payment. In terms of dollars this amounts to very little on a monthly basis.

Another way to eliminate the recordkeeping during the repayment period is to let the student pay the 3 percent and then when the loan is paid in full the bank would submit one bill for the other 3 percent. The bank would, of course, have to be compensated because it would not have the use of this money during the repayment period. However, I am sure a scale could be worked out to simplify this computation. A third possibility to have the Office of Education pay the lender one lump sum at the time the student graduates and starts to repay the loan. This would be difficult to work out an average repayment schedule, but this system would greatly reduce the paper flow between the Office of Education and the lender.

We have not done enough research on these three approaches to be able to give you our final recommendations. However, we will discuss these various suggestions with representatives from the Office of Education and the Treasury Department and if possible submit our views to them as a supplement to this statement.

It is clear, however, that we must find a simplified way for lenders to bill the Office of Education during the repayment period.

The third major area that deserves the attention of Congress is the matter of reserve funds.

We think it is critically important that the 90th Congress come to grips with the question of the applicable national policy as to the guaranteeing function.

If the Congress determines that it wishes to pursue the initial objectives of the 1965 act, namely, a program to encourage the establishment of guarantee plans at the State level, then we would urge that modifications be made in the overall program which are designed to carry out this purpose in an affirmative manner.

We hope, very frankly, this is the course that the Congress would finally decide to follow.

On the other hand, if you should decide that the State approach is not the proper one, then there is equal need for a clear and unequivocal policy statement, directing the Commissioner of Education to begin implementation and operation of the Federal insurance program.

Until the Congress speaks clearly and forthrightly on this important policy question, we fear that the overall objectives of the guaranteed student loan program will be frustrated by uncertainties as to where the future responsibility for the insuring function will reside.

We earnestly commend your most thorough scrutiny of this problem. In reaching an ultimate decision on this question, you may find the following observations and recommendations helpful.

It should first be noted that when the authorizing legislation was finally approved in November of 1965, 12 States were operating Statefunded guarantee programs. Today, there are 30 States with various types of loan programs.

These figures would seem to indicate that the expectation for State action was not a frivolous one. At the beginning of this calendar year State and private guarantee agencies had total reserves of over $83 million.

The Federal contribution to these reserves was less than $8 million. More importantly, current estimates indicate that these States with

going programs will appropriate some $25 million to fund reserve operations for the coming fiscal year.

This 1-year figure for State appropriations exceeds by $7.5 million the total amount appropriated for Federal advance funds to be disbursed over a 3-year period. Thus the State effort to date cannot be characterized as nominal.

Of those States which have not yet authorized guarantee programs and which are currently operating on Federal advance funds, coupled with USA funds private insuring capacity, several will reach a point within the current calendar year where their existing reserves are totally encumbered.

When this point is reached the U.S. Office of Education is empowered under the 1965 act to activate the Federal insurance program for those States.

It is our earnest belief that such action will toll the eventual dismantling of all State guarantee programs. We feel certain such a result will occur, for we find it hard to believe that States such as New York, Connecticut, Louisiana, and South Dakota, will long continue to appropriate funds for insurance purposes when they look across their borders and see the Federal Government fulfilling this responsibility for their neighboring States.

Our concern with the phasing out of existing State guarantee operations is not predicated on a meaningless ideological desire for the State rather than Federal action. It stems from a practical concern for the immediate if not the ultimate future of the entire program.

You must understand that this association, State bankers associations, and individual banks have expended tens of thousands of dollars in educating banks to the procedures and practices of particular State guarantee plans.

If these plans are now to be replaced by a Federal insurance program, it means starting anew with the entire educational and training process for all lending institutions and for educational institutions as well.

Many lenders who have just been through this educational process may well determine that it is not worth the expense and time to become acquainted with new operating procedures and decide to discontinue their participation in student lending.

That would be highly regrettable both to our association and me personally as we worked very hard on this.

To prevent such a development we submit the following recommendations:

(1) Amend the act to limit interest under the Federal program to 6 percent, the same as all State and private programs instead of the present permissible rate of 7 percent. This takes away incentive for States to favor the Federal program.

(2) Extend the program of Federal advance funds for States to bolster their reserves for 2 more years.

(3) Establish a provision in the act whereby those States which do not, after 2 years, appropriate reserve funds be excluded from the interest subsidy benefits under the act. In other words, the Federal Government should give the States the choice of providing reserves or foregoing interest benefits.

The Federal Government should not be expected to do both for college students of a State. This approach would be much more equitable for all States and would reduce Federal expenditures for this program.

A fourth alternative might be to authorize additional Federal advance funds for the next 2 fiscal years to those States which have not as yet established State-supported guarantee programs, and couple this authorization with a matching fund program-at such ratio as the Congress might determine to be equitable-for those States which have operative loan guarantee programs.

The 2-year extension of the "advance fund" program would carry States without a program through the next general State legislative year in 1969, thus giving these States an additional period within which to act.

The matching fund program would serve as a very tangible inducement for these States to move enactment of a reserve program in 1969, and would likewise encourage those States that have already acted to continue the operation and further funding of their guarantee

programs.

Then, as I mentioned earlier, this program is still young with little more than 6 months experience behind it. We feel that the results to date merit this extension of the advance concept so the program can be given a valid test.

In the ABA educational booklet, which I noted a moment ago, which we published and distributed last summer, we stated that the goal of the American Bankers Association was 100-percent participation in student loans by the Nation's commercial banks.

We have not changed that goal. Records in the Office of Education indicate that to date over 8,000 of the 13,000-odd commercial banks in the country have participated in the program. Others are becoming involved almost daily.

It is also encouraging to note that other types of financial institutions are signing up to participate in this program. Our conclusion has been that the more participants we have the more even the load will be shared.

But, even more importantly, the more participants there are the easier it will be for students to obtain the funds they need to finance a college education.

We are convinced that once the rate on these loans is returned to a break-even proposition and once the paperwork is streamlined we can, through continued hard work, gain the support of almost every lender in the land.

Of all the schemes and proposals to finance higher education that have been advanced in Congress in recent years, the guaranteed student loan approach seems to us to be by far the most appealing.

It gives the Government the greatest amount of leverage for the least amount of money. It encourages the cooperation of Federal and State Governments, private guarantee agencies, colleges, and universities, and the Nation's lenders.

Moreover, it attempts to have each section do what it does best. I hope we can eliminate some of the obstacles now in the program so it can function more smoothly and reach its full potential—that is, to make sure that no qualified student is denied a college education because he lacks the marginal funds necessary to finance this education.

We have the foundation for a great program. The recommendations submitted here on behalf of the American Bankers Association will help build on that foundation.

Thank you very much.

Mrs. GREEN. Thank you very much, Dr. Walker, for an excellent

statement.

I particularly appreciate your outlining the alternative recommendations on page 12.

It seems to me, also, on pages 4 and 5 you have given the best basis for arriving at the costs to colleges and universities on the NDEA loan. Would it be your judgment that the figures on those pages would also be the cost to the university when they are processing the NDEA loans?

Dr. WALKER. I will say, and then perhaps let others comment on this that know a little more on it than I, first, we ran over these costs in a presentation to the administration task force some time back. Naturally, they checked out our figures pretty carefully on the basis of their own experience and the NDEA experience.

They thought our figures were quite realistic. Second, just off the top of my head, I would think our figures are probably lower than the NDEA fund lenders; we are specialists in the area of doing this sort of thing, but I am sure the Office of Education people will tell you how they compare.

I would think their figures are higher. Their loss ratio tends to be higher, and when you try to collect a loan that is bad, you really get into costs.

Mrs. GREEN. In your statement you get into the number of students who had loans between July 1966 and 1967; do you have comparable figures from 1965 to 1966? How much of an increase has there been because of this program?

Mr. GANNON. It was approximately $150 million by all States and private guarantee agencies during the last academic year.

Mrs. GREEN. Do you know how many loans that would be? You have 270,000 with $210 million?

Dr. WALKER. They average $750 per loan.

Mrs. GREEN. The size of individual loans has not been increased?

Dr. WALKER. Yes; it has been increased by the facts of life of a college education and, in addition, the publicity that the Federal program got originally, which we thought was somewhat unfortunate in that it was a Federal lending program. The students came into the banks and said, "We want one of those loans to go to school."

It was published as 1,000 and many students tried to borrow the full amount. There should be a limit put on this. The amount of cost has been rising because of some of this publicity.

Mrs. GREEN. Would you know how many students were refused or turned down on the loan program of insufficient funds during fiscal 1966?

Dr. WALKER. No global instances, figures were quoted in the press and I received letters myself from disgruntled and unhappy students, which we tried to check carefully.

Mr. Brytczuk might comment on this. His bank is the largest lender in the country in this area. Could you give an estimate of loans made versus turndowns?

Mr. BRYTCZUK. I don't think our bank would be typical; we have made it a policy to make the loans as students approach us, providing they meet the qualifications. I don't know of any instance where we turned down a loan.

The student has to show the scholarship ability and the desire to complete his education.

Mrs. GREEN. Do you require need?

Mr. BRYTCZUK. No; not a need in that way but we want to satisfy ourselves that this student has indicated in his past performance that he will be able to complete his college education and he has a desire to complete his college education.

Mrs. GREEN. Do you give any weight in making the loan to your judgment of his ability to repay?

Mr. BRYTCZUK. That is a minor factor because the loans are guaranteed.

Dr. WALKER. I think implicit in that is if he has the ability to get a college education-you have to look at this-if a student came in with a bare minimum in terms of his high school training and education and it seemed clear to the college people and others that he wouldn't get through the whole college career, that is one thing.

On the other hand, if he is going to get through, we checked the figure this morning, the average B.A. student is employed at $611 a month and the average technical at $711 per month.

There is no question if the student seems to be able to go ahead and get his degree.

Mrs. GREEN. Do you think that by and large the loans have gone to needy students?

Dr. WALKER. I don't think there is any question about this.

Our experience seems the parallel U.S. Air Force experience, if you recall last year when the head of the U.S. Air Force testified the figures which they compiled in the survey indicated there was not much difference between the levels at which their loans had been made and the NDEA loans.

I think the needier students will tend to get the loans and this follows from the logic of the situation. If we are going to lose money or break even, but we would like to perform a public service at the same time. Mrs. GREEN. In your judgment do the NDEA and U.S. Air Force loan programs serve the same purpose in the socioeconomic area? Dr. WALKER. No; U.S. Air Force figures showed they were not exactly parallel. You will tend to have an average of lower income level, but in the earlier stages when you are getting off the ground, I think lenders, logically and appropriately, when lending to students with a family of $15,000 or $5,000, they would lend to the lower income.

We think that is appropriate. If you get this thing going up into the $1, $2, $3, $6, or $8 million category, I think you will see loans move to the higher income strata.

Mrs. GREEN. Does this really follow the intent of the legislation establishing the guarantee loan program?

Dr. WALKER. Reading the record and reading the reports not precisely because one, the word "need" was never used and could not be used.

We demurred very strongly from this idea, we think you should start with need to begin with. I would hope very much that the Congress