the objective of this bill is to make certain that any young people in this country who desire to further their education will not be denied that opportunity for lack of money.

Mr. Chairman, let me say that I have a prepared statement. I would like to offer it and hope that it could be printed in the record. And I will try to highlight it and not take the time of the committee to go through the whole thing.

There are several objectives of this bill, but before I get to those, let me say that as a member of the Budget Committee and someone who is concerned about trying to get our Federal budget in balance, there is one thing about this bill that commends it to me as much as anything else. And that is the fact that while the bill does make adequate and virtually unlimited resources available to students, the net result of the way we go at it is a savings, as best we can calculate it, of about $253 per loan, per student.

Now, the reason this bill costs less is this. The fastest growing cost in existing student assistance programs is the so-called special allowance or interest subsidy under the guaranteed student loan program.

Our bill uses the funds now going for special allowances to offset the cost of increased capital availability. We save money because the Federal Government can borrow at substantially below the commercial lending rate. Using this Federal borrowing power, our bill reduces the cost from the difference between the rate paid by the student borrower and the commercial lending rate to the difference between the rate paid by the student borrower and the Government's cost of money.

Mr. Chairman, that is a very important difference. At the present time, the Government pays the difference between interest charged the student and the commercial rate. And under the terms of our bill, the Government will be paying the difference between the student rate and the Government's cost of money. And the Government will not be forced to pay this large difference between the commercial rate and the Government's rate.

We calculate that this difference is about 32 percentage points. And so on that basis, we are able to provide almost unlimited capital and do so at a considerable savings to the Treasury and to the student.

Senator KENNEDY. Would the Senator just yield on this point, because I think it is an essential aspect. Even given the increase rates that we have seen announced today, now, would make it even more dramatic.

I think we could get the Congressional Budget Office to recompute that factor even today and see where the savings would even be more dramatic. There is no question the Treasury rate has been going up. But commercial rate has been going up even a great deal higher. And so this spread, which the Senator from Oklahoma has talked about, is even more significant with developments of the last-probably the last month or so.

And I think that this is part of the essential aspects of this program and why it makes sense from the cost savings point of view and something which-I know the other provisions of the legislation are extremely important. But having Senator Bellmon, the member of the Budget Committee who spent a great deal of

time in this aspect of it and has been able to draw on the resources of the Budget Committee in this area, is something which I think is enormously compelling factor when we are considering the legislation.

Senator PELL. I can see why it would cost less than the House bill. I do not quite see why it would cost less than the administration bill, because in each case the interest rate is about the same, 7 percent. And the students eligible are in the same numbers. Why would it cost less than the House bill?

Senator BELLMON. I was comparing our bill to the existing law. Senator KENNEDY. To the existing laws. We are glad that the administration has found as many worthwhile points in Senator Bellmon's bill and ours.

Senator PELL. I think they have taken some of your points and coopted them very nicely.

Senator BELLMON. We have no fault with that aspect of the administration's proposal.

Senator PELL. In other words, yours and the administration bill would cost approximately the same, while current law and the House bill cost a good deal more. Would that be a correct statement?

Senator BELLMON. Our calculation is that the Kennedy-Bellmon approach would cost about $253 per loan less than existing law. And I have a chart, Mr. Chairman, as a part of my statement that sort of details how these savings occur.

Senator PELL. The chart and the full statement, incidentally, will be inserted in the record.

Senator BELLMON. Now, I think equally important, Mr. Chairman, is the fact that we do not reduce the capital that is available for student loans. We actually propose to make more capital available.

Now, this sounds like a kind of impossibility, that we get a saving and yet we make more money available to the students who need it. But what we do is to make loans available to students at the 7-percent rate, as in the existing law. But the bill would eliminate the 3-percent interest rate now available under the National Direct Student Loan program and the in-school interest subsidy now available to graduate students.

The interest rates paid by parents, if they choose to borrow to meet the expected family contribution, and the interest paid by independent students if they borrow their expected self-help contribution would be somewhat higher than is the case under existing student loan programs.

These interest rates, however, would be substantially below commercial lending rates. And we would make substantially more money available in all parts of the country for parents and students who choose to borrow for these purposes.

The current 3-percent interest rate under the National Direct Student Loan program is totally unrealistic in view of today's economy. Our bill would raise that rate to 7 percent and raising the rate to 7 percent would bring the level of subsidy more in line with the subsidy enacted in 1958 when the NDSL first became law. Kennedy-Bellmon proposes to defer rather than have the Government pay the in-school interest cost of loans for graduate educa

tion. That is a difference that some may not like, and I certainly would-we would accept whatever decision the committee makes.

But we believe this would provide some incentives for the socalled professional students to finish their education. I am personally opposed to the administration proposal to subsidize interest for some graduate students and not for others.

It seems to me that we can and should find a way to treat all graduate students equitably, whether they want to be doctors, lawyers, Indian chiefs, writers, poets, or scholars.

I am aware that provisions of this bill have been criticized by some as being too harsh. And again, I would say that the committee, who are the experts-if you can find a way to balance the various concerns, then that would be fine.

I only hope that if you decide on a course other than one we propose in S. 1600 that you will treat all graduate students alike. Another important element of cost in existing student loan programs is the high default rate. And this is, of course, an embarrassment to all of us. I know that there are some good explanations for some of the stories we hear, but it is my personal belief that no student loan bill or reauthorization can be enacted, nor should it be, without carefully addressing the question of what can be done to reduce defaults. And we think we have done that in this bill. What we have done is to take a lesson from the Child Support Collection program that the Government started a few years ago, which is saving substantial sums in welfare programs. As in that program, Sallie Mae will be able to ascertain from the Internal Revenue Service and from the Social Security Administration the addresses and places of employment of borrowers.

Neither the IRS nor the Social Security Administration will have any direct role in collections. And that, I think, is something that ought to be emphasized. We are not expecting the IRS nor the Social Security Administration to have anything to do with collection, but we do provide that they will furnish information needed so that Sallie Mae can do its job.

Now, Sallie Mae will not have access to IRS or SSA records. But we are convinced that the availability of this information as to the whereabouts of borrowers would help hold defaulted payments down to a minimum.

Now, let me say one last thing about the cost of student loan programs, and then I will get on with the provisions of how the bill would work. Given the history of these programs and the rising cost of postsecondary education, it seems to me that we have a responsibility to redirect Federal Government spending in this area away from interest subsidies-interest subsidies to private lenders-and toward making more capital available to students. And that is what we do.

If making affordable loans available to students is an important national policy objective-and I believe it is-then we should invest our money so that the maximum amount possible is directed toward that objective.

Now then, there is one other problem with current programs that I believe our bill takes care of. And that is the complexity. Existing student loan programs are not only costly. They are complex. There are seven student loan programs now on the books.

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If you enact Kennedy-Bellmon, you can either repeal these existing programs or simply let them fade away. There will be no need for any other Federal student loan program.

Given the desire to simplify student loan programs, we did not want to set up a new bureaucracy. Neither did we want to force students to go off campus to secure the financing they need for their education. On the other hand, we were convinced that the Department of Education is simply not equipped-and probably should not be equipped-to operate a banking operation.

We chose to build on the existing Student Loan Marketing Association, called Sallie Mae, and on the existing State agencies' capacities and on the existing financial aid offices on school campuses around the country.

We chose to place the responsibility for gaging and meeting the need for capital in the hands of bankers at Sallie Mae. We chose also to place in their hands the responsibility for servicing and collecting these loans, insofar as a Federal capacity to perform these functions is required.

We have provided that Sallie Mae may enter into contractual arrangements with State agencies for the distribution of capital and for the servicing and collecting of loans, and also for providing technical assistance and information functions.

We have placed the responsibility for determination of student need and for loan origination with college financial aid officers who have the direct contact with the students necessary to carry out these functions.

Finally, we have chosen to use the applications already in use for the BEOG program, and thereby cut down on the paperwork in

volved.

Mr. Chairman, it is an unfortunate fact of life that students today cannot know if they will get the loan or loans they need to go to college. They are subject to the vicissitudes of geographical distribution and to other demands of private capital. We do not know how many people want guaranteed student loans but are unable to get them at the present time.

But we do know that a great many are turned away. We also know that those most in need are also the ones most likely to be left out. And I think that is an extremely unfortunate fact of life. We also know that some 70 percent of the loans are made to those who have a prior relationship with the bank. So if you are a student and your parents have no connection with a bank, it is very difficult in many communities to get a student loan.

Therefore, those people who are the least likely to get the loans are the ones who need them most-and the least likely to need the loans are the ones who are most eligible to get them.

The Middle Income Student Assistance Act, the data and evidence suggest, has exacerbated the problem of the neediest student. Participation has increased since the 1978 amendments at more than twice the rate projected before Congress eliminated the ceiling on family income as a condition of eligibility for the in-school interest subsidy.

There is every reason to suppose that this dramatic increase represents participation of the newly eligible group. In that case, and in a period of tight credit generally, the evidence suggests that

banks will lend to the more affluent new borrowers if they have a choice among the various applicants.

I might say, Mr. Chairman, personally, that this is a problem that I faced when I went to college. My family was not able to help me. And it was only because of the good nature of a local banker that I was able to get through school. And I feel very strongly the fact that Federal loan programs that leave it up to local financial institutions who may favor the children of their customers' families over others is absolutely not fair, not equitable.

Senator KENNEDY. Senator, I think that is an important point, too, that we have seen in this over the experience of the service on the Education Committee, where that has been the case time in and time out, where in so many instances the loan programs have been almost an extension of services to the family that is already doing business with the bank.

That was, I think, one of the most unfortunate aspects in the early years. I think we found out that, going back probably 8 or 10 years ago, about 85, 87 percent of the loans were going. That has been reduced to-I think now it is about 70 percent.

We have made some progress in that. But it is still a problem. And I think that this is one of the aspects that-advantages which this particular program would offer. And it would essentially eliminate that kind of tie, which I think is desirable for the reasons which you stated, I think, from personal experience very eloquently.

Senator BELLMON. If the bill the committee finally reports does nothing else, I would hope it would carefully consider that aspect of S. 1600.

Let me explain-and I will try to be very brief-how S. 1600 would work. First of all, we would convert the Student Loan Marketing Association, Sallie Mae, to a private nonprofit corporation and expand its responsibilities. Sallie Mae would raise funds through the Federal financing bank for disbursal through State agencies to colleges and universities.

Financial aid officers on the campuses would, in turn, provide loans to college and graduate students who need these loans. Need and the maximum loan amount would be determined by the following formula: Cost of education, including tuition, board and room, fees, books, and so forth, minus scholarship and other aids, such as work-study funds, and also minus a reasonable parental contribution.

This contribution would be calculated in the same manner in which the contribution is figured for the Basic Education Opportunity Grant program, so that only one needs analysis would be required where the student is in both programs.

No payments would be required until after the student graduated from college or from graduate school. The interest rate would be 7 percent, but no interest would accrue during the time the student is enrolled in an undergraduate course of study. Nor would interest accrue on loans for undergraduate study while the student is in graduate school.

The State agencies and Sallie Mae would be responsible for collections They would also consolidate loans for students who have more than one loan outstanding at graduation. Every student