Prepared statements, letters, documentary and other supplementary material, etc.-Cont. II. Office of Education materials: Moore, James W., Acting Associate Commissioner, Office of Guaranteed Page Loan volume (by State) July 1, 1973 through April 30, 1974---- 44 Percent of loans disbursed by type of lending institution, Phillips, Dr. John D., Acting Associate Commissioner for Student National direct student loan program, fiscal years 1959-75---- Total numbers of NDSL borrowers whose loans are in potential Office of Education, student affidavit___ III. Other materials submitted: Abdnor, Hon. James, a Representative in Congress from the State of 269 171 48 Gregg, Lucius P., president, First Chicago University Finance Corp.: Statement by-. Fiscal 1973 national direct student loan program, OSU (table)__. Lifson, K. A., Young Presidents' Organization, "YPO Task Force on "The Guaranteed Student Loan Program" an issues paper_. Stokes, Dr. Rembert, president, Wilberforce University: Student income and expenses, 1972-73 (table). Turlington, Ralph D., commissioner, Department of Education, State 130 270 270 249 185 16 271 207 206 99 171 STUDENT FINANCIAL ASSISTANCE (Student Loan Programs) TUESDAY, MAY 28, 1974 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON The subcommittee met at 10 a.m., pursuant to call, in room 2261, Rayburn House Office Building, Hon. John Brademas (acting chairman of the subcommittee) presiding. Present: Representatives O'Hara (chairman of the subcommittee), Brademas, and Dellenback. Staff members present: Jim Harrison, director; and Elnora Teets, clerk. Mr. BRADEMAS. The Special Subcommittee on Education will come to order for the purpose of hearing statements by Dr. John D. Phillips and Mr. James W. Moore of the U.S. Office of Education with respect to student loan programs. The chairman of the subcommittee, Mr. O'Hara, is on his way and therefore asked me to move ahead with the hearings. Chairman O'Hara has also asked that the provisions of law currently in force dealing with the Guaranteed and Direct Student Loan Programs be made a part of the hearing record. Without objection, it is so ordered. (See pp. 211 et seq.) Gentlemen, we are very pleased to have all of you and Miss Hopson with us this morning, so please go ahead. STATEMENT OF DR. JOHN D. PHILLIPS, ACTING ASSOCIATE COMMISSIONER FOR STUDENT ASSISTANCE, BUREAU OF POSTSECONDARY EDUCATION, U.S. OFFICE OF EDUCATION, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, ACCOMPANIED BY CHARLES COOKE, JR., DEPUTY ASSISTANT SECRETARY FOR LEGISLATION (EDUCATION); DR. LEONARD H. O. SPEARMAN, DIRECTOR, DIVISION OF STUDENT SUPPORT AND SPECIAL PROGRAMS, BUREAU OF POSTSECONDARY EDUCATION; RICHARD ROWE, DEPUTY DIRECTOR, DIVISION OF STUDENT SUPPORT AND SPECIAL PROGRAMS, BUREAU OF POSTSECONDARY EDUCATION; AND PATRICIA HOPSON, ASSISTANT CHIEF, PROGRAM SUPPORT BRANCH, DIVISION OF STUDENT SUPPORT AND SPECIAL PROGRAMS, BUREAU OF POSTSECONDARY EDUCATION Dr. PHILLIPS. Mr. Chairman, before I begin, I would like to introduce Mr. Charles Cooke, Deputy Assistant Secretary for Legislation, on my left, Dr. Leonard Spearman, Director of the Division of Stu (1) dent Support and Special Programs, on my right, and his Deputy Director, Dick Rowe, and Miss Patricia Hopson, Assistant Chief of the Program Support Branch within the Division. Mr. Chairman and members of the subcommittee, it is a pleasure to be here today and to briefly review the history and operation of the national defense-direct student loan program. The following statement is intended as a brief overview. However, we would be happy to respond to questions from committee members who might wish us to expand upon this written statement. I. LEGISLATIVE HISTORY OF THE NATIONAL DEFENSE-DIRECT STUDENT LOAN PROGRAM The House Committee on Education and Labor opened hearings on a scholarship and loan proposal on August 12, 1957, from which emerged a student loan program under title II of the National Defense Education Act of 1958, Public Law 85-864. This legislation authorized a program of low-cost, deferred-repayment loans funded 90 percent with Federal moneys and 10 percent with institutional moneys, administered directly by postsecondary institutions for their full-time undergraduate and graduate students. After 1964 the authorization was extended to half-time undergraduate and graduate students who are in need of these loan funds to pursue their course of study in postsecondary institutions. The national defense-direct student loan program as originally conceived was designed to assist colleges and universities in establishing revolving loan funds in order to aid needy students. Although approximately 150 institutions have reached the stage of requiring no further Federal capital contributions because an adequate supply of new loans can be provided solely from collections, the majority of participating institutions has not yet successfully achieved this objective. I shall refer to this important concern later in my statement. Since the program's inception, these loans have generally been made without security or endorsement. Originally, the loan amounts were limited to an annual maximum of $1,000 and an aggregate maximum of $5,000. The Education Amendments of 1972 established new cumulative loan limitations: $2,500 through the first 2 years, $5,000 through completion of the bachelors' degree, and $10,000 through completion of graduate or professional study. These loan limitations replaced the former annual loan maximums. No interest is charged students during the period they are in attendance at an institution of postsecondary education as at least half-time students and during the grace period following cessation of such attendance, which was originally 1 year and is now 9 months. Interest is charged at the rate of 3 percent per annum on the unpaid balance during a repayment period that normally is spread over a 10-year period. Deferments of loan repayments are given for (1) up to 3 years of service in the Armed Forces; (2) up to 3 years of service in the Peace Corps or VISTA; and (3) any period of continued education on at least a half-time basis in an institution of postsecondary education. Title II, section 207, of the National Defense Education Act of 1958 also provided that an institution which was unable to contribute any or all of the matching one-ninth institutional capital contribution from its own fund could borrow such amount from the Federal Government. The amount authorized to be appropriated for this purpose for the life of the program was not to exceed $25 million. There is no comparable provision in the Education Amendments of 1972. It should be noted that the NDSL program was the first leg of a three-legged stool, including college work-study and educational opportunity grants, that would ultimately be referred to as the collegebased programs. With the advent of CWS and EOG-now SEOG-in 1964 and 1965, respectively, the Federal Government had put into place the prototype of the grants-loan-work concept to provide diversified resources in student assistance to be administered by institutions. A second loan program, the guaranteed federally insured loan program, was authorized by the Higher Education Act of 1965. There have been more than 40 amendments to the act establishing the national defense-direct student loan program. To trace each of these amendments in an overview would add considerable complexity to our efforts. Let me say here they really break down into five major areas, and perhaps it is just as well if I skip over the written testimony and indicate what the general thrust is. The five major areas would be institutional eligibility-I think members of the committee are well aware of the expansion of institutional eligibility that has taken place in the last few years; changes in student eligibility; changes in the provisions for cancellation of loans, which are rather extensive and pose some major problems in the program; provisions for repayment, which appear on page 7 of the written statement; and finally provisions concerning the loyalty oath and affidavit requirement. A. INSTITUTIONAL ELIGIBILITY The Higher Education Act of 1965-Public Law 89-329-defined "eligible institutions" to include those providing 1-year training programs including schools of nursing-to prepare students for gainful employment in recognized occupations. Amendments in 1968-Public Law 90-575-provided participation in the program, if the appropriation exceeded $190 million, to institutions that met the following requirements: 1. They provided not less than a 6-month program of training to prepare students for gainful employment in a recognized occupation. 2. They admitted as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such certificate. 3. they [were] legally authorized within such State to provide a program of education beyond secondary education; 4. they [were] accredited by a nationally recognized accrediting agency or association approved by the Commissioner; 5. they included in their agreements assurance that the availability of assistance to students at the school will not, increase the tuition fees or other charges to such students. has not, and This provision extended eligibility to participate in the program to certain proprietary institutions. B. STUDENT ELIGIBILITY Loans were made available for half-time study in 1964. In addition, the requirement that preference be given to students in certain areas of preparation and/or study was repealed by the 1964 amendments to the Act-Public Law 88-665. The 1968 amendments-Public Law 90-575provided for the elimination of special consideration for students of superior academic background. The Education Amendments of 1972Public Law 92-318-provided that in determining the need of veterans for such a loan, an institution shall not take into account the income and assets of their parents. C. PROVISIONS FOR CANCELLATION OF LOANS The 1964 Amendments-Public Law 88-665-provided for loan cancellation benefits for teaching in institutions of higher education. The Higher Education Act of 1965-Public Law 89-329-authorized loan cancellation of 15 percent per year for teaching in certain elementary and secondary schools. This provision made it possible for cancellation of up to 100 percent of loans under certain conditions. In 1966 the act was amended-Public Law 89-752-to provide for loan cancellation of 15 percent per year for teachers of the handicapped. The Elementary and Secondary Education Act Amendments of 1969-Public Law 91-230-amended the NDEA of 1958 to provide cancellation for military service on loans made after April 13, 1970, for each year of service, beginning after June 30, 1970, at the yearly rate of 1212 percent, not to exceed 50 percent of the borower's total loan. The Education Amendments of 1972 changed the provision permitting cancellation for military service to require that such service must be performed in "an area of hostilities." The Education Amendments of 1972 rescinded all cancellations at 10 percent rate for teaching service in public or other nonprofit elementary and secondary schools, or in institutions of higher education. The provision for cancellation for service in designated eligible title I schools with a high incidence of students from low-income families— with changes in criteria for selection-and cancellation for teaching of the handicapped was retained. Borrowers are now eligible for the cancellation of the entire amount of their loans at a progressively increasing rate over a period of 5 years. In addition, the Education Amendments of 1972 provide for the cancellation for service as a full-time staff member of Headstart at the rate of 15 percent annually. D. PROVISIONS FOR REPAYMENT Several significant changes in repayment requirements were authorized in the Higher Education Act of 1965 [Public Law 89-329]. These changes included a requirement of monthly, bimonthly, or quar |