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would be offered optional repayment terms, adjusting the repayment period for the size of the loan and revising the repayment schedule to provide lower payments during periods when the borrower's income is expected to be low.
Parents would be able to borrow an amount up to the expected parental contribution. These loans would be made available through private lenders and would be a new source of loan availability. The Federal Government would guarantee these loans. Parents would pay the Treasury bill rate minus 1 percent. And the banks would get a special allowance for these loans, as they now do under the Guaranteed Student Loan program.
Independent students could borrow the amount of their expected self-help contribution through the direct loan program on the same terms and conditions as apply to the parent loan program.
Now, here are the advantages we feel are offered by S. 1600. Under the National Student Loan Reform Act, qualifying students would be assured that they could get a loan to cover their needs at all eligible institutions regardless of region, regardless of the tightness of the money market, or regardless of their families' incomes. The National Student Loan Reform Act will provide for more flexible repayment, so that students will not be suddenly overburdened just as they graduate when their incomes tend to be low.
In testimony before the House Subcommittee on Post Secondary Education, Kurt Kendis of the Higher Education Finance Research Institute at the University of Pennsylvania indicated that this feature alone had the potential to dramatically reduce defaults by making payments more manageable for the students.
Our bill would take the burdens of loan collection off the colleges and place collection in the hands of the State agencies, which have demonstrated their capacity to perform this function in a much more cost efficient manner than the educational institutions themselves.
It will also place the responsibility for servicing and collecting at the Federal level in the hands of bankers. To help reduce defaults, the bill allows for consolidation and renegotiation of loans to make debts more manageable. Again, Mr. Chairman, I think this is a feature of the bill that is certainly worthy of the committee's consideration. We want it to be flexible and not work an unnecessary burden on students who, in many cases, have extremely heavy financial obligations soon after they graduate. They have to buy houses. In many cases, they need to furnish those houses. They need, in many cases, to pay for the costs of starting families. And so we would like to see some flexibility here and see students given a chance to pay as they can and not be forced to default because of the impossible circumstances in which they are placed.
Now, then, I would like to comment about the potential for Federal policy in higher education financing, placing upward pressure on college tuitions. As between institutional assistance and student assistance, I tend to favor student assistance because of the beneficial effects that I have already discussed. Clearly, as between grants and loans, loans have less potential for upward pressure on tuition. Work-study is an important element in Federal student assistance, especially if it helps students meet the self-help compo
nent of the cost of financing their education, which virtually all educators agree is desirable.
Under Kennedy-Bellmon, the Federal Government would undertake to guarantee access to capital on affordable repayment terms to students, and students would undertake to repay their loans. And parents could participate in the financing of their children's educations, even if they faced a capital crunch when the student is in school.
So this strikes me as a good distribution of benefit and burden. The staffs of Senator Kennedy and myself have spent a long time working out our differences and coming to the conclusions represented in this bill. I see Senator Kennedy has left, but I think it must say something to the committee when Senator Kennedy and I can get together on something like this. We represent somewhat different points of view and different geographical areas. And I would hope that that would also commend this proposition to the committee.
Senator PELL. And I would also notice the spectrum of senators who have cosponsored the bill has quite a range.
Senator BELLMON. I think we joined together in a desire here to help the students to get access to capital. And I think this is a very worthy endeavor. I know that the committee will soon be marking up reauthorization legislation for all the existing higher education programs. And I sincerely hope that you will find the KennedyBellmon bill an attractive alternative to the numerous existing loan programs.
It would please me very much to have you incorporate our bill as the loan program in the reauthorization legislalation. I am not suggesting you necessarily bring it out as a separate piece of legislation, but work it into the whole package.
We will be happy, as I have said before, to have our staffs work with yours toward that end. Again, I would like to thank you, Mr. Chairman, for the opportunity to come here and testify. Unfortunately, our Senate Budget Committee is in conference today on the Second Budget Resolution. And I am going to have to get over there as soon as I can. But if you have some questions, I will be glad to answer them or to suggest that Carol Cox stay and respond in any way necessary.
Senator PELL. I think probably the best thing would be if she stayed on. And I want to give you our assurance that we will go over it carefully. As you have suggested, the administration seems to have absorbed some of your ideas. And the eventual bill that we get out will combine what we believe on the committee to be the best of all the different approaches that have been made. I thank you very much indeed, Senator Bellmon.
Senator BELLMON. Thank you, Mr. Chairman.
[The prepared statement of Senator Bellmon and information referred to follows:]
SENATOR HENRY BELLMON STATEMENT BEFORE THE SENATE SUBCOMMITTEE
STUDENT LOAN REFORM ACT, OCTOBER 10, 1979
MR. CHAIRMAN, SENATORS, THANK YOU FOR THE INVITATION TO TESTIFY TODAY. I AM PLEASED TO JOIN OUR DISTINGUISHED COLLEAGUE, SENATOR KENNEDY, (FIVE OTHER MEMBERS OF THE LABOR AND HUMAN Resources ComMITTEE), AND A TOTAL OF SEVENTEEN OTHER SENATORS, AS AN AUTHOR OF THIS LEGISLATION.
LET ME BRIEFLY SUMMARIZE THE HISTORY OF THIS BILL. IN AUGUST, 1978, I INTRODUCED S. 3403, "THE NATIONAL STUDENT LOAN BANK ACT." SENATORS KENNEDY AND DURKIN INTRODUCED A BILL LAST SESSION PROPOSING TO CREATE A "TUITION ADVANCE" FUND. THESE TWO BILLS HAD IN COMMON THE CONCEPT THAT THE SOLUTION TO THE PROBLEM OF CAPITAL AVAILABILITY FOR POST-SECONDARY STUDENTS IS FOR THE FEDERAL GOVERNMENT TO
REPLACE THE NUMEROUS EXISTING STUDENT LOAN PROGRAMS WITH A SINGLE DIRECT-LOAN APPROACH. (THE ADMINISTRATION HAS REACHED THE SAME CONCLUSION, AS EVIDENCED BY THE SIMILARITIES BETWEEN ITS NEW LOAN PROPOSALS AND S. 1600. ASSISTANT SECRETARY BERRY CALLED ATTENTION TO THEIR SIMILARITIES IN HER TESTIMONY LAST WEEK.)
LET ME TOUCH ON SOME OF THE PROBLEMS IN OUR PRESENT STUDENT LOAN PROGRAMS
AND THE SOLUTIONS WE PROPOSE WHICH HAVE LED SENATOR KENNEDY, ME, AND A LARGE GROUP OF OTHER SENATORS TO INTRODUCE THIS LEGISLATION.
FIRST THERE IS COST. I HAVE BEEN IN THE SENATE ELEVEN YEARS; AND I CANNOT REMEMBER THE LAST TIME I HAD THE OPPORTUNITY TO SUPPORT A PIECE OF LEGISLATION WHICH PROPOSED TO MAKE THE SAME
FOR EXACTLY SIMILAR LOANS
BENEFITS AVAILABLE, AND ACTUALLY SAVE MONEY. THE CONGRESSIONAL
OVER A FIVE YEAR PERIOD, THE COST PROJECTIONS OF THE CBO INDICATE
WHY DOES OUR BILL COST SO MUCH LESS? THE FASTEST GROWING COST
DOES OUR BILL PROPOSE TO REDUCE THE AMOUNT OF CAPITAL AVAILABLE FOR
THE STUDENTS? THE KENNEDY-BELLMON BILL WOULD MAKE LOANS AVAILABLE TO
INTEREST RATES PAID BY PARENTS, IF THEY CHOSE TO BORROW TO MEET
THESE INTEREST RATES WOULD, HOWEVER, 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. THAT RATE TO 7 PERCENT WOULD BRING THE LEVEL OF SUBSIDY MORE IN LINE WITH THE SUBSIDY ENACTED IN 1958 - WHEN NDSL FIRST BECAME LAW, (A GRAPH COMPARING STUDENT LOAN RATES AND TREASURY BOND RATES SINCE 1958 IS ATTACHED TO MY STATEMENT. SEE ATTACHMENT "C".)
KENNEDY-BELLMON PROPOSES TO DEFER
RATHER THAN HAVE THE GOVERNMENT
PAY THE IN-SCHOOL INTEREST COST OF LOANS FOR GRADUATE EDUCATION.
I AM AWARE THAT THIS PROVISION OF OUR BILL HAS BEEN