Senator PELL. Senator Stafford?

Senator STAFFORD. Mr. Chairman, I have no questions at this point. I thought it was a very good statement, Mr. Kornfeld. We may have some questions in writing.

Mr. KORNFELD. Fine. I would be very happy to answer them, sir. Senator PELL. Thank you very much, indeed.

Our next witness is Mrs. Eileen Dickinson, who will discuss the State loan programs. She is executive director of the New York State Higher Education Services Corporation in Albany.

And I know that Senator Javits is very sorry he could not be with you. He is at a meeting at which I should be at, too, but as chairman. I do not have that luxury of going. I welcome you here. Your full statement will be put into the record, and if there are any highlights of points you would care to make, they would probably make more of a dent on us.

STATEMENT OF EILEEN D. DICKINSON, EXECUTIVE DIRECTOR, NEW YORK STATE HIGHER EDUCATION SERVICES CORPORATION, ALBANY, N.Y.

Mrs. DICKINSON. Thank you, Senator. I thank you for the opportunity to testify. I am Eileen Dickinson, and we are the Higher Education Services Corporation of which I am the president. It is the guarantee agency for the program, the Guaranteed Student Loan program in New York. We also administer the State's quarter billion dollar grant and scholarship programs.

I feel as if I have to give some context for the State guarantee agencies because of the picture that was given this morning by advocates of the Kennedy-Bellmon and the administration proposal as to the context of the Guaranteed Student Loan program which has been created over the last years from the initiatives provided by the Congress.

For the Federal fiscal year just closed, we guaranteed well over a half a million dollars, $535 million in loans to one quarter of a million students. In New York State, the program works.

Nationally, it is the largest single source of student financial aid and provided almost $3 billion in loans in fiscal 1979. It is growing at an extraordinary rate, and it is growing as a result of congressional initiatives of the past 3 years, the 1976 amendments, MISAA and the higher education technical amendments of 1979.

They all encourage States, all States, to establish guarantee agency programs. There actually have been more agencies established since 1976 than between the passage of HEA in 1965 and 1976. The amendments brought financial strength to existing agencies and they have given the incentives for new ones.

MISAA provided significant aid to students from middle-income families for the first time by removing income as a criterion for eligibility. Loan volume, Senator, has increased more than 35 percent in New York since the enactment of MISAA, but there is no evidence, I repeat, none, that loan capital has been shifted away from low-income students.

In New York, we have no lender of last resort. We have no need for such a lender. We have 113 savings banks around the State of New York, all are eligible lenders in the program, all lend.

I am sorry that Mrs. Chisholm felt necessary to speak from a national point of view. In New York, there is no problem of discrimination against students on the basis of low income or on the basis of the schools to which they are going.

I have distributed, I think, tables, and I would ask if you could look, just for a moment, at table 3 which is a description of where our loans go by sector and out of State as well.

Senator Bellmon spoke of the need to have out-of-State portability for loans. This is fiscal 1978-79. You see that in that year in all sectors we guaranteed $446 million in loans. $97.5 million went out of State with New York students. I would also point out to you that in that same year we did almost $33 million to vocational schools. The alleged discrimination in New York is not real.

Several extremely important changes have been made in the special allowance paid to lenders. The 1976 amendments tied, as you know, the special allowance rate to the 91-day Treasury bill rate and raised the maximum from 3 to 5 percent.

I came to the guaranteed program, Senator, in New York State to run it in the summer of 1975. At that point, lenders were very hard pressed to understand where the income would come from to carry the loan program.

When you raise the maximum rate from 3 to 5 percent in the amendments, lenders knew for the first time how the rate was set and they were able to predict the return on investments in the loan program. I cannot overstate the importance of this change on lender participation.

The amendments in 1976 did not foresee the record interest rates with which individuals and institutions are coping today, but I think you very wisely removed the ceiling on the interest rate last summer as one of the provisions of the higher education technical amendments.

Obviously, the student loan program is not perfect. Barriers to loans do exist in certain areas. It is appropriate, therefore, that solutions to the access problem be included in the reauthorization of the student loan program.

And a second legitimate area of concern is rising costs. There are two approaches to solving these problems. The first is to modify existing mechanisms to solve them, and the second approach is to construct an entirely new mechanism which will replace the existing structure and possibily remedy its deficiencies.

must point out to you gentlemen that the Guaranteed Student Loan program is in place and working as a relationship between lenders, guarantee agencies, schools, students.

First, let me review the question of access. We estimate that we will do $850 million in loans, perhaps, in Federal fiscal 1981. To provide this level of loans throughout the country would mean the equivalent of a program approximating $9 billion.

Now, there are a number of other States besides New York that provide high levels of access. It can be a success, this program, in any State. Our agency, our State has responded to the 1976 amendments. Other States are doing as well.

Now, as to the issue of cost, most of the confusion about costs stems from the charge that since lenders are paid this special allowance, amounts to 3.5 percent more than the Federal short

term borrowing rate, large amounts can be saved if the Federal Government were to become more directly involved in the distribution of student loans. The special allowance to lenders pays the cost of administering the program as well as the cost of money.

Critics of the current structure conveniently ignore this fact as well as the fact that a replacement administrative structure would take several years to set up and it would cost money to operate. Lenders receive no payments other than the interest and special allowance on the loans.

Senator, a decentralized and efficient administrative structure for the program is in place at the participating lending institutions. The alternative to the structure is to establish a new centralized governmental administrative structure.

One such proposal was given on August 1 by the administration. When the Assistant Secretary delivered testimony the administration's proposal to the House Postsecondary Education Committee on August 1, he also gave cost figures.

The cost figures were given at the specific request of the Chairman of the Postsecondary Committee in the House. He gave a summary of loan volumes, projected program costs, data on the number of students expected to receive loans.

Under the administration proposal, as you know, there is a new basic student loan program that would replace the NDSL, and a new supplemental program that would replace the GSL.

If you would look just for a moment, Senator, at table 1, these figures are from HEW. These are the figures that the Assistant Secretary came back with on his second appearance before the Postsecondary Committee, and they summarize HEW's proposal. According to HEW, cost savings that would result from replacing the current programs would total $245 million-that is the third column of figures-from fiscal 1981 through fiscal 1985.

Now, the HEW summary states that "cost estimates exclude the cost of the proposed government student loan association which would administer the new basic and supplemental loan programs and provide a secondary market for supplemental loans." Therefore, out of that $245 million must come administrative costs.

I ask you to look to the last column of figures, the reduction in volume. The administration proposal would reduce loan volume by over $9 billion in the 5 fiscal years to save well under $245 million. It is really hard for me to believe this but I did not make these figures up. The administration proposal and the Kennedy-Bellmon bill both will very substantially reduce the amount of loan money available.

I believe it to be a benighted proposal that would deprive hundreds of thousands of students of this amount of loan money in order to save somewhat less than $250 million over a 5-year period. I would be very grateful, incidentally, to see an analysis of S. 1600 comparable to the analysis that was done by HEW for the administration proposal.

I will certainly agree with most of the criticism as to the need to expand loan availability, to simplify loan programs, to reduce program abuse and to contain costs, including default costs, but without withdrawing the commitment made by the Congress in the Middle Income Student Assistance Act.

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wee but there is need for the consolidation of the main Solaszer Assistance Loan program. That has not raan In New York State, Governor Carey professions program which has made five Yaty outs as HEAL has, but surely those loans should be ver the umbrella as well.

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AUCTOR A ONs we will not buy. I will not buy the Meter a 28 ya mindless reduction of loan availability. We Creubhas Structure that does not appeal to the theorists were here in the first instance talking about Kennedy-BellN 2.8 s that it can work. It does work.

Ir Sue & State, this balance between lenders, guarantee AMAN As students is working. Now, cutting back on loans KAZAMİ costs, but they all seem to be a withdrawal of a comunemers that all of the members of the subcommittee made or voted for the Middle Income Student Assistance Act. As we all have to realize that the increase in costs through in interest rates is deplorable, and yet unavoidable.