Senator PELL. Our next witness is David Mundel, Assistant Director of Human Resources and Community Development of the Congressional Budget Office. He will be accompanied by the General Counsel, Alfred Fitt; an analyst, David Longanecker; and another analyst, Deborah Kalcevic. Thank you, Mr. Mundel, for being with us. And I'd be interested in your specific comments on the various legislative proposals before us, the Kennedy-Bellmon bill, the administration bill, the Ford bill, and also the newly introduced Williams bill. STATEMENT OF DAVID S. MUNDEL, ASSISTANT DIRECTOR, Mr. MUNDEL. Thank you, Mr. Chairman. Thank you for inviting us here this morning to talk briefly about the student loan programs that are currently before the Congress. I have a prepared statement which I will summarize and will submit for insertion in full in the record. Senator PELL. The full text will be included in the record. Mr. MUNDEL. Student loans are an increasingly important component of the overall Federal policy to assist post-secondary students. During this fiscal year 1980, 2.3 million loans amounting to over $5 billion will go to students through the two programs that currently are in place. Senator PELL. You say two programs. There are seven programs in place. Mr. MUNDEL. In my testimony today I am dealing with the two major programs administered by the Office of Education-the guaranteed student loan program and the national direct student loan program. The total Federal cost of these two programs will be approximately $1.3 billion. If current trends continue, the amount of student lending and the Federal cost of these two programs will increase substantially. Our projections are that over the next 5 years, fiscal years 1981 through 1984, these two progams will cost more than $10 billion. And perhaps more importantly, if Federal higher education resources are constrained in the aggregate, the growth in the costs of these loan programs will restrict the funding available for other forms of student assistance, such as the basic grants or "Pell" grants. There are proposals currently in front of the House, and I think soon to be introduced in the Senate, that increase the support for the basic grants program. Funding for these proposals will compete directly with the increased support required by the guaranteed student loan and national direct student loan program. The Congress faces two difficult resource allocation questions as it considers the reauthorization or change of these loan programs Senator PELL. Our next witness is David Mundel, Assistant Director of Human Resources and Community Development of the Congressional Budget Office. He will be accompanied by the General Counsel, Alfred Fitt; an analyst, David Longanecker; and another analyst, Deborah Kalcevic. Thank you, Mr. Mundel, for being with us. And I'd be interested in your specific comments on the various legislative proposals before us, the Kennedy-Bellmon bill, the administration bill, the Ford bill, and also the newly introduced Williams bill. STATEMENT OF DAVID S. MUNDEL, ASSISTANT DIRECTOR, HUMAN RESOURCES AND COMMUNITY DEVELOPMENT, CONGRESSIONAL BUDGET OFFICE, WASHINGTON, D.C., ACCOMPANIED BY ALFRED FITT, GENERAL COUNSEL, CONGRESSIONAL BUDGET OFFICE; DAVID LONGANECKER, LONGANECKER, ANALYST, HUMAN RESOURCES AND COMMUNITY DEVELOPMENT DIVISION, CONGRESSIONAL BUDGET OFFICE; AND DEBORAH KALCEVIC, ANALYST, BUDGET ANALYSIS DIVISION, CONGRESSIONAL BUDGET OFFICE Mr. MUNDEL. Thank you, Mr. Chairman. Thank you for inviting us here this morning to talk briefly about the student loan programs that are currently before the Congress. I have a prepared statement which I will summarize and will submit for insertion in full in the record. Senator PELL. The full text will be included in the record. Mr. MUNDEL. Student loans are an increasingly important component of the overall Federal policy to assist post-secondary students. During this fiscal year 1980, 2.3 million loans amounting to over $5 billion will go to students through the two programs that currently are in place. Senator PELL. You say two programs. There are seven programs in place. Mr. MUNDEL. In my testimony today I am dealing with the two major programs administered by the Office of Education-the guaranteed student loan program and the national direct student loan program. The total Federal cost of these two programs will be approximately $1.3 billion. If current trends continue, the amount of student lending and the Federal cost of these two programs will increase substantially. Our projections are that over the next 5 years, fiscal years 1981 through 1984, these two progams will cost more than $10 billion. And perhaps more importantly, if Federal higher education resources are constrained in the aggregate, the growth in the costs of these loan programs will restrict the funding available for other forms of student assistance, such as the basic grants or "Pell" grants. There are proposals currently in front of the House, and I think soon to be introduced in the Senate, that increase the support for the basic grants program. Funding for these proposals will compete directly with the increased support required by the guaranteed student loan and national direct student loan program. The Congress faces two difficult resource allocation questions as it considers the reauthorization or change of these loan programs or a special allowance to State lending agencies, but also we pay through foregone Federal tax revenues, because the lending by those State agencies is tax-exempt. Several proposals are currently before the Congress that deal with the three questions of eligibility, subsidies, and sources of loan capital. One option would be simply continuing current policy. Second, there is a loan program proposed by the House Education and Labor Committee in H.R. 5192. Third, Senators Bellmon and Kennedy have proposed S. 1600. And finally, Senator Williams of the parent committee has proposed a modification of H.R. 5192 in S. 1870. The current programs would probably provide about 2.8 million loans in fiscal year 1981 The first-year cost of these loans would be approximately $600 million. The costs of the various proposals in the first year and over the full term are summarized in table 2 of the prepared statement. Before being fully retired, the loans offered under current policy in fiscal year 1981, would cost the Federal Government about $2.5 billion in 1981 dollars, or approximately 49 percent of the original amount. When initially started, the conception of student lending was that it would be at low or perhaps no cost to the Federal Government. Our current policies involve approximately a 50-percent subsidy on student loans. The bill reported by the House Education and Labor Committee would alter the existing guaranteed student loan program by expanding eligibility to parents at a somewhat lower subsidized rate than that for students. It would increase the overall loan limits. And it would change the administrative process to reduce student defaults. We estimate this package of loans-guaranteed student loans, parent loans at a lower subsidized interest rate, and the national direct student loan program-would provide about the same level of lending, $5.5 billion, in fiscal year 1981, and it would cost about the same amount. The cost of the loans provided under the H.R. 5192 proposal over the length of term of those loans would be about $2.6 billion or about 47 percent of the original amount borrowed, a reduction of about 2 percentage points in the cost to the Federal Government. S. 1870, introduced by Senator Williams, adapts and makes some changes in the proposal by the House Education and Labor Committee. The major change would be to extend eligibilities to students who are enrolled less than half time, and to increase the interest on the direct student loans from the current 3 percent to 7 percent. This loan package would provide about $5.7 billion in loans in fiscal year 1981, and the cost in the first year would be about $650 million. The long-term costs of this proposal would be approximately the same as those of the proposal by the House Education and Labor Committee, because the increased cost of providing benefits to the newly eligible students, those enrolled less than half time, would be offset somewhat by the increased NDSL collections and the higher interest charges. S. 1600, the bill introduced by Senators Kennedy and Bellmon, changes eligibility, changes subsidies, and changes the sources of Federal student loans. It would target highly subsidized loans on students with measured need. It would provide less highly subsidized loans to students and families who do not have measured or assessed financial need. And it would shift student loans from relying on private lenders to financing directly through a Federal lender. In fiscal year 1981, this program, if fully operational, would provide 2.5 million loans, amounting to about $5.4 billion. The Federal cost of these loans would be substantially lower than the loans that would be provided under current policy. That cost would be about $450 million in fiscal year 1981. The residual costs from prior programs would also be appreciably less, because repayments from the old NDSL program would be available to the Federal Government in order to reduce budget costs. Over the life of these loans, those loans provided under S. 1600 in fiscal year 1981, the Federal costs would be approximately $2 billion, or about 39 percent of the original loan amount. The budget comparison that probably should be most immediately before the committee is the comparison between current policy, approximately a 49-percent budget cost; the House Education and Labor bill and Senator Williams' bill, approximately a 47-percent cost; and the bill proposed by Senators Bellmon and Kennedy, approximately a 39-percent cost of the original loan amount. The principal problem facing the Congress in designing student loan programs is the allocation of these scarce subsidies. Subsidies are costly. And they are a great deal more costly when they are provided to all students rather than only to students with financial need. In part, this is because middle-income students continue to be more likely to attend college with or without financial aid. And we also think that they and their families are more likely to understand the benefits-not necessarily the enrollment benefits, but perhaps the financial benefits-to be gained from subsidized borrowing. In addition to subsidies to students, the source of loan funds greatly affects cost. Providing the loan capital directly and managing the program directly would, we think, cost the Federal Government less than the current practice of paying private lenders and State lending agencies to provide and finance the loan funds. But Federal lending, direct Federal provision of loan capital, would intrude or increase the intrusion of the Federal Government into the private capital market. The Congress must weigh the costs and benefits of this intrusion in addition to the costs and benefits of the reduced budget commitment. And again, the subsidies or costs of the Federal student loan program are also important because they compete with and affect the funding of other student aid programs. There is reason for concern in this area. It may be that under an austere budget we cannot afford the current mix of programs. And increases in student loan program costs would result in decreases in other forms of assistance. As entitlements, Guaranteed Student Loans are an uncontrollable item in the Federal budget. 63-979 0-1980--10 |