-ASCH
t ARD TIE VHOLi MtOCSAn IS J'IST BECItlfllC TO TORX ITS '.At ''I
«» t flOaAS.'! OF CWPriM AID EXCESS PAPEiNORK. TO HEACT TO T
Y L"'*iSEO LOAM VPL'CU: ?.Y AHOTMEB CKASK II THE LAV S VI-K5 •i.'FOHl
3C»VL 0?E«D WUL9 I- CIS J'i3r.EKt»T K A HOWWEBTAL nlSTAXI.
OTHERS, tilCL'IDISG "t-'T LC33ta-"; I» THt PaflCRAIl, SHASE THIS VIE1*.

.rP   TUKft RE^'JEST IS THAT COBC«CS5 «OT WV BESPOBD TO TZ
                  ^FicxriE? ar ppsscaisms THE 'HOLE n: -in OF
            "flS ARE PE<j:J£3TI«G. S'ICM A» 'JIVI^E AND
5T£P WILD 3E A «AJW» <!ET3»CK TO fHI1 VERY VOSTHVHILE

  JOH1 C nATHjS PKESI3EJIT 'JHtT;3 ST'C'-ST AID 7'lf^       »*i     THIK3
*VE irv YORK XY

1711 ?ST
                               118



                             SSHMaigramil!
                             iw ovt< «I»M at
lit tOJIO




            CU1MK fiLL, •*
an OL» cc»n «rriec mnunm
              M9I0




SIIOMLT •«*••«• TlMTCMBIKMinOII «T R
TKI immim «r «WM«m mvu^ VMM •r
aimwTD *» TIUT MIT mo, CMHA i, JULE «. KCOK
HCOMBI M, l»«, ftOMtf MCMMO. THIS IS THE Ml KM.ISTIC
JM LMICM. •FfHtra T» amtm umim n CMC nm sijcc..
MSSME «r TNI «nin«L n«n tMBAHM «er sr IMB. rama,
AT TUS UTC MR »« CHIHC <S> tiMM SntKSLT tMKKAI*
crrarr IM it»-».
 MHU H MOSS. •inCTM ff STWCM *I» CUTCWI MIVOSITT
CUNtM MWH OieLIM tfOj
OKI BT
                            119




   ira*


                          J«ly 17.


A* •oaorabl* ClaabonM **U
JW Old taut* Of fie*
KMhiBftoa. A. C.


to plneter of ta* Delaware U«tor nWr»Mnr LMB rrefna, X
«o*M 019* yo« to b* »«ry taattant i» tibipfiag tk«
for ~th* peefriB for S^t«tor of 1«73.~    ~                           .._ t :j
to yo> know, «• had
la l*w» and
imm. If72.
1b* ^^lll^^ IB Deliver* lypra fe«^i «»ry po-op«rativ« la
with tte fttyum and Mskiaf f«nd» avallabU, anytbiag 4oo> at
     UIM to •••it cteir rraoadMn viffct b« dlsactrow.
It !• «r p*noMl f—lirt that th« •cofra* •bovld continao
this Mbool yaar a>d if yoa ax* foiaf to »ak« «ny chan***. consider
     for tta •priay of 1*74.
                                     tr»ly year*.



                                Dlraetor, Oclawar* Ki«h*c Education

BJP/b
                                      120



N0USKA, WSH
l-034ZCCCtOOOI? 07/19/73
ICS IMfcRRA RCK
  CJOI7 ft* RICHMOND VA 290 07-«> 542P CDt




a NAT OH CLAIBORNE PELL
125 OLD SENATE OFFICE BLDS
           DC t05JO




       A mows*. zs BEING MADE TO TKC HOUSE SPECIAL s-Jicanr.intz
 ON EDUCATION THAT HEARINGS BE *ELD WITH A WEV TO P*I«G
CHAISES !• SEC. 42SCA) OF THE WOKE* COUCATIOV ACT OF t»45,
«s /tfiewdco ttiyrz. —      _.,,-.....-
       THIS AOCKV «W5T10«S THE VISMK OF C!(A»Ct»5 THIS UV ACAIV
AT ?«stirr. 111 jutr 1*72 THE METHOD FOR reTE*n«i»a IBTEKST
KtfriTS 0* OilMAMTECO *TU9EKT LOAW VAS CHAKiJEO, AUS tEOULATIa
  VEJK ISSUED THAT fR^VCA UWOMABLC. 01 A'JOUST l», J»72,
THE EfftCTIWE 9ATZ 0^ THE KK METHOD V« OEFEWEO TO KMCH
i, l»7i. ON TKIk fjATE, ftE-MUTTED »UUS VEKC ISSUED WHICH
THIS AfiCflCr BELIEVES *RE EOUITABU AK9 VOMCAfiLC IF BOTH SCKOP.
  FIIAKIM. AID OFFICWS AM LERDERS CAJUr OUT THEI» RtStfCTIVE

    TO KAtt AOOTKE* CHAJIQE TH.'J yEAH MOULD flEM THAT, FOR THE
SECOW) TIME, A CHAIOE HAD COME AIOUT III THE BIDOU OF THE
•USr SEA50« FOX STUDENT LOWS, HEMIIIUV3 A COMMUTE KCVEBAC.
OF DIICCTIO* 0» THE **« OF BOTH 1EIBERS AK) SCKOOU. HE TKtIK
  THAT SUCH ACTION WOUCO BE fORE KAMriFUL THAN HELPFUL TO THE
LOAN .nUMfUK NATIONWIDE AT THE MCSENT TIKE. THE. ' M«6 BEEN *
EDUCTION IN LOAN Ml IfflE F'JI THE RONTKS OF HMCH THRU JUNE
I»7J, SUT VIICUIA LENDERS HAVE INDICA1ED COKTINVED SUPPORT
 OF THE ntOCR*! TO THE EXTENT THAT GENERAL CONDITIONS IN THE
KQCCr MARKET W»LL «J»IT. THESE CONDITIONS, WE THINK. VBJ. 80ICRN
  VTUDCNI LOAN VOLUTE TO A MOCK 6REXTER DESREE THAN WILL SEC. 4l»CA>,
  ' KHU AClNCr, THEREFORE, RECOfKENDS THAT NO CKAN<X BE
AT rHEScKT IN THE LAV OR REGULATIONS
   STATE EDUCATION ASSISTANCt AUTHORITY
CHARLES V HILL EXffC'IIVE DIRECTOR


2139    ESI

K3MCHA VSH
                           121        ;•-->
      '••   ,                    -      Ct
Senator HATHAWAT. IlMAk you very mocfa. I un aony to have to
             RdatoyoaftMtiiDOiiy.
              adjonrn subMmnt to adl of the Chair.