are permitted to make in connection with such loans. This bank has been making student loans to our customers for the past two years. The 6% rate that we are permitted to charge is becoming increasingly inadequate in comparison with the rates other types of borrowers are willing to pay. We desire to continue to make student loans because we are interested in assisting the people of this community who need financing to provide an adequate education for their children. We respectfully request that your committee on education would find it advantageous to borrowers and lenders alike, to recommend to the Senate legis lation to permit either an increased interest rate on this type of loan or a fee in some amount that might be charged by the lender to give a more adequate return. Very truly yours, GEORGE H. MORTON, Vice President and Trust Officer. STILLMAN VALLEY NATIONAL BANK, SENATOR WAYNE MORSE, Chairman, Old Senate Office Building, Washington, D.C. DEAR SENATOR MORSE: I am writing to you in regard to the Student Loan program. Our bank is participating in the program under the Illinois Guaranteed Loan Program. We have completed over two years of making student loans and presently have over sixty student loans totaling over $60,000. Our only problem concerning the loans is a simple one. Under existing money market costs, we are fighting a losing battle and cannot come close to break-even basis in processing the Students Loans We feel the Student Loan program is an excellent program, and we certainly realize the importance of higher education for our youth of today. We have run numerous cost studies in processing the loans and have definitely found them to be a losing proposition. We feel a loan service fee to a maximum of $35.00 per year per borrower would at least defray our actual costs and place the loans on a break-even basis. We now have several loans which are being repaid. The split interest billing 3% to be paid by the student and 3% by the government poses many accounting problems. I feel this method is complex and poses complicated accounting methods. This again has cost us additional man hours, etc., when the loans are being repaid. I have talked to bankers all over the state of Illinois and everyone is having problems under the present method. I strongly favor having the student pay the entire 6% on the loan once he graduated or ceases to be a full time student. Unless we can receive a loan service fee to put the loan on a break-even basis we plan to greatly restrict our participation in the program and in many cases discontinue it completely. We find it difficult to comprehend how we are supposed to invest money at 60% simple interest in Student Loans, which involves complicated accounting methods and processing costs, and a finanical loss on each application to our institution. We can purchase United States Government Bonds on a comparable yield and all we have to do is clip coupons. Very truly yours, JAMES M. SWANSON, Cashier. BANK OF STRONGHURST, ILL., Hon. WAYNE MORSE, Chairman, Subcommittee on Education, Old Senate Office Building, Washington, D.C. Hon. WAYNE MORSE: Our Bank entered into the College Student Loans with the Illinois Guaranteed Loan Program of Deerfield, Illinois in July of 1966 to make it permissable for High School Graduates of our Banking area to continue with a College Education. We feel this program is worth our time and also is helping in making a great contribution to our nation to help our young people have this opportunity to become better citizens and living standards in the future. However, the program at present only permits the banks to charge a simple interest rate of 6% on these loans and we all realize that at the present rate of interest paid by other type of investments that this rate is a losing operation to the lender. A processing fee allowed for each application processed would make the program more attractive for other banks to participate in making this type of loan. To help to reduce accounting problems the split interest billing during the repayment period could be eliminated by several alternatives: 1. have student pay entire 6%; 2. have U.S.O.E. pay entire 6%; or, 3. have student pay entire 6% during the repayment period and be eligible for a refund of 50% of interest paid from the U.S.O.E. when repayment is completed. In regard to a placement and conversion fee of $35 for each loan processed we believe the lenders would continue to participate in helping all students in the future. Sincerely, WAYNE LITTLE, Cashier. TALMAN FEDERAL SAVINGS & February 12, 1968. Hon. WAYNE MORSE, Old Senate Office Building, Washington, D.C. SIR: To simplify the processing operation of student loans under the guaranteed loan program, and reduce the cost of executing each loan, we are recommending for your consideration the following amendments: 1. Have student pay entire 6% interest charge. 2. Allow a placement fee to the finanicial institution so that student loans are not a losing operation to the lender. Our accounting department is encountering difficulty and delay in preparing the quarterly statements for the Government. Since the student-borrower doesn't always adhere to the repayment schedule, each payment must be processed individually. The result is a time consuming computation. We believe that if the student were required to pay his own interest changes and permitted to pay any amount in excess of the required payment, he would be inclined to mature the loan at an earlier date. The time involved in processing these loans and the delay in receiving the interest allowance adds to the operating cost of the loan. For example, the Government pays interest three months in arrears. Since the check for a three-month period isn't received until the fourth month, interest is actually four months in arrears. We urge the passing of amendments which will make the operating procedures less cumbersome and student loans more rewarding at the lender's level. The benefits will accure to all. ANN BELENCAK, Assistant Vice President. THE TEXARKANA NATIONAL BANK, DEAR SENATOR MORSE: We would sincerely appreciate your support in effecting legislation raising the interest rate on Guaranteed Student Loans to a profitable level as well as limiting the availability to students who could not otherwise complete their education, without unnecessary hardships. At present, we have $75.855.00 outstanding in student loans, but must limit them to our presently established customers due to the high demand. It seems evident that raising the interest rate or adding a reasonable handling fee would make these loans less attractive to individuals to whom they are not a necessity, as well as encouraging a more liberal policy by lending institutions. We welcome your views on this subject. Sincerely, J. W. McLECKIE, Installment Loan Department. Hon. WAYNE MORSE, UNITED STATES SAVINGS & LOAN LEAGUE, Chairman, Subcommittee on Education, Committee on Labor and Public Welfare, 4226 New Senate Office Building, Washington, D.C. DEAR SENATOR MORSE: The United States Savings and Loan League fully endorses the provision of S. 3098 that would empower federal savings and loan associations to make student loans for the payment of vocational education expenses. The League represents over 97% of the total savings and loan assets in the nation. Since 1964, federally-chartered savings and loan associations have been authorized to make student loans to cover college and university expenses. Increas ingly, savings and loan associations have been allocating some of their funds to making loans to college and university students. Many of these loans are guaranteed or insured by the Federal Government or the various State governments in conformity with the loan guaranty provisions of the Higher Education Act of 1965. Though federal savings and loan associations have the authority to make loans to cover college or university education expenses under section 5(c) of the Home Owners' Loan Act of 1933, as amended, (12 U.S.C. § 1464 (c)) there is no mention of student loans for vocational expense purposes. Many of the families which our members serve have students who attend or plan to attend so-called vocational. business and professional schools. These students deserve an opportunity to bor row from as many sources as possible, including federal savings and loan associa tions. Section 429 of your bill, S. 3098, would change 5(c) of the Home Owners' Loan Act to clearly authorize federal associations to make loans for vocational school expenses. Under both the Higher Education Act of 1965 and the National Vocational Student Loan Insurance Act of 1965, savings and loan associations are eligible for loan guarantees. But until 5(c) of the Home Owners' Loan Act is amended to empower federally-chartered associations to make loans for vocational expenses, these over 2,000 associations cannot make use of the vocational student loan insurance provisions. In supporting the enactment of section 429 of the Higher Education Amend ments of 1968, we are assuming that the addition of the word "vocational" refers to business, professional and other vocational type schools not usually considered colleges or universities, but which nevertheless serve a very important function in our society. Should there be any question as to the meaning of the word "vocational," we suggest the following substitute for section 429: "Subsection (c) of section 5 of the Home Owners' Loan Act of 1933, as amended, is further amended by striking out 'expenses for college or university educa tion' and inserting in lieu thereof 'expenses of college, university, business. professional or vocational education.'" In summary, we fully back the provision of the Higher Education Amendments of 1968 which would empower federally-chartered savings and loan associations to make vocational education loans. As an alternative, should there be any doubt as to the meaning of the word "vocational," we offer the above substitute to make it clear that loans for business and professional school expenses could also be made. Sincerely, STEPHEN SLIPHER, Legislative Director. PUBLIC, PRIVATE, AND MISCELLANEOUS Hon. WAYNE MORSE, DEAR SENATOR MORSE: I understand that your Subcommittee on Higher Education is presently considering reporting out S. 3098 dealing with higher education. On behalf of the International Ladies' Garment Workers' Union, I would like to urge that the bill include a section which would permit Unions, so desiring, to invest funds in the loan program on the same basis that savings and loan institutions and credit unions may participate. Our union has always been deeply concerned with making sure that all American children shall have the opportunity to secure the best education for which they are qualified. Many of these youngsters, particularly the children of working men and women, often find it difficult to go on to receive college educations because of the financial inability of their families to provide such opportunities. I hope you will give our request your strongest consideration. I look forward to hearing from you that the bill will include the right of Unions to cooperate in this vast and important program. My warm regards to you. Respectfully yours, LOUIS STULBERG, President. Hon. WAYNE MORSE, Education Subcommittee, Washington, D.C. NATIONAL CONFERENCE OF EXECUTIVES DEAR SENATOR MORSE: Only elected officials and those who work closely with these officials are aware of the decisions which one must make in order to properly legislate the implementation and continued support of worthwhile programs. I know my letter of May 5 and the reply directed to you on May 24, 1967 by Mr. Albert L. Alford, Assistant Commissioner for Legislation, poses serious problems for you and the Congress. The problem which you now face has been confronted by state loan directors and the Office of Education alike and revolves around the question of whether student loan funds will be supplied through state agencies acting as the guarantor or through a nationwide federal insurance loan program. I think that the failure of Congress to appropriate additional reserve funds will result in this chain of events: 1. Certain states, such as Pennsylvania, New York, Illinois, and New Jersey will provide sufficient reserve funds for the 1967-68 school year while other states such as North Dakota, Utah, Wyoming, Colorado, and possibly California will not provide sufficient funds and the direct federal insurance program will become operational. 2. In subsequent years those states which have provided the reserve funds and administrative costs will divert their monies to other services and the federal grovernment will be required to implement the federal direct insurance program in all or most of the states. (Incidentally, once the federal program is implemented there is no provision within the law to require or provide steps for it to be withdrawn from a particular state.) 3. Federal costs will continue to rise as the United States Treasury is charged with all the defaults and as the Office of Education is required to implement this huge program in most of the states. The problem of dealing with some 25,000 lenders, thousands of institutions of higher learning, and millions of student accounts will require extensive administrative appropriations by the Congress. It occurs to me that the two primary sources of funds for financial aid to students are the treasuries of the individual states and the United States Treasury. To allow a program to develop which will disregard the state source of funds is probably convenient momentarily, but certainly does not incorporate long range planning of any type. I think a review of the development in Pennsylvania is indicative of what one could expect in many states if the seeds are properly planted. From a guaranty fund of $475,000 which was established in 1963 under the student loan guaranty law, we now offer for 1967-68 the following: 1. Loan guaranty capacity more than sufficient to meet our needs. 2. An expressed willingness on the part of the legislative leadership to grant direct loans if required. 3. A scholarship program initiated January 25, 1966 which will have some 40.000 recipients receiving more than $31 million during the 1967-68 academic year. 4. The General Assembly providing in excess of $2 million to provide National Defense Loan Program matching for Pennsylvania colleges and Educational Opportunity Grant matching for Pennsylvania student recipients. I am afraid, Senator Morse, that the problem is yours as to which way student aid will go. I for one, and I assure you I am joined by many educators, hope that your efforts will be to strengthen the state guaranty loan programs so that more flexibility is experienced in the area of securing adequate funds. I would simply refer your thoughts to the National Defense Student Loan Program and the problems incurred in federal funding during the last two years. Let's not have all our eggs in one basket five years hence. I think the balance of Commissioner Alford's letter revolved around the basic decision of which way the state and federal programs will go. With kindest personal regards, I remain, Sincerely yours, KENNETH R. REEHER, Chairman, NCEHELP and Executive Director, PHEAA. NATIONAL CONFERENCE OF EXECUTIVES Hon. RALPH YARBOROUGH, Subcommittee on Education, DEAR SENATOR YARBOROUGH: During my testimony on March 13, 1968, concerning amendments to the Higher Education Act of 1965, you asked for my reaction to a proposal which would make the institutions of higher learning lenders with the federal government issue a certificate of insurance to the college so that these certificates could be sold in bulk to the commercial lenders. Accordingly, I would set forth the following: 1. The problem of financing the administrative work of the student guaranty loan program would not be resolved, but rather simply transferred from the lending institution to the educational institution. 2. Inasmuch as the average college student does not finance all of his costs through tuition and fees, it is natural for the institution to seek alumni gifts from its graduates once they are a bona fide wage earner. The collection of student loans following graduation negates all of the college's efforts in gift drives. 3. The financial aid officer or some designated official at the college would, in effect, be required to act as bond counsel in liquidating these student notes. 4. It would be difficult to project the repayment of the loans which had been purchased by the lender. The fact that students spread out their amortization of their loan would make it difficult for the college or federal government to repurchase the loan following graduation so that it might be put on a repayment schedule. 5. The question still prevails with the new prime interest rate as to whether or not lenders would be interested in a long term, low yield note of this type even if purchased in bulk. 6. In many cases the geographic location and economic condition of the locality in which some of our large universities are situated would make liquidation of the notes difficult for the colleges. 7. What provision would be made to provide the actual cash whenever a college was not able to refinance all or part of the federal certificates of insurance? 8. How would the college finance the work load involved if they found it necessary to deal with several lenders in order to refinance the federal certificates of insurance? I think my overall opinion of the proposal is that it is not workable on a practical basis nor is it philosophically sound. If at all possible, students should borrow from existing lenders since so often their indebtedness needs to be consolidated following graduation. These students usually marry and must enter the credit world in order to maintain their required standard of living. I think the key to the whole program is improved earnings for the lenders. I have enclosed a copy of an opinion concerning interest rates rendered by counsel to the Pennsyl vania agency. It clearly points up the competition for funds which the state |