Introduction Thank you, Mr. Chairman, and members of the Subcommittee for this opportunity to offer testimony today on the proposed National Student Loan Reform Act, S. 1600, a bill which would amend the student loan provisions of the Higher Education Act of 1965. I am Kenneth A. Shaw, Chancellor of the Southern Illinois University System. The Southern Illinois University System is one of four public senior university systems in the State of Illinois and is comprised of two Universities: Southern Illinois University at Carbondale and Southern Illinois University at Edwardsville. SIU enrolls approximately 34,000 students and for this fiscal year our operating budget will exceed $200 million. The University at Carbondale is located about 100 miles southeast of St. Louis, Missouri, and enrolls about 22,500 students including 3,300 graduate students and 500 students in the Schools of Law and Medicine. SIUC is primarily a residential institution. Our medical students study the first year on the Carbondale campus and the remaining years are taken at our medical facility in Springfield, the state capital. SIUC offers master's degree programs in 30 fields, the Ph.D. in 21, and professional degree programs in law and medicine. The University at Edwardsville is located about 20 miles from St. Louis, Master's degrees are offered in 31 fields, the Ed.D. in instructional process, and the D.M.D. in Dental Medicine. Those of you I bring these facts to your attention because of the importance of a strong student financial aid program to our students. familiar with the geography of Illinois know that one of the SIU campuses is located in the second most populous area in Illinois, the Metro-East area near St. Louis, and one is located in the most sparsely populated area in Illinois, the area surrounding Carbondale. The areas that we serve are not the most prosperous in the State. Most of our students come from lower and middle income families, and most of our students are first generation college students. Because we at SIU serve a diverse population, access to higher education for many of our students is dependent in large measure on the flexibility of the overall financial aid program which we are able to offer them, and of course the availability of loans is a part of such a flexible program. I emphasize the fact that loans are only a part of such a flexible program because at SIU, while during the past academic year over 55% of our students received some form of financial assistance, only 26.3% of the aid our students received was in the form of loans. Gift aid, including grants, scholarships and tuition and/or fee waivers, represented 45% of the aid received and 28.6% of the financial aid was in the form of employment. Despite some legitimate criticism of certain aspects of the overall student financial aid program, I believe that the combined federal, state, and institutional program of financial aid does in fact provide access to qualified undergraduate students wishing to attend SIU. Because access has, in my opinion, been generally achieved for prospective SIU students through a combination of strong programs, relatively minor improvements in those programs will meet our needs for a flexible overall financial aid program for the immediate future. H. R. 5192 proposes such changes, and I would recommend your careful review of it. In my description of SIU, I emphasized the number and kinds of graduate and professional programs offered. One of SIU's missions is the offering of such programs, and access to graduate and professional programs is also greatly affected by the availability of financial aid. And again, as in the case of undergraduates, loans are only a part of the overall financial aid/access picture. Now turning to the proposed National Student Reform Loan Act. As I am sure you are aware, this legislation would modify the current student loan provisions of the Higher Education Act of 1965. In the remainder of my remarks, I will attempt to highlight certain aspects of this proposed legislation. Loan Assurance One of the most attractive features of the proposal is that qualified students would be assured of a loan in an amount equal to the cost of attendance, less scholarship and other financial aid and also less a parental contribution. Although participation is not a problem of any magnitude for our students, this assurance would assist students in regions where participation in the current Guaranteed Student Loan Program by private lenders is minimal. The assurance would also assist students wishing to attend an institution where the national direct student loan funds are limited or unavailable. And it would assist those students who are unfamiliar with and/or who have established no prior formal relationship with a financial institution. These same assurances would be extended to graduate and professional students, thereby helping to assure access to such students. Overcoming uncertainties regarding the financing of one's education removes a psychological barrier to access. Another psychological barrier to access is the complexity of procedures one must negotiate in order to obtain financial assistance. In Illinois, a student at a public university qualifying for most forms of financial aid must establish a relationship with the financial aid office on the campus, the Illinois State Scholarship Commission, and a private financial institution. The proposed loan program, because it would be administered on the campus or through a State agency, would reduce by one the number of relationships a student must establish in order to participate fully in the financial aid programs available. Loan Amount Currently under the Guaranteed Student Loan Program a private financial institution may lend a student up to $2500. Funds available to students under the NDSL program are often severely limited due to the limited amount of funds available at a particular institution. legislation places no specific dollar limit on the amount which may be The proposed borrowed, but instead relies on a formula to calculate that which may be borrowed in any one academic year: cost of attendance, less scholarship and other aid and also less a parental contribution. On the one hand such a change appears to be a positive step. No longer would attendance be limited because of the inability of students to borrow money to finance their education. Removal of the limitation on borrowing would, on the other hand, remove one factor which has long been thought to keep tuition low, the ability to pay. By definition, students would be able to finance their education regardless of the level of tuition--by borrowing. If tuition were to rise in response to students' increased ability to pay, the long-term consequences of increased borrowing to pay increased tuitions could be unfortunate. The increased standard of living promised as a result of completing a college education could be dramatically offset through the repayment of sizable loans in the years after college. Despite the fact that the removal of limitations on the amount of student borrowing would appear to have a positive effect on access to postsecondary education, limitations on the amount of financial aid available through loans can have a positive effect by keeping tuition down. Keeping the overall cost of attendance low is, I believe, the best way to assure access to higher education over the long term. Loan Terms and Payback Currently the interest paid by students who borrow under the NDSL program is set at 3%. Despite the fact that NDSL is the smaller of the two major student loan programs, and that the overall cost of the program isn't greatly affected by the low interest rate, given the cost of making money available for any purpose today, 3% seems an unrealistically low rate. The proposed program would charge 7% interest on the money |