serviced--not to increase student debts or otherwise to

shift the burden of college costs further from parents or taxpayers to students.

2. Repayment schedules should be more flexible, allowing longer terms in the event of large accumulated debts (e.g., as for graduating medical students), graduated repayments for borrowers who wish to repay at a slower rate in their early years and at a faster rate when earnings are higher, and some provision for help short of default or bankruptsy for students who suffer from much lower than anticipated earnings and are consequently unable to repay on time.

Comments:

The flexibility in S. 1600 is good, and wisely

leaves much to be administered by the agency. I have a
major concern about the wisdom of the proposed forgiveness
features for students engaging in certain careers and loca-
tions. Debt forgiveness is a very expensive proposition, and
should not be used as a surrogate for other more direct
incentives. It is not clear that debt forgiveness actually
induces the behavior it rewards anyway. I would hope that
the Congress, along with the states, could devise other
ways of encouraging sufficient numbers of able persons to
enter high priority public service careers. For starters, for
example, the salaries could be raised.

2.

Parents should have access to ready and reasonably priced loans to help meet the very heavy financial obligations that our society continues to expect from the parents of college students.

Comments: S. 1600 takes a major step forward in recognizing

the need for a ready, but considerably less subsidized, loan
plan for parents who have been judged financially able to
contribute toward their children's education, but who need
liquidity and a longer span of time over which to spread their

burdens.

I would urge the committee to consider a rate of interest closer to the market rate in order to hold down federal costs and to restrict use to parents (and some independent students) who are truly without the necessary liquidity from their own assets and borrowing sources. Perhaps the T. Bill rate plus (rather than minus) one percentage point would better

allocate these funds.

I would also urge a revision of S. 1600 to begin the parental repayments immediately, to the end that three or four years of parental borrowing can have repayments spread more-or-less evenly throughout, say, six to eight years,

beginning with the first year of borrowing.

4.

Student loans should be originated by the campus aid officers who know the students' needs, who have the other sources of assistance, and who can best keep track of the students' educational programs.

Comments:

Any major reform of the federally-sponsored

student loan programs should build on success of the campus

based National Direct Student Loan Program in balancing

the student's needs to borrow with the financial aid officer's

responsibility for putting together a total package of assistance-

Basic Grants, state grants, work-study, and loans--that does

not over rely on loans. Banks are and will continue to be
important suppliers of capital to the student loan system.
But banks cannot originate anything without the campus aid
officer's participation. Banks also bear no risk and, with the
Student Loan Marketing Association, need not even bear a
burden of illiquidity. The floating special allowance has
removed the final traces of money market risk and virtually
assures the banks a riskless return. In short, banks have
ceased to perform any service in the student loan program
unique to banking other than the mechanical servicing of repay-
ments--which they can do by contract anyway regardless of
who or what originated the loans. S.1600 has wisely
followed the NDSL model and put the campus aid officers pro-
perly in charge of the actual lending, with other agents
performing their respective roles outlined in the comments to
#6, below.

5. Provision of capital for student loans should not be federally budgeted, but secured through private issues (like present SLMA financing) and the Federal Financing Bank.

Comments: In this respect, S. 1600 preserves the best

feature of the Guaranteed Student Loan Program--use of private

capital--even as it follows the NDSL model in its campus

6.

based origination. Similarly, S. 1600 preserves private bank

participation through the supplemental loan program to parents.

Although colleges should originate the loans (principle #4), the
lender of record ought to be some kind of public or quasi-public
agency; collections should be by and to that agency or to its
contractors, not by or to the college. State agencies should be
used to the maximum degree in managing the outlays of funds and
in collecting repayments.

Comments:

One of the lessons from the student loan

experience of the past decade is that "lending" is not a
single act but several acts, each of which can often be
best performed by a different agent. The roles of the federal
government should be to establish and monitor the system,
to set the rules of the game, and to provide whatever public
subsidies are, in the end, decided upon. The roles of
the colleges should be to originate the loans and to keep
track of students and their educational and financial records

during the in-school years. The roles of Sallie Mae or of
a National Student Loan Bank should be to provide capital
to purchase all loans originated, and to service or arrange
to have serviced the loans in repayment. The roles of banks
should be to lend to parents, to provide capital to Sallie
Mae or to the National Student Bank, and occassionally, as

a contractor, to service these loans. The roles of state
agencies should be to help administer a national student loan
system, to help schools within their jurisdictions, and, when
equipped, service and collect loans on behalf of the national

agency.

Mr. Chairman, S. 1600 is a worthy bill because it recognizes, for the first time in proposed legislation, the different lending roles that the different agents can play. It is a bold bill. It needs work and, I believe, some

improvements. Its implementation will be challenging and, to some, threatening.

But it is also a major step in the correct direction. If it can be studied

and improved upon as a major and badly needed reform of our basic federal higher education legislation, and not as a move to substitute loans for taxpayers support or to favor any one sector over any others, I believe it will serve students, parents, taxpayers, and colleges alike.

Thank you.

Senator PELL. I welcome Dr. Swearer here. He is the president of Brown University in my own State, of which I am very happy and proud to be a trustee emeritus. And he is here not only speaking as the president of Brown University, but also on behalf of the Consortium on Financing Higher Education. I extend a very warm welcome to him in both my personal and official capacity.

STATEMENT OF DR. HOWARD SWEARER, PRESIDENT, BROWN UNIVERSITY, PROVIDENCE, R.I.

Dr. SWEARER. Thank you, Mr. Chairman. It is a pleasure to be here. I have a long written statement. I am going to abbreviate it and use it as a talking piece only.

Senator PELL. Right. It will appear in full in the record.

Dr. SWEARER. Let me say first of all that, as you know, I am the president of an independent institution, where a large percentage of our students are on financial aid. And therefore, loans are very important, because loans are an integral part of every financial aid package.

Senator PELL. What percentage are on aid?

Dr. SWEARER. Somewhere around 40 percent. For the consortium as a whole-the consortium contains 30 private colleges and institutions-the average is 50 percent. It ranges from around 24 percent to as high as 65 percent for the members of the consortium. With the introduction of the Kennedy-Bellmon bill, we believe that Congress now has at its disposal a legislative vehicle for bringing about the long-needed changes in Federal student loan programs. And I think there is widespread agreement among many members of the financial aid community on many provisions in this bill.

We, in short, favor a comprehensive reform of the loan program rather than piecemeal actions on the loan program at this time. Senator PELL. In other words, you prefer the Kennedy-Bellmon bill

Dr. SWEARER. Kennedy-Bellmon bill.

Senator PELL [continuing]. To the administration bill or the House bill or to the Williams bill. Are you familiar with that? Dr. SWEARER. I am sorry. I am not as familiar with the Williams bill.

Senator PELL. That was just put in recently.

Dr. SWEARER. We do believe that there ought to be some changes considered by the committee in the Kennedy-Bellmon bill. Those are the items that I would like to dwell on this morning, hopefully in a constructive sense.

We believe that a single coordinated loan program has long been the goal, so that we could move away from the multiple loan programs with different terms and different eligibilities for defer