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SUBCOMMITTEE ON EDUCATION, ARTS AND HUMANITIES
COMMITTEE ON LABOR AND HUMAN RESOURCES
U.S. SENATE

Washington Office Suite 203 1302 18th Street N.W. Washington, D.C. 20036 • (202) 565-3195

Mr. Chairman, distinguished members of the Subcommittee, my name is Howard Swearer, president of Brown University. I am grateful for the opportunity to appear before you this morning on behalf of the Consortium on Financing Higher Education, an association of thirty independent colleges and universities. As a group of higher-priced institutions we are especially sensitive to the significant issues and concerns which surround student loan programs and through our joint efforts we have endeavored to identify the problems and pose workable solutions. Many of these problems are not new to this Subcommittee. The public policy issues which are part of the debate over student loan programs have been the subject of numerous articles and reports by experts in the field, often dating back almost as far as some of the federal programs themselves. Most parties agree that the major concerns can be reduced to a few key elements of concern:

1) capital availability - the assurance that adequate funds are available to students and parents who find it necessary to borrow to meet the cost of a college education;

2) universal access - assuring that borrowers in all sections of
the country and from all economic backgrounds know that they will
have access to loan funds as they begin the process of applying
to college; assuring also that all borrowers will have access to
sufficient funds to meet their financial need to attend the insti-
tution of their choice;

3) realistic borrowing limits and repayment schedules access to capital must be accompanied by responsible borrowing limits and flexible repayment schedules which make it possible for students to manage their debt with confidence and responsibility;

4) defaults and loan collection higher professional standards in dealing with collection practices; delinquent accounts must be followed up conscientiously to assure the integrity of the programs and to reestablish a more responsible relationship between the borrower and the source of his or her funds.

5) simplification of the various programs the patchwork way in which the various federal loan programs have been assembled over the years has created a situation in which no one - neither students or parents, nor banks or colleges, nor financial aid officers, and not even the Congress, can explain or fully understand the complexity of options available or federal subsidies implicit in all of the various programs.

Mr. Chairman, I come before you this morning as the president of an independent institution where a large percentage of undergraduate students receive financial assistance and where, in each of these instances, loans are an integral part of the financial aid package. Through the legislative initiatives of the Consortium, we have sought to encourage reform in the federal student loan programs in ways that will address all of the elements of concem which I have mentioned and yet will allow us to build on the strengths of the current programs. We believe that with modest changes, an effective and comprehensive loan program can be developed to meet these goals and serve the needs of all students.

With the introduction of the Kennedy-Bellmon bill we believe that the Congress now has at its disposal a legislative vehicle for bringing about the long needed changes in federal student loan programs. It is significant to note that many of the key elements of S.1600 already have broad support in the financial aid community. We believe that Kennedy-Bellmon takes significant steps toward the coordinated delivery of student loans, and toward a responsible pattern of costs. You will understand that in making our recommendations for modest changes, we offer them in the spirit of providing constructive suggestions for a proposal which already has many fine points to its credit.

Student Loans

From the standpoints of equity and simplicity, we believe it would be desirable to follow the Kennedy-Bellmon pattern and provide students with a single loan program with funds disbursed by the financial aid officer. The financial aid officer is in the best position to have a comprehensive view of student's financial need, and for assuring that grants, loans, and work opportunities are combined in the most advantageous way.

We are also concerned as you are, Mr. Chairman, about the multiplicity of loan programs and the confusion created by them in the minds of both students and financial aid officers. We believe that if the provisions of Kennedy-Bellmon are adopted with certain essential modifications, the program would simply eclipse the other loan programs and lead to their obsolescence. This should occur because the terms of the new program would be at least as favorable to the borrowers and the assurance of adequate funds to meet need would make it the most attractive program to the lenders.

A single coordinated loan program has long been our goal, so that we could move away from multiple loan programs with different terms, different eligibilities for deferment, and even different due-diligence requirements. The 7% interest rate has seemed reasonable to us, especially since our continuing inflation makes the actual rate very much less.

The possibility of expanding the NDSL delivery mechanism--through the school and the financial aid officer--while providing major funding from private capital is very attractive indeed. Coordinated terms and easy loan consolidation would represent a major step forward.

Our schools are very much aware of the severe difficulties that have developed in financial aid resources for graduate students. Funds for government fellowships have steadily eroded, and real questions of equal opportunities are beginning to emerge. Graduate students must borrow heavily to pay for their education. Against this background, the in-school interest subsidy for graduate students becomes very critical -- and this is a provision that regrettably is absent in the Kennedy-Bellmon bill. We hope such an amendment can yet be made.

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As a protection against excessive borrowing we would recommend the inclusion of reasonable borrowing limits. Our experience suggests that a $2500 limit in the first two undergraduate years and $3,750 in the last two years is ample to meet student needs at the most expensive institutions while being conservative in terms of manageable student debt. The cumulative undergraduate maximum would thus be $12,500 as it is presently if one combines the available limits of NDSL and GSL. Graduate student limits should be set at $10,000 per year with a $25,000 cumulative maximum for all but those pre-professional students whose programs and future income warrant higher borrowing limits. regulation.

Such higher limits could be established through

Parent Loans

We are fully supportive of the introduction of a parent loan program. This provision gives recognition to the growing evidence that many middle-income families are finding it difficult in the short term to provide the funds expected from them in the form of the parental contribution. Data recently made available by the National Institute of Independent Colleges and Universities provides hard evidence that parents are borrowing through their children by making use of the Guaranteed Student Loan Program to supplement the parental

contribution. The parent loan program simply institutionalizes a practice that is already taking place, but at interest rates and with repayment schedules which are suitable to the liquidity needs of parents. The federal subsidy implicit in the parent loan is a modest and worthwhile federal investment in the continued role parents can and should play in supporting the education of their children. The parent loan also has the desirable feature of removing some of the debt burden presently being assumed by students on their parents' behalf. We would suggest only that parent repayment schedules begin soon after the loan is made, with an option to defer principal as contained in HR 5192.

Sallie Mae

The Student Loan Marketing Association, or Sallie Mae, 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 is neither necessary nor advisable to restructure Sallie Mae into a nonprofit government agency in order to achieve our goals and we believe that statutory changes necessary to provide Sallie Mae with the flexibility to play its expanded role can easily be made part of the legislation. We would urge the distinguished members of this 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 can continue to serve us well.

Other Related Recommendations

The special allowance should continue to be paid under both the parent and student loans, and should be tied to the 90 day Treasury bill rate. The Administrative allowance as conceived in S.1600 provides an adequate and flexible means of assisting institutions with the costs associated with administering the campus programs. We support this approach, which provides for a 4% administrative fee or $30 per loan origination, whichever is greater.

We would also make the observation that a loan program which is sensitive to need must give careful attention to the entire financial

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