TABLE II.-NATIONAL DIRECT STUDENT LOAN PROGRAM-FISCAL YEARS 1974 AND 1975 FUNDING

Dr. PHILLIPS. At this point, Mr. Chairman, I will be pleased to answer questions from members of the subcommittee. I might also refer you to the tables and suggest that if you have any questions about the data set forth there, I would be happy to try to unravel them for you.

Mr. O'HARA. Thank you, Dr. Phillips. If you will refer to the bottoms of page 17, you indicate $102 million is the principal amount in payment due status and $90 million is payment overdue by 120 days or more. Is that it?

Dr. PHILLIPS. Yes.

Mr. O'HARA. Is that the difference between the $90 and $102?

Ms. HOPSON. Yes.

Dr. PHILLIPS. That is right; as we mentioned earlier, the $12 million is the amount that is past due on loans that have been in past due status for less than 120 days.

Mr. O'HARA. Right.

Mr. Brademas, would you like to ask some questions?

Mr. BRADEMAS. Thank you, Mr. Chairman.

Thank you very much, Dr. Phillips, for what I think is a most useful summary of the history and operation of the NDSL program and, from my point of view as a longtime champion of the program, a most encouraging one. Indeed, as one who is very interested in building bridges around this town these days. I am going to send a note over to Secretary Weinberger asking him to get acquainted with Mr. Ash to let him know how enthusiastic the Department of HEW is about the operation of this program. I ask unanimous consent to include the editorial in the record. I take it you have read the editorial? [The editorial referred to follows:]

[From the New York Times, May 28, 1974]

THE STUDENT AID HOAX

The inflationary rise in college tuition is a direct threat to higher education for students from poor as well as middle-income homes. In the public and the private sector, costs to the student are mounting astronomically. Yet the Federal Government seems determined to accelerate the inflationary trend.

Three years ago the Carnegie Commission on Higher Education recommended a formula to aid students and institutions simultaneously. Modeled on the concept of a guaranteed annual income, it would automatically entitle to scholarship aid any college-age student whose parents' income is below a set minimum. At the same time, every college would receive a cost-of-education grant for each federally subsidized student.

The Nixon Administration subsequently incorporated this sensible plan in its 1972 higher education aid package. Although approved by Congress, the program has never been fully funded.

Now the administration has asked for the full funding of the Basic Opportunity Grants (B.O.G.) at a level of $1.3 billion, while not only scuttling other important grants and loans, but without making any provision for cost-of-education grants to institutions-a fatal defect.

The plan to link aid to the students and to institutions is a tandem that cannot run successfully on one wheel. Aid to students does nothing to solve the institutions' budget problems. The colleges' only alternative then will be to raise tuition, thus wiping out the gains promised to the students.

What makes the Administration's piecemeal approach to the problem particularly deplorable is that fact that the original prescription had been so sensible and so easy to implement. The elimination of institutional aid turns a constructive proposal into a cruel hoax. The effect will be a mirage of new student aid that will evaporate into the thin air of inflation, while the colleges' economic foundations crumble.

Dr. PHILLIPS. I have not.

Mr. BRADEMAS. Let me quote a couple of points. One is more directly related to our purpose this morning than is the other.

It is a very sharp attack on the administration for its failure to provide for any cost of education grants to institutions while at the same time asking for full funding at a level of $1.3 billion of the BOG program and I would share in that criticism. That may well be a matter to which we may want to address ourselves at some point this morning, but the other point made in this editorial, Mr. Chairman, is to use the language of the Times, that the administration is proposing to scuttle-to use its verb-other important grants and loans.

I think it is significant, perhaps, Mr. Chairman, that in this testimony of Dr. Phillips, in which, on page 12, he remarked that the analysis of the 1970 operation reports indicates that the NSDL program is achieving its goal of helping needy students meet the costs of postsecondary education, that there is no indication the administration is proposing to kill this program.

Do you have a comment on that observation?

Dr. PHILLIPS. I think, Mr. Brademas, our purpose at this point was to offer a summary of the background information about the program, its history, operations, and formal evaluations that have been done on it, and not to talk at this point about the trade-offs or policy choice that have to be made in order to reconcile all student aid programs with budget limitations.

Our hope was to provide you with a basis of discussion for this committee and not to get into those policy issues at this time.

Mr. O'HARA. Will the gentleman yield?

Mr. BRADEMAS. Yes.

Mr. O'HARA. Those were the ground rules under which they were asked to testify.

Mr. BRADEMAS. I appreciate that and don't want to get at odds with my chairman. I was not a signatory to the treaty; therefore I don't feel altogether bound by it.

Mr. O'HARA. If you will yield further for a moment, we have encouraged the Office of Education and the Commissioner to not come up with policy recommendations at the beginning of this subcommittee's work on reviewing title IV, but rather to explore the operation and ramifications of title IV with us and then, when we have completed that work, to sit down with us and see if we can reach some agreement. Mr. BRADEMAS. In that event, Mr. Chaiman, I will simply make a further observation on the point I was making, not ask the witness to comment, and then I have two other questions I would like to put to the witness, if I may, simply, so that, as we so rarely meet, Dr. Phillips and I don't want this opportuntiy to go by—I would point out that in your own, as I reiterate, very valuable testimony, you have noted how this program is achieving its goal and on page 11, to quote you, you say, "The demand for the program has increased steadily throughout its history," and on page 12 you say, "An estimated total number of 752,900 participants are in the program during 1973-74, 91 percent of whom are undergraduates."

And then you understand why, if we are doing so splendidly in this program, why people like me get nervous when efforts are made to say "Goodbye, students; go off to that nice 12 percent private market."

Now, Mr. Chairman, having unburdened myself of my editorialDr. PHILLIPS. If I may, I should like to point out that the figure quoted was an estimate made by the American Council on Education. We are simply reporting that figure. We are not sure of its accuracy and we are going to be working to verify or modify it as we collect data this year.

Mr. BRADEMAS. I appreciate that. I just have two areas of questioning then, Mr. Chairman.

Dr. Phillips, on page 14 of your statement, you remark on the small number of institutions in a completely revolving status and suggest that this fact is probably attributable to three factors. Then at the bottom of the page you indicate that there is no discernible trend which makes it possible to identify by type those institutional characteristics which are responsible for the 150 institutions that have achieved this

status.

Can you give us any judgments at all as among those several factors. which you feel may be more significant in making possible the achievement of a completely revolving status?

Dr. PHILLIPS. Well, I think they all really interrelate and each institution is quite different. You have an expanding enrollment and/or expanding costs in institutions which place expanded demands on available loan funds, and that can, as you know, simply eat up the funds at a very rapid rate.

And you have a 10- or 15-year period, in effect, before they can. completely restore the money to the revolving fund.

The erosion of the fund caused by cancellation and deferment provisions interact here in a way which simply causes leaks from the fund, and as we tried to point out, the collections problem is a very real one

and one we feel has to be recognized, acknowledged and attacked directly and not skirted around.

Mr. BRADEMAS. Let me turn my question on its head and put it to you the other way. Given that these three factors are interrelated and there may indeed be other factors, what are the factors that in your view most significantly account for the very large number of institutions that have not been able to achieve completely revolving status?

Dr. PHILLIPS. Well, I expect that it has to do with the fact that they can't catch up with demand, based on the annual availabilities of Federal capital contribution, and suffering from leakages I mentioned, and that they are having trouble catching up with the collection problem.

Perhaps I am not focusing properly on your question, and maybe you are trying to lead me in a direction.

Mr. BRADEMAS. I am not trying to lead you anyplace. You are running the program and I would like to know what you think your headaches are to enable us as legislators to come up with a proposal to help you do it better. It is a very simple, straight forward, commonsense question.

Dr. SPEARMAN. If I may comment?

Mr. BRADEMAS. I know that you have a lot of headaches but what I want is your professional judgment on which headaches are more troublesome than others. I think that is a reasonable question.

Dr. PHILLIPS. Sure it is.

Dr. SPEARMAN. I think I would like to approach it from two perspectives.

One, we attempted to isolate the 150 institutions and examine the 150 institutions and be able to report to you that for the most part private institutions have developed this, or public, and so forth, and we found that there was no significant trend that we could identify here.

Mr. BRADEMAS. I understand.

Dr. SPEARMAN. I think the second point is the peculiarities of the program itself. I think all of us will agree the NDSL program has a peculiarity in its total repayment mechanism. Too, it does require institutional financial aid offices. There is a greater demand on their time to operate this program than any other program, perhaps, primarily because the number of forms are there, the grace period and cancellation provisions are there, so the institutions themselves have difficulty.

I suspect if we would look at a more recent study that has come out by the Educational Testing Service, on NDSL, and these results are tentative and should be released appropriately in a month, it would clearly point out that the degree to which this program is effectively administered, may highly relate to the degree in which the institution in and of itself has capable internal management.

Mr. BRADEMAS. I think that is a very important point and leads me to raise the question, Mr. Chairman. I think you told me there are two major problems. One is the collection problem to which reference has just been made and the other is demand which in plainer English means that there is not enough money.

Let's turn to the collection problem for a moment. If the matter of management is that crucial, would it not be wise, given the magnitude

of the moneys involved, for you, at OE, and for us on this committee, to pay much more attention to zeroing in on that particular problem? Maybe we ought to channel a modest percentage of funds into the question of improving institutional management of the program, with a particular eye toward collection, otherwise we are missing the point. Mr. O'HARA. Will you yield?

Mr. BRADEMAS. Of course.

Mr. O'HARA. Perhaps some light was shed on that question by another study they did, that they mentioned in their testimony. They indicated they were not able to identify the characteristics of the 150 institutions that were able to go on a fully revolving basis.

You also identified the 10 percent of the institutions having the highest delinquency rate, so you indicate in your testimony. Were you able to identify the characteristics of the 10 percent ?

Ms. HOPSON. One thing we did find out was that something like 30 percent of them were in our Federal region IV. Then we also found out that the predominantly black institutions were a large part of that number.

Mr. O'HARA. Of the 10 percent having the highest?

Ms. HOPSON. Yes.

Mr. O'HARA. Have you determined between public, private and proprietary?

Ms. HOPSON. It was really spread all over, the distribution of the institutions except for those two characteristics.

Dr. PHILLIPS. It would be hard to draw any conclusions about proprietaries because they have been in the program for such a short period that not many of their loans have entered repayment where we would have a firm history on the collection activities.

Mr. BRADEMAS. Have you considered as an alternative, and I am not saying I advocate this, but in that you indicated the institutional management problems on collection, particularly, being a major headache, simply saving that rather than the institutions being charged with the responsibility for collecting, that OE should take on that job.

Mr. O'HARA. You have a lot more confidence in OE than I do. Dr. PHILLIPS. I think you can safely say we have not considered that alternative seriously as yet, other than for loans that may eventually be returned to OE under the 1972 amendment.

Mr. O'HARA. IRS, maybe.

Mr. BRADEMAS. In any event, there is an area worth further discussion. I have one other question, Mr. Chairman.

One—well, I no longer have confidence in IRS like I used to have. also, just so the record may be clear.

You told us of something of the default rates here, which is a concern of yours and of ours. But have you made a study to compare default rates in the NDSL and GSL programs with default rates on SBA loans or, to be more exciting about it, Fannie Mae loans?

Dr. PHILLIPS. No; we have not conducted such a study at this point. We have been trying to do something.

Mr. BRADEMAS. Don't you think it is a useful thing to do?

Dr. PHILLIPS. I think it might be. However let me say that the effort to take very different pieces of legislation and have different standards for making loans and then try to develop a method to get true comparability of delinquency rates or in this case potential default rates,