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state's increase was only 15.7 percent in CW-S and 10.3 percent for SEOG. These kinds of losses, prompted by the fair share formula, will be most difficult for an institution or a state to absorb. A similar difficulty arises with some of the fair share increases in funding for individual programs. For example, the NDSL fair share for Washington community colleges would increase by 324 percent, in the same year that the community colleges in Washington had the highest default rate among all sectors of the state.
So that you do not think I am speaking only as a representative of Washington state and not as a representative of all forty-three of the NAICU State Executives, let me cite the effects of the fair share formula in other regions. In the West, Alaska, California, Colorado, Hawaii, Nevada, Oregon, Utah, Washington, and Wyoming will lose significantly if the formula is allowed to go into effect. In the Eastern region, New Jersey and West Virginia also would suffer significant losses under the fair share allocation process. In the Mid-west, the fair share formula would hurt allocations to Illinois, Ohio and Wisconsin; and in the South, Arkansas would suffer losses. I am certain, Mr. Chairman, that you and other members of the subcommittee have already received correspondence from your constituents about this formula, the effects of which are a national problem.
Although I recognize that the Congress does not often legislate formulae for allocating federal funds, this problem cries out for your attention under your strong oversight authority. The Office of Education has proceeded to issue and implement regulations concerning the allocations of over $1 billion in campusbased student aid funds without adequately involving the Congress in the potential effects of that process. Last year at this time, HEW representatives came to congressional staff and explained the process which they had developed and wanted to implement for allocating 1979-80 campus-based funds. Those representatives promised congressional staff that the new procedure would be in effect only for academic year 1979-80 and the full results of that trial year would be evaluated before any further changes would be made in the formulae. This analysis has not
yet occurred basically because the Office of Education does not have a viable nationwide data base on which to base any real analysis. However, a notice of proposed rule-making is right now before the Secretary of HEW which would change the process from last year to this year and reduce the amount of conditional guarantee designed to insure that states and institutions maintain the funding level from the previous year. Our major concern is that this new fair share formulae process has been rushed into operation to meet some unknown need by OE bureaucrats, is poorly understood by those same people who must implement the process, and may have long term ramifications on state higher education policies on tuition and fees, on student aid, and on the provision of access and choice to students within each
We urge you to use your oversight authority to require the Office of Education to develop and test its models and formulae and make these findings public before any step is taken to implement phase 2 of the fair share funding process. This would allow the Congress, higher education institutions, and the states sufficient time to review the immediate and long term effects of the funding process to insure that it adequately reflects congressional intent, that it is in fact equitable, and that it does not penalize those states with policies of open access and educational opportunity. We need to insure that the 1980-81 allocation to states and institutions is held to 100 percent of the conditional guarantee plus some factor for inflation.
Mr. Chairman, let me also call the attention of the Subcommittee to another issue which affects not only independent institutions of higher education but
colleges and universities across all sectors. I am referring to the need to continue the current distinction between the initial-year and continuingyear SEOG awards. H.R. 5192, as currently written, would remove that distinction on the grounds of simplifying the process for the aid administrators at the campus level. Although we fully support efforts to simplify administration of these programs, the effect of the House action would be to cause significant redistribution of SEOG funds among states and institutions. I would like to submit for the record at this point an analysis of the effects which would result from removal of the distinction between initial-year and continuing-year funds. As this analysis demonstrates, at least sixteen states would suffer a substantial loss in eligibility for SEOG funds, including the states of Rhode Island, Maine, Massachusetts, West Virginia and Washington. I urge you to look closely at this issue, Mr. Chairman and members of the Subcommittee, to insure that changes for the sake of simplicity do not have adverse effects on the distribution of federal student aid dollars.
Let me thank you for the opportunity to appear before you today representing independent institutions across the nation. I would be please to respond to any questions you may have at this time.
Senator PELL. So the only way we can keep the general consensus would be to follow Dr. Coor's suggestion of having it all proportionate?
Dr. EGGERS. Yes, that is, indeed, the position of the independent sector.
Senator PELL. I must say that I agree, too, that the unchecked growth of student loan programs can threaten the basic grant program. I am curious, Dr. Terrey, if your association of community colleges supported the Kennedy-Bellmon bill or the administration bill as an alternative to the current loan program. I am speaking to you now not as a member of the consensus but on your own association.
Dr. TERREY. Senator Pell, at the moment, we have no official position because we are guided by the Governmental Affairs Commission which will not meet until next month, but I can say with some degree of certainty that the philosophical positions incorporated in Kennedy-Bellmon are consistent with the position of the association in years past.
If I may, Mr. Chairman, you asked about forms earlier, and I was not fast enough on the draw. I would emphasize that the whole student financial aid program is a carefully organized system, a very complex system, and we in the community colleges have a number of people who have been out of that system for sometime. They may be 25 or 30 years of age, entering college for the first time, and they find it very difficult to get into that system and understand the forms. We urge a simplified form as the administration has recommended.
Senator PELL. Then we have this whole question of what the interest rate should be, and Dr. Morrissey touched on this in his testimony. The question of whether the direct student loan program with its 3-percent interest rate or even the proposed 7-percent rate, both sound very little when you think the average consumer interest rate today is about 18 percent. I am wondering how we can justify this kind of a subsidy or whether we ought to be more realistic and raise the interest rates up to what the market rate is.
Dr. MORRISSEY. Well, granted that a 7-percent rate against the market rate is considerably less; however, it has been national policy up to this point in time to have a 3-percent rate with a substantial subsidy built in as one of the conditions for student loans to improve access and to make it more tolerable on the repayment provision for the student himself.
So there is a question here of shifting, the shifting of cost. If you shift it entirely to the student in one fell swoop, as is suggested, at least, in the administration and the Kennedy-Bellmon proposal, you markedly increase the sum of money required of individuals on an annual basis.
Senator PELL. But you had the 3-percent interest rate when it was originally introduced as a little more than half of the going interest rate at the time. Now, it is one-sixth of the going interest rate. So the proportions have tremendously changed.
Dr. MORRISSEY. Granted, it has not kept pace. It then becomes a question of what relationship the policy of the Federal Government