So I predict, Mr. Chairman, that one other step ought to be taken by this Subcommittee; and, that is, to carefully monitor the new direct lending program that was enacted without any legislative committee recommending its enactment, but enacted purely as a part of a reconciliation process where no amendments could be offered, not much debate could be conducted, and I hope that it turns out better than I expect it to.

But let me again thank the Chairman for his conduct of this inquiry. I am confident that the information that is obtained and the facts that are brought out will help us to make reforms, make changes that will further improve the administration of this important program. It is very important in my State of Mississippi. There are some colleges and universities where virtually all the students are there on Pell Grants, and were it not for the Pell Grant program, many of those colleges and postsecondary institutions would not have any way to exist. So it is extremely important that we ensure that this program works as intended and I am happy to be here and to welcome our distinguished colleague.

Chairman NUNN. Thank you, Senator Cochran. I would share your concern about the direct lending program and I pointed that out in speeches and comments to a number of people last year and earlier this year when we were talking about it. The concept is one thing; the implementation is another. We deal in concepts in the Congress and people in the Executive Branch have to implement. The Department of Education has got a long, long way to go to be able to have the kind of trained people needed to carry out existing programs, let alone new programs. So the implementation side of that has a lot of questions to it and I think it does have to be watched very carefully. So we will join others in doing that.

Our first witness this morning is the Honorable Claiborne Pell, the senior Senator from Rhode Island, whose name this worthy program bears. In addition, Senator Pell is chairman of the Authorizing Committee for this program, the Subcommittee on Education, Arts and Humanities. Senator Pell has worked long and hard during his career to help the underprivileged obtain the access they need to higher education. Through this basic educational grant program, literally millions of Americans have benefited.

Senator Pell, we are happy to have you with us this morning and look forward to your thoughts on this investigation of this program, and I know of all the people in the Congress, you more than anyone, want to make sure that these funds are properly used. So we welcome you here this morning.

Senator PELL. Thank you very much indeed, Senator Nunn, dear colleagues.

Chairman NUNN. Senator Pell, we swear in all of the witnesses before the Subcommittee. It is just the normal procedure here. Do you swear the testimony you will give before the Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

Senator PELL. I do.

TESTIMONY OF HON. CLAIBORNE PELL, U.S. SENATOR FROM THE STATE OF RHODE ISLAND

Senator PELL. I think that I as much as anyone wants to see that this program has a good reputation with no cheating or abuse. I would point out in connection with the previous remarks that some of us, and I was one, opposed the idea of direct lending in part because we were concerned about the potential for abuse.

In addition, we must take into account that for 8 years the policy of a prior Administration was to wipe out the Department of Education. As a result the vigor and the determination that we would like to see in that Department was lacking. Unfortunately, I think that the effect of that misguided policy is still present.

Like your previous hearings on abuses in the student loan program, I share your thoughts about the importance of these hearings, which I hope will prove very successful. As you know, we took your recommendations to strengthen the loan program seriously. Most of those recommendations made their way into the reauthorization bill last year. There were also areas where we went beyond your recommendations and made the new law even tougher, as in the area of State licensing and review.

We have a record of our working together and I know that we will continue to do so, and I want to emphasize how glad I am that you are doing this, because no one wants to ensure that this program has a good reputation more than I do. Thus, I am glad you are focusing on the fraudulent activities of these New York schools in which, I think, exists the concentration of malfeasance.

As you begin, I believe it is crucial to place these hearings in their proper context. The Pell Grant program is at the base of all Federal student aid programs. Since it began over 20 years ago, there have been more than 55 million awards, totally $64 billion in Pell Grants to help pay for postsecondary education. I would just repeat, 55 million separate awards going to young Americans and sometimes to older Americans seeking more education. Of this amount, I understand that less than one-half of 1 percent is in question. That is the same proportion of population as my State of Rhode Island is to the United States as a whole-half of 1 percent. Chairman NUNN. Senator Pell, we are not sure of that number. I would like to get your analysis of where that comes from because the more we get into it, the more we do not know how much is involved here.

Senator PELL. I will submit something for the record on that. Last year, some 4.4 million students received Pell grants. The maximum award was $2,300; the average award was $1,400. Over the years, the Pell Grant program has literally changed people's lives. I urge your indulgence while I read into the record a letter from Mrs. Terry Maniker in Anchorage, Alaska. Her story is similar to so many others that is why I am reading it. It tells the story.

I should have written this letter a long time ago. I am writing because of the abuses to the Pell grants.

Almost 15 years ago I divorced my abusive husband. I had no money, no high school diploma, did not know how to drive a vehicle. No skills. No education. And a nursing infant.

To say I was desperate is an understatement.

Today I am a very successful attorney, remarried, with homes in California and Alaska. The Pell Grant program, which you initiated in Congress,

made my current lifestyle possible. I have never forgotten the role that the Pell grant I received played in my life. I attended the University of Wisconsin and graduated Phi Beta Kappa with two majors and two minors. Your grant, and the four jobs I worked simultaneously, made it possible for me to stay off welfare and become a productive, contributing member of society. I donate approximately $10,000.00 worth of free legal services every year working with prison inmates and community groups. I was a State prosecutor and now own my private practice.

You are remembered in my prayers. Sir, the Pell grants do work.

With deepest personal and professional respect, Attorney Terry Maniker (Mrs. David Tucker).

I asked your indulgence to read Ms. Maniker's letter into the record because it tells such a story in itself. There are thousands more stories like that one. It is important, therefore, that these hearings improve and strengthen this program and not tear it down, so that we can continue to help people like Terry Maniker. But what have we already done to curb abuse? In the early 1980s, we focused on efforts to recover money from those who did not repay their loans. We required that loan defaulters be reported to credit agencies. Today, failure to repay their loans means defaulted borrowers cannot get a credit card or borrow money to buy a car. And if a person does not have a credit card and cannot get one, it is unlikely that he has the money to repay the loan. Thus, this is a self-enforcing element.

Second, we also put into place and made permanent, the requirement that the tax refunds of defaulters be withheld. This provision caused a storm of protest from deadbeats who had not repaid their loans. It has also resulted in the recovery of an estimated $2 billion in defaulted loans.

And third, since 1986 we have had in a Federal law the requirement that students had to maintain a "C" average in order to be eligible for Federal aid. The student also must be working toward a degree or certificate, and not just taking a course because of personal interest.

Fourth, in 1990, after several attempts, we enacted important default prevention legislation. This year schools with default rates above 25 percent for the past 3 years will be dropped from the program. Personally, I would like to see the maximum default rate set at 10 percent or 15 percent, but we are not able to enact so tight a standard. In this regard, we are torn because there are those who say that historically black colleges should not have to conform to this requirement. In this, I think, they probably should conform to it.

Fifth, when we re-authorized the Higher Education Act last year, we enacted sweeping changes in the process of accreditation, Federal eligibility and certification, and State licensing. Schools with high default rates; low completion and placement rates; no tuition refund policies; promise an education they do not deliver; and that have shady finances and business practices should be-and are being-kicked out of the program. But whatever we do and whatever we require, the Department must be diligent in its enforcement of the law.

At the default hearings the Education Subcommittee held in 1987, we found that annual institutional program reviews by the Department of Education had dropped by two-thirds, from 1,200 a year to 400. In other words, the policeman had been taken off the

beat. Today, the Department of Education, under the able leadership of Secretary Riley, is intensifying the efforts begun under Secretary Alexander to reverse the downward spiral in program review and administration.

Secretary Riley clearly understands that public confidence in student aid programs depends upon its confidence in the Department's ability to administer those programs, root out abuse, and punish those who would cheat or defraud the Government. And we must also remember that the Department, in spite of those of us who oppose the idea of direct student loans, will have to carry that load of administration as well in the coming period.

Mr. Chairman, as I said in the beginning, I am glad of these hearings. I welcome these hearings and I stand ready to continue working with you to ensure that our student aid programs are sound. In this regard, we face a twin objective: one, to make sure that students who receive aid are deserving of that aid and take their responsibility seriously; and two, to make equally sure that the schools who benefit from Federal aid are on the up-and-up and provide a quality education.

My one hope and prayer is that, as they say, we do not throw out the baby with the bath water.

PREPARED STATEMENT OF SENATOR PELL

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to appear before you today. I applaud your continued concern over abuses in federal student aid programs and I stand ready to work with you to develop any necessary changes to current law.

Let me make clear from the outset that I consider these hearings very important. Like your previous hearings on abuses in the student loan program, I anticipate that your work on Pell Grants will produce very helpful information to help us strengthen that program.

Our subcommittees have worked closely together in the past. We took your recommendations to strengthen the loan program very seriously. Most of those recommendations made their way into our reauthorization bill last year. There were also areas where we went beyond your recommendations, and made the new law even tougher.

We have a record of working together and forging a partnership to strengthen our student aid programs, and I know that we will continue to do so.

I also believe it is critical to place these hearings in their proper context. The Pell Grant Program is the foundation of all federal student aid programs. Since it began over twenty years ago, there have been almost 56 million awards totaling $64 billion in Pell Grants to help pay for postsecondary education. Of this amount, I understand that one-half of one percent is in question.

Last year, some 4.4 million students received Pell Grants. The maximum award was $2,300; the average award was $1,452.

Over the years, the Pell Grant program has literally changed people's lives. The letter I have with me is one such example. It comes from Ms. Terry Maniker who, prompted by early press reports of these hearings, wrote me about the difference that a Pell Grant made in her life. A young mother, in an abusive relationship, she used her Pell Grant to complete her education and build a new life. Today she is happily remarried and living in Anchorage, Alaska, where she has her own law practice. A former prosecutor, she now donates $10,000 worth of legal time each year to helping prison inmates and community groups.

There are thousands of stories just like the one I have cited. It is important, therefore, that we use these hearings not to tear the program down, but to build it so that it will continue to help people like Terry Maniker.

A decade ago the average student aid package was 75% grants and 25% loans. Today it is almost the opposite. The result is that more students must borrow more money to pay for a college education. It is not unusual for a student to complete undergraduate work some $25,000 to $30,000 in debt. A student who completes medical school is often $80,000 to $100,000 in debt.

Let us make no mistake-saddling students with such significant debt has very severe, negative consequences. One of these is higher default rates, a terrible problem we have been wresting with for more, than a decade.

In the early 1980s, we focused on efforts to recover money from those who did not repay their loans. We required that loan defaulters be reported to credit agencies so that failure to repay their loans meant they could not get a credit card or borrow money to buy a car.

We also put into place and made permanent the requirement that the tax refunds of defaulters be withheld. This provision caused a storm of protest from deadbeats who had not repaid their loans. It has also resulted in the recovery of an estimated $2 billion in defaulted loans.

Since 1986 we have had in a federal law the requirement that only students who maintained at least a “C” average or its equivalent be permitted to continue receiving federal student aid. We also require that the student must be working towards a degree or certificate, and not just taking a course because of personal interest.

In 1987, in response to growing student default rates, the Senate adopted an amendment to cut off school participation in the loan program if the institution had a default rate in excess of 25%. After passing the Senate several times, the legislation was finally enacted three years ago. This year, schools with default rates above 25% for the past three years will be dropped from the program.

But whatever we do and whatever we require, the Department must be diligent in its enforcement of the law. At the default hearings the Education Subcommittee held in 1987, we found that annual institutional program reviews by the Department of Education had dropped by 75%, from 1200 a year to 400. In other words, the policeman had been taken off the beat. And I believe we all know what happens when that occurs.

Following those hearings, we developed even more comprehensive legislation to curb default problems. With the cooperation of former Secretaries Cavazos and Alexander, many of these reforms were implemented through federal regulations. The problem, however, remained that the Department had so severely cut back personnel that unless a problem bubbled to the surface, it often went unnoticed and uncovered.

When we reauthorized the Higher Education Act last year, we had the benefit not only of your hearings but also of a series of our own. As a result, we enacted numerous program reforms that are just now being implemented. Included in the new law are provisions that:

-require that short-term programs maintain at least a 70 percent completion and a 70 percent placement rate to participate in federal student aid programs;

-ban from student aid programs for-profit schools that derive more than 85 percent of their total revenues from such programs;

-require that schools have in effect a fair and equitable pro rata refund policy; and

-bar schools from using paid recruiters to attract students.

The 1992 amendments also strengthen the three legs of the "triad," which consists of state oversight and licensing, accreditation by a separate and independent accrediting body, and institutional eligibility and certification by the Department of Education.

The law now contains a list of "triggers," and a school that trips any one of these "triggers" must undergo rigorous state review. To assist states in performing these mandated reviews, we provided $5 million last year and an additional $21 million for this fiscal year. Under the 1993 budget bill, states that fail to take this mandate seriously will end up owing the federal government a share of the default costs for schools that exceed a 20% cohort default rate. I am advised that some of the schools that you are investigating would indeed "trigger" such a review under the new law. Still others would be identified as a result of the mandatory re-certification review required by the 1992 Amendments.

I am very pleased that today, the Department of Education, under the exceptionally able leadership of Secretary Riley, is intensifying the effort begun under Secretary Alexander to reverse the downward spiral in program review and administration. Secretary Riley clearly understands that public confidence in our student aid programs depends, in large measure, upon their confidence in the Department's ability to administer those programs, to root out abuse, and to punish those who would cheat or defraud the government.

Mr. Chairman, as I said at the beginning, I welcome these hearings and stand ready to continuing to work with you to see that all of our student aid programs are sound. In this regard, we face a twin objective: one to make sure that students who receive aid are deserving of that aid and take their responsibilities seriously,