Essential to achieve this goal are the provisions of H. R. 5192 that

raise the funding threshold of the Supplemental Educational Opportunity Grant program (SEOG) from $370 to $400 million and to $480 million when Basic

Grants are funded up to the $2,160 maximum

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and that establish a threshold

funding level of $76.75 million for the State Student Incentive Grant program (SSIG). However, we believe it would be highly desirable for the SSIG threshold to be set at $100 million, so that incentives to expand state grant programs over current levels are assured.

We emphasize that these steps are necessary in combination, in order to assure a balanced package of assistance to needy students at all kinds of institutions in the public and independent sectors. We believe that, to make some of these changes without the others would upset the balance of grant assistance in favor of students in one sector at the expense of students in the other, and that this would undermine our delicate but strong consensus.

Although we have not tried to reach formal consensus on student aid programs other than the grant programs, we do support most of the provisions of S. 1870, Senator Williams' bill to improve and strengthen the National Direct Student Loan program and the Guaranteed Student Loan program. The bill would add authority for parent loans through GSL, broaden the authority of the Student Loan Marketing Association to obtain capital and consolidate loans, tighten collection procedures, liberalize deferment and repayment provisions, and increase loan limits for borrowers. However, we are concerned that raising the NDSL interest rate to 7 percent would impose an increased debt burden on needy students and their families a burden which would be particularly onerous for students considering graduate school. For this reason we strongly prefer retention of the current 3 percent NDSL interest rate, as provided in H. R. 5192.

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3.

As a representative of the land-grant institutions, I would like to take this opportunity to identify other student aid provisions of H.R. 5192 that are particularly important from the perspective of our institutions:

We strongly urge this Subcommittee to provide administrative cost allowances similar to those proposed by H.R. 5192, to realize objectives initiated by the Senate in 1976. Assuring institutions that the allowance will meet at least part of the costs they incur in administering federal student aid programs, including BEOG and GSL as well as the campus-based programs, will enable them to staff their offices more adequately and offer better counseling services to student aid applicants. Removing the ceiling aids only a few dozen institutions, and therefore is not costly, but it provides help to schools serving the largest numbers of students on individual campuses. Most of these schools have extensive experience in the program and their staffs are made available as resources for the student aid community at large. We totally oppose the Administration's proposal, which would cut the total amount of funds and concomitantly require an irrational redistribution of funds that would assist few and hurt most institutions. The administrative cost allowances aid students by enabling institutions to improve the operation of their financial assistance offices. In terms of relative costs, this is a sound investment: for example, the BEOG program now disperses well beyond $2 billion per year; a $10 capitation would use approximately one percent of the total appropriation.

We urge two steps be taken to address the needs of less-than-half-time students. First, permit institutions to use up to 10 percent of their SEOG allocation to assist these students, as provided in H. R. 5192, and second, require that the Department of Education carry out a one-year study to determine the situation of this constituency, their genuine financial needs that are barriers to access to education, and the proper role of the federal government in

this area. This Subcommittee has led the way to assure access for all Americans

to educational opportunity.

The one category not addressed is composed of

serious students who are unable to attend at least half-time.

Mr. Chairman and members of the Committee, we welcome the opportunity

to appear before you today to express the support of the higher education

community for improvement in the student aid program as Title IV of the Higher Education Act is reauthorized. We stand ready to answer any questions, provide

any assistance the Committee would like with respect to this legislation.

Senator PELL. Thank you very much, indeed, Dr. Coor.

I thought we'd go right through the panel before asking questions, if we could.

Dr. Morrissey?

Dr. MORRISSEY. Kermit Morrissey from Boston State College, and I am representing the American Association of State Colleges and Universities which strongly supports the proposed amendments to the Higher Education Act which appear in H.R. 5192 and which have been introduced also in the Senate.

We are in agreement with the other major higher educational associations in our support of the proposed changes of the basic educational opportunity grants, supplemental educational opportunity grants, and other student aid grants embodied in the legisla

tion.

We believe that changing the half-cost formula in the BEOG's to the proposed 75 percent plus raising the SEOG threshold and establishing the goal of 75 percent of expense at any institution as being met by grants does a great deal to assure that students will have access to both public and independent institutions at a time of rising costs.

We also applaud the decision in H.R. 5192 to increase the job location and development funds in the college work-study program to $25,000 from the present $15,000. We are suggesting in separate testimony that has already been presented to this committee that the Senate may wish to increase this figure somewhat more in order to encourage colleges to develop more jobs, both for their students, both on campus, not off campus.

We are especially concerned about the student loan provisions in H.R. 5192. We share the view taken by the American Council on Education, land grant associations, the independent colleges that it is far better to continue the existing student loan programs, national direct student loan and guaranteed student loan with necessary modification and improvement than to go to radical surgery by creating a new loan bank system similar to the one embodied in the Kennedy-Bellmon bill, S. 1600 or the administration bill, H.R. 5210. Similarly, we support the loan features of S. 1870, Senator Harrison Williams' bill, except we would prefer that the national direct student loan rate remain at 3 percent.

We have several major objections to the Kennedy-Bellmon and administration bills. First, greatly increased cost to students. While

the bills differ somewhat in detail, they both propose considerably higher interest rates for needy students, needy to be defined by a Federal means test, and even higher rates for those defined as nonneeded.

The bills also call for longer periods of repayment which would add greatly to the total cost of the loans and make other changes that would add to the cost for most students or their parents. Total repayment costs could be enormous. If we assume a 7percent interest rate over 20 years and to assume that a married couple were to borrow the maximum under the administration bill, for example, the payments could amount to $616 plus for over 20 years. That's about 84 percent of the principal would be involved in the payment, and note that it is possible under those proposed bills for the interest rate to exceed 7 percent and for even larger sums to be borrowed.

For many middle-income families whose income would be considered too high in terms of the Federal means test, interest rates would be considerably higher and the amounts to be repaid would be even greater.

While these figures vary with the formula used, they are typical of the kinds of debt young people and their families would face at the beginning of their adult lives. Further, our experience with loan programs so far shows that lower income students may borrow unrealistically large sums, in part, because of a lack of understanding about indebtedness.

This problem is even more serious, as we shall see, because it is likely that the cost of public, independent, and profitmaking schools would rise rapidly with the adoption of a loan plan similar to that proposed in the Kennedy-Bellmon bill.

H.R. 5192 and the Senate counterpart are balanced provisions for student aid, substantially increasing the grant in the college work study makes it much less likely that students would have to borrow such enormous sums. The administration bill offers far less student aid in the form of grants, so that students would be much more dependent on the loan element.

The Kennedy-Bellmon bill addresses only the issue of loans. It is not related to grant, work-study proposals, or even overall costs. Finally, the dangers of a central loan bank. Both of the two bills greatly strengthen the role of a central Federal bank. The details differ, but in both cases, a Federal agency would play a greater role in the lending of funds and would try to make essentially unlimited loan funds available to all students and their parents whether classified as needed or nonneeded.

Federal student loan banks have been proposed for many years as a way to greatly reduce or eliminate public support of higher education. In some versions, students at all institutions would be charged the full actual costs and would repay through lifetime loan plans stretching over 30 or 40 years.

State and local support of higher education could be ended or certainly endangered as well as all other forms of Federal support. Presumably parents and private donors would no longer be called upon to help support college students in any event.

In the more moderate versions of the idea, loans would only play a part, but many observers fear that the availability of very large

amounts of loan capital could encourage hardpressed State governments to reduce their support of higher education, allowing tuitions to rise very high and letting students pay the increased charges through loans.

The alleged savings in the Kennedy and administration bills rest largely on charging students or their parents much higher interest rates. Expert witnesses have testified before this subcommittee that changing to a central loan bank would not, per se, result in savings to the taxpayers.

And finally, competent professionals in the student aid and financing fiells have raised serious questions about the costs to the taxpayer of the administration and the Kennedy-Bellmon loan plans.

Money for loans, including subsidies and administrative costs, would have to come from some combination, present national defense student loan repayment, appropriations, and additional borrowing from the Federal financing bank.

Appropriations would, of course, appear on budget as is now the case. Federal financing bank lending is likely to be reflect on budget in one way or another since both Congress and the Office of Management and Budget take a closer look at indirect forms of financing which, of course, affect total Federal spending.

Many other questions have been raised about the harmful effect of these new loan plans on the State student loan agencies which are doing competent jobs at relatively low cost in many States and with private lenders.

Some of these points have been dealt with by other witnesses before this subcommittee.

In conclusion, we urge the Senate of the United States to support the continuation and improvement of the national defense student loan and guaranteed student loan programs rather than moving to these new and entirely undesirable proposals.

To underscore the situation at a specific institution, Boston State College is part of a State college system. Tuition within the past 4 years has increased 100 percent from $300 to $600. The problem is no different in Massachusetts, particularly different than appearing in other States. Tuitions are going up, and some adjustments are badly needed. Thank you, Mr. Chairman.

[The prepared statement of Dr. Morrissey follows:]