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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.

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If the costs of this entitlement program continue to rise rapidly, as it appears they will, that funding may jeopardize funding for other student assistance programs that are not entitlements.

Thank you, Mr. Chairman. We would be happy to answer additional questions or submit answers for the record.

Senator PELL. Thank you very much indeed. I was curious, Mr. Mundel, why you did not in the table comment on the administration bill, which I introduced by request, as well as on the current programs and the three bills you did.

Mr. MUNDEL. We did this in part to be brief and in part because of oversight. We would be happy to provide the additional tables that correspond to the administration proposal.

Senator PELL. It is not very much brevity, because it would just mean one line down—

Mr. MUNDEL. One line down there and some additional columns over here.

Senator PELL. Senator Kennedy has asked me to ask you how is it that S. 1600 provides more dollars to students while costing less? Mr. MUNDEL. I think the immediate answer is that S. 1600 changes the subsidies so that there is additional borrowing, but this borrowing is often by parents at a less highly subsidized rate. Second, because the bill relies on direct Federal development of loan funds, rather than on paying special allowances to banks and State lending agencies, the cost of the loan fund would also be lower than under current policy.

Senator PELL. Now, going back to Mrs. Dickenson's testimony earlier, I was struck with her table. Do you have a copy of her table No. 1? Where she points out there that there is a reduction in volume of $9 billion for a savings of $245 million, if those figures are correct, that would seem to be unfortunate. What would be your view?

Mr. MUNDEL. During the course of the earlier testimony, we were reviewing table 1, and we frankly do not understand the basis for the calculation. What we would like to do is review it fully and talk with our colleagues in the administration, who apparently were the source of these data, and try to understand why it comes out exactly this way. This is not what we think occurs.

Senator PELL. Well, could I ask you and Mrs. Dickenson to get together and give us an agreed-on table, or if you cannot agree, a table that shows your disagreements?

Mr. MUNDEL. We would be happy to do that.

Senator PELL. And I think it would clarify this-these differing views for the subcommittee.

Mr. MUNDEL. I think I would also ask my colleague, the Assistant Secretary for Management and Budget in HEW, to supply some more background for that table.

Senator PELL. Yes. I think maybe if after this hearing you and Mrs. Dickenson just chat for a couple of minutes, maybe you will be able to work something out right then and there.

Can you compare the portion of subsidized loans-this is also on behalf of Senator Kennedy. Can you compare the proportion of subsidized loans which go to needier students under each of the different proposals? In other words, what would be the proportion

going to the poorer students? Or would you like to submit that for the record?

Mr. LONGANECKER. I would prefer to submit that for the record. Senator PELL. All right, if you would. And also include in that the administration proposal which is before us, because, as I said, I introduced it by request.

Now, as I read your summary, you are not coming out with a recommendation. You are just giving us the facts, to the best of your ability.

Mr. MUNDEL. Yes.

Senator PELL. It is up to us to form the editorial opinion.

Mr. MUNDEL. The CBO, as always, does not make recommendations, nor advocate a particular proposal.

Senator PELL. But it would be correct to say that the KennedyBellmon bill shifts some of the costs from government to the students more than the other bills would?

Mr. MUNDEL. To the students and to their families, particularly the families of students who are not eligible for the more highly subsidized student loan program. Their burden of college financing would increase.

Senator PELL. I guess my own view is that in one way or another in the last few years, we have achieved a degree of pretty good access-it may not be the institution of the individual's choice, but the access at least to a higher education. And now my own thought is we ought to concentrate more on the quality of the education and that the question of access per se is not as burning an issue as it was. I think the question of quality is becoming more of a burning issue. Do you have any reactions on this?

Mr. MUNDEL. I think the issue of quality-and that is often read to mean the issue of the ability to attend more expensive institutions

Senator PELL. I am not reading it as that at all. I mean, by quality, the less expensive institutions and the more expensive institutions should have a higher quality of education that they give the students.

Mr. MUNDEL. I think that issue confronts low- and moderateincome students as well as others alike. Right now, I am not sure that providing students increased resources, either through loans or through grants, would substantially change the quality of the institutional offering or the quality of the institutions that students choose to attend.

I think the connection between student aid, the kind of student aid and the level of student aid, and the quality of institutional offering is poorly understood. And perhaps we know much less about that, from either an anecdotal or a quantitative basis, than we do about the relationship between student aid and whether or not a student goes or the access that he has been provided.

Senator PELL. All right. Well, I thank you very much indeed. And if there are any more questions, we will submit them to you for the record. And maybe you can get together with Mrs. Dickenson now and try and resolve this table, or in the near future. Mr. MUNDEL. Thank you, Mr. Chairman.

[The prepared statement of Mr. Mundel and responses to questions asked follow:]







OCTOBER 10, 1979


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