time the loan was made. This loan repayment period could be from 5 to 10 years in length, except that each loan would have to be repaid within 15 years. During the repayment period the student would pay at least $500 per year on the aggregate of all loans he has received, but he could repay the loan in larger amounts without penalty. It must be remembered that these students are from families who are above the low-income level and who have the capability to assist their children in repayment of such a loan. Further, a minimum repayment per year at this level prevents extension of small loans over a long payback period, which leads to increased cost of administration to the lender. From a student loan insurance fund, the Commissioner is authorized to insure eligible lenders against losses on loans made to eligible students. The lender would be wholly protected against loss of principal through death, disability. or default. Further, the Commissioner would be authorized to pay up to 2 percentage points of the interest on such loans-whether insured under this program or by a State program or by a nonprofit private organization or institution which has met standards prescribed in the proposal. The implication of this is clear. It will be easier for State and private nonprofit institutions to extend their guaranteed loan programs by virtue of Federal support. Our intent is to stimulate rather than inhibit them. As these comments suggest, this program of guaranteed loans is designed to enable the middle-income family to spread the increasingly heavy costs of a college education over a longer, less burdensome period of time. It seeks to do so by creating greater interest in long-term lending for education on the part of banks and other commercial lenders who are subject to examination by an agency of the Federal Government or any State. Expectations are that outlay of a comparatively small amount of money by the Federal Government will make a very large amount of credit available to such families. The expenditure of $14 million, for example, would pay 2 percentage points per annum of the interest on a principal of $700 million. Such a sum could in turn provide an average loan of $700 to 1 million students. As abundant evidence shows, costs of higher education mount relentlessly. The average total yearly expenses for a student in a private institution have increased from $1,700 in 1954-55 to $2,370 in 1964-65, and may well reach $2,780 by 1970 (see exhibit 6). Thus, the "price squeeze” becomes increasingly onerous for middle-income families whose children do not qualify for financial aid through such programs as the NDEA, title II, or programs for student employment. To cover average annual expenses for college students, these families must make cash payments of nearly $10,000 during a 48-month period. Such families are excluded from virtually all existing State or private nonprofit guarantee programs by a financial needs test. Commercial credit sources remain open to them, of course, but repayment normally runs concurrently with the years in which the student attends college, so that a disproportionate share of family income must still go the child or children in college. Thus, under the most widely used collegiate method of assessing financial need, the two-parent family with two children and $13,000 in income is judged to be capable of paying with no undue hardship the entire average cost at either a public or private institution each year for 4 years. To do so means diverting 17 percent of the family income before taxes to meet the cost of education for one child. If two children are in college, the amount increases to 24 percent of family income. To cite these facts is not to contend that these middle-income families should be relieved of responsibility for paying the costs of higher education for their children. It is rather to suggest that this heavy concentration of expenses should be spread out over more than the 4 years of college through the "loan of convenience" described in part B of title IV. Helping the middle-income student and his family to bear the heavy brunt of college costs would seem to have a reasonable claim on a share of our national commitment to offer every child the fullest possible educational opportunity. The proposed program of insurance for reduced-interest loans seems a sounder approach to the cost-of-attending-college problem than any of the tax deduction or tax credit plans advanced thus far. Tax credits provide little or no assistance to the low-income family and relatively little assistance to the middle-income family. Moreover, the cost of the proposed tax credit plans is in the aggregate much larger than all of the federally supported student assistance programs now in existence or proposed. The extensive costs contained in these proposals threaten the entire structure of student support and could result in denying assistance to the student from the low-income family who needs support the most. PART C OF TITLE IV, COLLEGE WORK-STUDY PROGRAM Paragraph (1) of part C of title IV, transfers responsibility for the workstudy program from the Director of the Office of Economic Opportunity to the Commissioner of Education. In addition, paragraphs (2) and (3) of section 441 broaden the program so that it covers not only children of low-income families who want to attend college but all students who need assistance to meet the cost of an education. This reshaping of the framework of eligibility does not by any means entail any diversion or diminution of the work-study program's emphasis on students from low-income families. Work-study proposals from more than 700 colleges and universities, now on file with the Office of Education, demonstrate in many ways the effective interaction of these projects with other financial aid programs-most notably loans. under the National Defense Education Act-to provide students with adequate levels of support. A small college in southern Georgia, for example, plans to meet a student's annual education costs of $1,200 in the following ways: In work study funds, $400, $400 from NDEA loans, a $200 grant from the college itself, and $200 from the student's summer employment. A mediumsized State college in the Midwest proposes $400 per year support under each of three programs-work-study, NDEA loan, and college grant-in-aid-to meet a $1,200 cost. Exhibit 8 shows in more detail this combined approach in several types of institutions. To provide a proper administrative setting for these programs, the Office of Education has recently created a new division of student financial aid within the Bureau of Higher Education. The college work-study program and the NDEA loan program are now directed from two parallel branches under the administrative control of the Division Director. Similarly, the field staff— which is located in regional headquarters in nine principal cities-helps to coordinate the application of the two programs. All institutions participating in the work-study program are urged to tie it closely together with other assistance programs, and to locate all financial aid responsibility under one administrative officer. One of the many benefits of combining support programs is that the needy student may be able to reduce the net indebtedness which he would otherwise be forced to carry. Further, the range and variety of employment opportunities proposed for the current college year indicate a general move among colleges and universities to provide interesting and educationally purposeful jobs. A number of new opportunities are being added to the usual categories of campus employment in clerical, food service, and faculty assistant jobs. Openings listed by one Western institution included the following: artist, bibliographer, coder, draftsman, illustrator, lifeguard, photo technician, programer (IBM), translator, and writer. Another university proposes to employ students as resident counselors, apprentice pharmacists, laboratory technicians, psychometric assistants, and editors, and "off-campus" jobs within the community include such titles as visiting nurse assistant, teenage group worker, crafts instructor, social worker aide, caseworker assistant, teacher aide, playground supervisor, model-building instructor, tutor (math), and youth coach. From an assessment of the significance to education of these various assistance programs, and the importance of coordinating them the President concluded that a transfer of administrative responsibility and an expanded program of work opportunity would assist in extending equal educational opportunity to all qualified students. Paragraph (4) of section 441 delays by 10 months the date on which the Federal share of student compensation is reduced from 90 percent to 75 percent. This change takes into account the fact that the program began in mid-year, as the Congress had earlier recognized in appropriating only $56 million of the $72.5 million originally requested. Three basic developments make the case for increasing the authorization to $129 million during fiscal 1966-many more students have been made eligible, the number of participating institutions is sharply increasing, and freshman enrollments will continue in the fall of 1965 to show remarkable growth. It should be noted that the sum of $129 is carried in two places in the President's budget for fiscal 1966: $45 million under "new legislation" for the Office of Education, Department of Health, Education, and Welfare; $84 million for the Office of Economic Opportunity. The $129 million proposed for this program will-when combined with 10 percent institutional matching funds and with that portion of the fiscal 190 appropriation due to be earmarked for summer programs-give employment to approximately 300,000 students and provide them with average earnings of $500 per year. This would mean work opportunities for less than 7 students out of every 100 to be enrolled in college next year. PART D OF TITLE IV, EXTENSION OF NATIONAL DEFENSE STUDENT LOAN PROGRAM The purpose of title IV-D is to extend the authorization of the National Defense Student Loan Program (Title II of the National Defense Education Act of 1958, as amended) for an additional 3 years, i.e., from fiscal year 1968 through fiscal year 1971, with the following authorizations: Fiscal year 1969-. Fiscal year 1971. Million $225 250 275 The Congress has already authorized the following appropriations for the program: Fiscal year 1966 Fiscal year 1967--- Million $179.3 190.0 195.0 The expanded authorizations proposed for the fiscal years from 1969 through 1971 are based upon experience with the program to date, plus the best available estimates concerning the probable effects of the 1964 amendments. Basic operational data are appended to this statement as exhibits 11 to 13. Since the original enactment of the National Defense Education Act in 1958, more than 600,000 students have taken advantage of the loan provisions of title II. They have borrowed a grand total of $443 million over 6 years. Of this total, 90 percent was accounted for by Federal Government deposits in student loan funds established on over 1,500 campuses. The remaining 10 percent was supplied by the participating institutions, as required by the National Defense Education Act. Amendments of 1964 to the National Defense Education Act provided for some expansion of the program. Under the 1964 amendments, we estimate that during fiscal year 1965. $176 million (Federal appropriation: $145 million) will be loaned to approximately 317,000 students, including those in business schools and technical institutes. The average loan during 1964–65 is expected to be $525 to $550 per student. This program is today the largest single source of financial assistance to students in the United States. Any program of this magnitude is bound to have some problems. We are resolving these problems, however. Insert B presents Office of Education comments in response to a report to the Congress in November 1964, made by the Comptroller General and entitled “Weaknesses in Administration of the Student Loan Program under Title II of the National Defense Education Act." As the report itself states, remedial action upon most of the recommendations had been initiated promptly when the weaknesses were called to the attention of the Office. Further steps taken are outlined in the comments in insert B, which I will furnish for the record. [Insert B] Comments on the report of the Congress of the United States on weaknesses in administration of the student loan program under Title II of the National Defense Education Act, by the Comptroller General The Office of Education has carefully reviewed the report of the Comptroller General entitled "Weaknesses in Administration of the Student Loan Program Under Title II of the National Defense Education Act," and desires to record its appreciation of the constructive nature of the findings and recommendations contained therein. As the report states, remedial action upon most of these recommendations was initiated by the Office at the time the weaknesses were first called to our attention by the representatives of the General Accounting Office, and the further steps which are being taken in each case are outlined in the fol lowing comments. 1. Unnecessary interest costs because of premature advance of funds.—In the light of the data presented in the report (pages 14 and 15), it is evident that during the first years of the program some additional interest costs were un doubtedly incurred by the Government as a result of the times at which the Office of Education advanced funds to participating institutions, and the fixed proportion of the annual allocation which was advanced at each such time. Since the Office had not previously administered a higher education program of comparable complexity embracing such a wide variety of institutions, we lacked the pragmatic experience by which to determine with any real confidence the specific times during an academic year at which the average institution would require cash for advances to student borrowers. Even the majority of the institutions themselves were without satisfactory guidelines. Consequently, the Office took those steps in the payment of funds which it believed would assure the immediate and effective implementation of the program. It should be noted that any interest earned on an advance of cash deposited by an institution, for a significant period prior to its use, was deposited into the loan fund in which the Federal Government has a 90-percent equity and became available for additional loans to students. ACTION ON RECOMMENDATION Since the beginning of the fiscal year 1963, the Office has made advances to each institution on the basis of a schedule consistent with the cash needs of that institution. For the fiscal year 1965, a considerably improved form of this procedure has been devised, requiring the institution to submit, before the beginning of each academic term (semester, trimester or quarter), a “Request for Partial Advance of Funds" (copy attached) on which it must indicate its precise cash situation including all receipts of loan repayments. The possibility of any significant amount of unused funds in the custody of the institution is thereby prevented. 2. Determination of amounts of student loans not adequately supported.— As indicated in the report, the officials of the great majority of participating institutions are conscientiously following the published instructions and regulations of the Office of Education which define the procedures for selecting student borrowers and determining the amounts of approved loans. The 1,600 presently participating institutions include not only colleges and universities with professional staff experienced in the administration of student financial aid programs, but many other institutions which previously had no such programs or which are seriously handicapped by the lack of qualified personnel to manage an efficient loan operation. It is in the latter institutions, and particularly during the early years of the program, that most of the examples cited in the report occurred. To establish good lending procedures, and to correct existing program deficiencies, the Office of Education has consistently engaged in educational efforts among the participating institutions. Frequent area conferences have been held to instruct institutional personnel in the application of the Manual directives, and the nine regional representatives and the staff of auditors have maintained a schedule of institutional visits for the purpose of conducting program reviews. Numerous informational bulletins and administrative memoranda have also been issued for the guidance of institutional officers. On the basis of the detailed reports from our regional representatives, we can state with assurance that the level of compliance with the instructions of the Office regarding the loan procedures has steadily risen. It must be regrettably recognized, however, that there is a certain small minority of institutions which will continue to give us concern. Perhaps the most common reason for the administrative deficiencies in such institutions is either the lack of trained personnel available for assignment to program responsibilities, or the rapid turnover of such personnel. ACTION ON RECOMMENDATION In July 1964, the Office of Education published and distributed a completely revised edition of the basic Manual of Policies and Procedures. This new Manual provides more detailed instructions governing the institutional operation of the loan program and considerably tightens the procedures to be followed by institutions in reviewing student applications, evaluating financial need, determining the amount of each loan, and maintaining informative records of all actions. Compliance with the new Manual is now being emphasized by the regional representatives and auditors as they make their scheduled visits to institutions. 46-153-65 3. Weaknesses in loan collection procedures.-The report states that the Office of Education has been slow in taking effective action to assist institutions in establishing good collection procedures. We should like to comment at some length on that finding. Although the act places on participating institutions the entire responsibility for collecting loan repayments, the Office considers itself entrusted with an overall stewardship of the public funds appropriated in support of the program. From the beginning of the program we have emphasized the moral as well as legal obligation which every student borrower assumes, and we have encouraged institutions to employ businesslike policies and procedures in carrying out their collection responsibility. By means of area conferences, institutional visits by our regional representatives and the audit staff, and the distribution of printed materials, the Office has endeavored to instruct the appropriate institutional officers in the most effective techniques for billing borrowers, maintaining payment records, and following up overdue accounts. Wherever feasible, the regional representatives have arranged for the more experienced college business officers in an area to explain their collection methods to the less trained personnel of other participating institutions. During the latter half of the fiscal year 1964 the Office made an intensive effort to prepare institutions to handle an anticipated increase in the number of scheduled repayments about to fall due. The reason for this increase is that most borrowers who entered the program during its initial year of operation, 1959, would normally be scheduled to make their first annual repayments in er about June 1964. As a means of concentrating assistance where it was most needed, the Office used the June 30, 1963, financial resports to identify approximately 400 participating institutions with the poorest collection records. Arrangements were then made for each of these institutions to be visited before the end of the fiscal year by a regional representative or a member of the Washington staff. During such visits conferences were held with the personnel concerned with the program, and careful consideration was given to institutional procedures for the exit interview with borrowers, notification of payments due, followup of overdue accounts, tracing of nonreporting borrowers, etc. In every case, a letter had previously been sent to the president of the institution, calling his attention to the unsatisfactory collection record. These personal letters usually brought encouraging action to strengthen the staff assigned to the collection function and frequently elicited helpful information concerning the reasons why previous collection reports to Washington had given an inaccurate picture of the situation. Among these reasons were mistakes on the part of loan officers in reporting as due the installments of borrowers known to be continuing their education in other institutions, or serving in the Armed Forces or the Peace Corps, but who had failed to file the proper deferment certificates. Other instances were the reporting as overdue of the payments by teachers who were legally entitled to cancellation but who had neglected to submit the appropriate certificates. Following this campaign to improve the collection methods of those institutions with poor records, the Office of Education revised its reporting procedures to include a new annual report of repayments, as of October 31, commencing with the present year. The report form (copy attached) calls for considerably more detailed information on borrowers in the payment status than has hitherto been available. As of the date of this letter, the reports of 1,019 of 1.576 participating institutions have been received, and a preliminary analysis of them has produced the following information. 1. Only 1.4 percent ($1.98M) of the total amount loaned to borrowers whose accounts are in payment status is past due. 2. Of the total amount due, corrected for accelerated payments, 12.1 percent ($1.98M) is past due. 3. The 173.050 borrowers have accounts which are presently in collection status. Of this group, 16.6 percent (28,811) have not yet met their obligations either by cash payment or submission of certificates for teacher cancellation or deferment. |