The Government is now paying 111⁄2 percent for short-term money, and it will cost money to run this program.

We agree for the control of defaults and the acceleration of collections on defaulted loans with Senators Kennedy and Bellmon and would certainly want to have access to addresses and places of employment of defaulters from the Social Security Administration and IRS. No additional information do they seek and no additional information would we seek, but it would be a very valuable tool in increasing collections.

We have one other suggestion to cut the cost of default purchase and that is similar to what is used in the Federal National Mortgage Association, and that is making advances to lenders for amounts that are due on delinquent loans instead of buying them in the first instance. Very often we can get students back into repayment within a reasonably short time, a year, a year and a half, if we could defer the purchase, carry the interest until we get a good shot at the student or the borrower and get him back into repayment. We might save substantially on default purchases.

I think interest rates, whether with a short-term Government rate of 112 percent, interest charges for an undertaking will be horrendous, and the cost of running a loan program will be interest plus administration.

We have in place a mechanism to do it. I would beg of you not to consider putting at risk these hundreds of thousands of students for an untried piece of legislation.

Senator PELL. I thank you very much, indeed. I look forward to the next witness, incidentally, in checking out this budget which is highlighted in a very interesting table that you drew to our attention. I thank you, Mrs. Dickinson, and wish you well and thank you for being with us.

Senator Stafford?

Senator STAFFORD. I have no questions, Mr. Chairman.

I join in thanking Mrs. Dickinson.

Senator PELL. Thank you very much.

[The prepared statement of Mrs. Dickinson follows:]

TESTIMONY OF

EILEEN D. DICKINSON

PRESIDENT

NEW YORK STATE HIGHER EDUCATION

SERVICES CORPORATION

BEFORE THE

SUBCOMMITTEE ON EDUCATION,

ARTS, AND HUMANITIES

OCTOBER 10, 1979

Mr. Chairman, Members of the Subcommittee, I thank you

for the opportunity to testify today on the Guaranteed Student Loan Program. I am Eileen Dickinson, President of the New York State Higher Education Services Corporation. NYSHESC is the state guarantee agency for the Federal Guaranteed Student Loan Program in New York. We also administer New York State's quarter billion dollar grant and scholarship programs. The Guaranteed Student Loan Program has been a tremendous success in New York. More loans are guaranteed in New York than in any other state. For Federal fiscal year 1978, NYSHESC guaranteed something over $400 million in student loans, over 27% of the total guaranteed by all state agencies that year. For Federal fiscal year 1979, the Corporation guaranteed well over one half of one billion dollars ($535 million) in loans to one quarter of a million students.

Nationally, the Guaranteed Student Loan Program is the largest single source of student financial aid. The Program provided almost $3 billion in loans to students in Federal fiscal year 1979, with perhaps 80 percent of the loans made under state guarantee agency programs. By comparison, the National Direct Student Loan Program provided approximately $600 million during the same period. The Guaranteed Student Loan Program, relying on state initiative and private capital, is growing at an extraordinary rate. The growth has resulted from Congressional initiatives of the past three years. The Education Amendments of 1976, the Middle Income Student Assistance

Act of 1978, and the Higher Education Technical Amendments of 1979 strengthened the Guaranteed Student Loan Program and encouraged all states to establish guarantee agency programs.

The 1976 Amendments brought new financial strength to existing guarantee agencies and provided the incentives for the establishment of new agencies. Some fifteen new agencies have been established in response to the 1976 Amendments. Without the 1976 Amendments there would probably be fewer agencies now than there were then. New York State's commitment to guaranteed student loans preceded the Federal government's by seven years, but even in New York in 1975 there were grave recommendations that we cease guaranteeing new loans and rely on the Federally Insured Student Loan Program. The major problem in New York was the burden of the program and administrative costs. New York supported the program at an annual cost to state taxpayers of over $10 million. The provisions of the 1976 Amendments have eliminated this burden while providing the resources to strengthen administration of the program.

The Middle Income Student Assistance Act provides significant aid to students from middle income families for the first time by removing income as a criterion for eligibility for interest subsidies on guaranteed loans. Loan volume in New York has increased 35 percent since the enactment of MISAA and there is no evidence that loan capital has been shifted away from low income students. In New York need is met by eligible lenders. We do not have a lender of last resort

banks in the state and all of them are in the program.

The Middle Income Student Assistance Act has also made possible a simplified application process for loans. The removal of all income specifications for interest subsidies made possible a loan application that is much easier and quicker for students, schools, lenders, and agencies to handle.

Extremely important changes have also been made on the special allowance paid to lenders. The 1976 Amendments tied the special allowance rate to a current money market indicator and raised the maximum rate from 3% to 5%. For the first time, lenders knew how the rate was set and were able to predict their return on investments in the student loan program. I cannot overstate the importance of this change on lender participation in the program. Alas, the 1976 Amendments did not foresee the record interest rates with which financial institutions and individuals must cope today. Maintenance of the 5% ceiling on the special allowance would have led to a student loan capital crisis in today's market. The Congress wisely removed the ceiling as one of the provisions of the Higher Education Technical Amendments passed in August.

Despite all of its successes, the Guaranteed Student Loan Program is not perfect. One commonly cited concern is that it is difficult to obtain a guaranteed student loan in certain areas in this country.