ment and even different due-diligent requirements. And the 7percent interest rate has seemed reasonable to us, especially since our continuing inflation makes the actual rate very much less. Our schools are very much aware of the severe difficulties that have developed in financial aid resources for graduate students. And one of the modifications we hope the committee will consider is the interest forgiveness for graduate students. There has been a significant decline, as the chairman knows, in fellowship moneys for graduate students; and graduate students must borrow heavily to pay for their education.

Second, as a protection against excessive borrowing, we would recommend the inclusion of reasonable borrowing limits. Our experience suggests that $2,500 limit in the first 2 undergraduate years and $3,750 in the last 2 years is ample to meet student needs at the most expensive institutions, while being conservative in terms of manageable student debt.

And the cumulative undergraduate maximum would thus be $12,500. At the graduate level we would suggest a maximum of $10,000 per year, with a total maximum of $25,000.

We are very much in favor of the loan program for parents. We believe there is a liquidity problem for many parents. Our only suggestion for a change there would be that parent repayment schedules begin soon after the loan is made, with an option to defer principal, as contained in H.R. 5192.

My next point concerns the Student Loan Marketing Association, or Sallie Mae, which we believe has turned out to be one of the special resources bringing order and stability to the way we all manage student loans. It has regularly been on the leading edge of the development of more orderly loan procedures. For example, it moved to define due diligence when all Government agencies were tongue-tied.

Sallie Mae is in a unique position to play a central role in any comprehensive reform of the student loan program. We believe it neither necessary nor advisable to restructure Sallie Mae into a nonprofit Government agency in order to achieve our goals. And we believe the statutory changes necessary to provide Sallie Mae with the flexibility to play its extended role can easily be made part of the legislation.

We would urge the distinguished members of the subcommittee to make a number of modifications in the Kennedy-Bellmon bill to allow Sallie Mae to meet the capital needs of lenders and provide for a more comprehensive secondary market function, without discarding the financial and management structures that continue to serve us well.

We also are concerned that a loan program must be sensitive to need, must give careful attention to the entire financial aid process, including parent and student needs analysis. Without an adequate economic rationale as a basis for determining student grant aid and the expected family contribution, an expanded need-based loan program will not serve students and parents as it should, as a necessary but decidedly secondary resource for meeting the costs of going to college. As a group of institutions which collectively spend approximately $100 million of our own funds in grant aid to undergraduates in 1979-80-and more than half of that $100 million

comes from current unrestricted funds-we will be profoundly affected by the establishment of any single national needs test system. As desirable as this goal is to establish a single national needs test system-we would urge the Congress to proceed with caution in developing a single needs system that would ration Federal, State, and institutional funds. Specifically, such an effort should allow for adequate study and economic analysis of the system to be adopted, in order to insure that limited grant dollars are spent first where they are needed most, and that as a result Federal loan funds are properly limited to their secondary supplemental role in the financial aid packaging process.

Mr. Chairman, I noticed recently that you made some comments, with which I agreed very much, about excellence in higher education. I submit that the Kennedy-Bellmon bill and its loan program would help to promote excellence in higher education by helping to promote choice in higher education. I really do believe that competition, the opportunities for students to select one institution over another, based on their perceptions of that institution and the student's perceptions of his or her requirements, will encourage all of us to work harder to provide excellence.

In conclusion, I cannot end without responding briefly to the cost of loan programs to the taxpayers. It is essential that any plan for the reform of Federal loan programs give careful attention to costs. We believe that the Kennedy-Bellmon bill takes a responsible step in the direction of achieving maximum loan equity and availability at a reasonable cost to the taxpayer.

Direct appropriations from the Federal Treasury to provide student loan capital at 3 percent is clearly an inefficient and anomalous system, which should be retooled to leverage Federal dollars to their maximum by using them to attract private capital.

Let me summarize, then, to make sure that the points are clear. The consortium urges you to make use of S. 1600 as a legislative means to achieve loan program simplification while insuring that adequate supplemental resources are available to students to allow them to exercise the option of attending the colleges of their choice.

We would recommend that certain essential modifications be made: One, extension of an in-school interest subsidy for the needbased student loan up to some reasonable maximum, which includes borrowing needs during the graduate school years; two, the introduction of loan limits for undergraduates to insure that borrowing will not become excessive and the establishment of flexible borrowing limits at the graduate level; three, the continuation of Sallie Mae in its present role as a secondary market for student loans, with certain statutory adjustments which will allow it to play a more direct role in the administration of a simplified and expanded Federal loan program; four, a careful review of the process by which scarce financial aid resources, including student eligibility for borrowing, will be distributed as a result of any comprehensive need analysis system. Finally, let me end as I began: We believe that this is the time to make a comprehensive reform in the loan program, to grasp the opportunity and not to continue with piecemeal reform.

I am grateful for this opportunity to testify before the subcommittee. Thank you.

Senator PELL. Thank you very much indeed, President Swearer. The administration proposal would not provide basic loans to students in the law, medicine, and business professional schools. S. 1600, as you know, includes all of these students.

Dr. SWEARER. Yes.

Senator PELL. Do you have any views on this matter?

Dr. SWEARER. Well, I was listening carefully to Senator Bellmon when he stated that all graduate students-and I assume by that he means professional students-should be treated the same. I must confess-and I am talking now as an individual and not representing COFHE-I believe that there is a case to be made for some differential treatment of medical students, law students, and perhaps veterinary students and some others in contrast to your more traditional graduate students. It is just all so clear now that the incomes of graduates of some of these professional schools will be so much greater than those of the more traditional disciplines that there is a case for differential treatment.

But I would hope, particularly for the graduate students that, I mentioned, interest would not be charged during their graduate school years.

Senator PELL. Do either you, Dr. Johnstone, or Dr. Shaw or Dr. Robinson have any reactions on this?

Dr. JOHNSTONE. Mr. Chairman, my first reaction would be that, as I mentioned before, that is a second order of issue. And yet it is an important order. I think that there are lots worse ways of spending Federal dollars than subsidizing graduate students.

There are also some better ways-that is, within the overall higher education area. I think if we get to a point where the loan subsidy dollars either in fact or in appearance wind up being tradeoffs for substantial and realistically full funding for basic grantsin my mind more important programs-then those are one of the expenditures that I would cut.

At the same time, I think it is terribly important to maintain access to higher education, and I have no great objection whatsoever, certainly as a higher educator, to the preservation of interest subsidies during the graduate years.

I do worry about treating graduate students differently. I think that the tuitions are going to be fundamentally higher, however, in certain programs such as the advanced professional programs in medicine and elsewhere. And I think it is important to recognize that by perhaps having higher loan limits there, rather than by differentially subsidizing the loans.

Dr. SHAW. If I could comment on that concern, I would want to strongly emphasize the need to subsidize graduate loans in the national interest, in this sense: We clearly know that in the eighties there will not be a large need for additional college professors, Ph. D.'s, in most areas. It is going to be difficult to encourage people into areas of basic and applied research, and that is something that the Nation needs. It is something that has more or less evolved somewhat naturally, because there has been a simultaneous need for people to go into higher education to teach and do research.

Now, what I am suggesting is that that stimulus will not be there to the same degree in the eighties. If you eliminate the subsidy or do not allow subsidy for graduate loans, you are discouraging even more people from going into master's and doctor's level work. I would maintain that our Nation needs to stay ahead in terms of basic and applied research, and we should not do anything to discourage that.

Senator PELL. Thank you very much. Dr. Robinson?

Dr. ROBINSON. Yes, Mr Chairman. I would like to speak briefly to that. One of my concerns is that we have very few minority students in graduate work, particularly in the professional areas, medicine, dentistry, law, and of course engineering. And I think we should do everything we can to encourage them to get into the various graduate programs.

And therefore, I would strongly favor supplemental subsidy for those students in the graduate programs. I would, however, speaking as an individual, give some preference here to students, for example, in the medical professions. I think I would lean in that direction for them.

But I certainly would want us to encourage more minority students to get into graduate school and would want to withhold both interest and principal during graduate study for students, because I think certainly it would encourage all students, but more specifically minority students in this instance, to get into a graduate program.

Senator PELL. Thank you. I would like to ask Ms. Cox if she has a reaction here on behalf of Senator Bellmon.

Ms. Cox. If I may, I would like to respond to that. I cannot speak for Senator Kennedy, obviously. But we have given some consideration to this issue since loan limits and in-school interest subsidies for graduate students are two issues that have been frequently raised by people discussing S. 1600.

And the Senator indicated in his testimony that he would like to see graduate students treated equally. It seems to us that if you take the combination of the concept of some kind of loan limit and look at the different levels of subsidies envisioned in KennedyBellmon, you could reasonably propose that you provide an inschool interest subsidy for graduate students in the more heavily subsidized program up to some maximum loan limit, some aggregate amount of money that you can borrow for your graduate education at that more heavily subsidized level, and that you could then allow your students whose graduate education cost exceeded that amount to borrow through the less heavily subsidized higher interest cost program for the remaining amount.

And you could do that with medical students and law students as well as you could with students in the humanities. This would recognize the reality that not everybody who begins medical school, for instance, finishes it. To distinguish by professional discipline at the outset, it seems to us, is unreasonable and unnecessary. You could devise a system where the level of subsidy was determined by the aggregate loan amount, and the statement just automatically kicks over.

If you stay in medical school throughout the period of time necessary to become a doctor, obviously, you would kick over fairly

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soon into the lower subsidy level program. And that seems to us a more reasonable approach to the problem than trying to say, if you are going to be doctor or a lawyer or an accountant, you are here; but if you are going to be something else, you are over here. Senator PELL. Thank you very much. Dr. Swearer?

Dr. SWEARER. Since I may have confused the issue, I would just like to say that I agree with what was just said.

The point I want to make is that we do believe that there ought to be interest subsidies for graduate and professional students. We are pleased to see that the loan program is extended to the graduate and professional students in this bill.

What was just said about limits on borrowing and what Dr. Johnstone had to say about the fact that it is very likely in many of these schools tuitions will be a good deal higher than they will be in traditional disciplines lead me to the conclusion that they ought to be treated pretty much the same.

Senator PELL. Thank you very much. Senator Stafford?

Senator STAFFORD. I have no questions, Mr. Chairman.

Senator PELL. We have some questions that we would like to ask for the record for Ms. Cox for Senator Bellmon. And if she could answer those in writing in the next couple of weeks, we would be very grateful indeed.

And we want to thank the panel very much, the members of it, for coming down here. I know the inconvenience of the long journey. And thank you for being with us.

[The prepared statement of Dr. Swearer follows:]