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 will spend approximately $100 million of our own funds in grant aid to undergraduates in 1979-80, and more than half of this from current, unrestricted funds, we will be profoundly affected by the establishment of any single, national needs test system. As desirable as this goal might seem, 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 ensure 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, we took special notice of your recent remarks in these hearings which emphasized the need to assure that excellence in educational programs accompanies access to higher educational opportunity. I could not agree with you more. In addition to providing access, Federal programs must be designed to encourage the pursuit of excellence at all levels of educational aspiration. One obvious way of encouraging excellence in educational programs is to allow students to exercise the option to choose the best and most suitable education available by removing the artificial barriers which limit choice. If colleges can provide students with an early assurance that adequate financial aid will be made available to all who seek to enroll, the competitive forces of the market place should exert upward pressure on the quality of education being provided nationwide. We believe that the provisions of S.1600 go a long way toward meeting that goal.

In conclusion, Mr. Chairman, I cannot end without responding briefly to cost of loan programs to the taxpayer. 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% 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. More than that we are incurring many added administrative costs because of the complexity and duplication of our programs. We must work for simplification. Even the various forgiveness

provisions of current loan programs are needlessly cumbersome. In many instances such provisions serve legitimate and socially desirable public policy goals associated with manpower needs and the altruistic public service aspirations of young people. We believe that cancella

tion and forgiveness provisions can be continued, but that they should be removed from the administrative structure of student loans. Let the authorization for funding rest with those Congressional committees in whose jurisdiction such decisions would reside, and then payments can simply be authorized for lenders when borrowers meet eligibility standards. Lenders would therefore be freed from yet one more expensive and cumbersome administrative task. Otherwise, we shall continue to have loan program costs for such provisions long after the social value of their continuation may have passed.

To summarize, the Consortium would urge you to make use of S.1600 as the legislative means to achieving loan program simplification while ensuring that adequate supplemental resources are available to students to allow them exercise the option of attending the college of their choice. We would recommend that certain essential modifications be made, including:

1) extension of an in-school interest subsidy in the need-
based student loan up to some reasonable maximum which
includes borrowing needs during the graduate school years.

2) the introduction of loan limits for undergraduates to
ensure that borrowing will not become excessive and the
establishment of flexible borrowing limits at the graduate
level.

3) 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.

4) 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 needs
analysis system.

Many would urge this Subcommittee to defer substantive change in loan programs until the issues can be given further study. Mr. Chairman, the complex issues surrounding loan programs have been studied and re-studied for more than a decade. It is doubtful that the results of one more study will bring us closer than

we are this morning with S.1600 before us to achieving reasonable and lasting reform in student loan programs. We urge you to seize this opportunity to achieve simplification and ensure the continuation of excellence in educational programs by giving full consideration to S.1600 as you embark on the reauthorization of Title IV programs.

I wish to thank you Mr. Chairman for this opportunity to appear before you this morning. Your continued leadership in addressing these important national issues is well known and deeply appreciated, and we wish you to know that we would be pleased to work closely with you and the other distinguished members of this committee as you move toward resolving the many questions which surround the 1980 reauthorization of the Higher Education Act.

Senator PELL. Our next witness discussing the loan programs is Mr. Leo Kornfield, former Deputy Commissioner of Education for Student Financial Assistance.

Welcome, Mr. Kornfeld. This seems like old times. I would be very interested in your reactions between the various approaches that are being offered-Kennedy-Bellmon, the administration, the Ford bill, and I am not sure if you are familiar with the Williams bill which was put in yesterday, and give us your judgment on them.

In the course of the past few years, our subcommittee has acquired a tremendous respect for your knowledge and judgment. STATEMENT OF LEO KORNFELD, FORMER DEPUTY COMMISSIONER OF EDUCATION FOR STUDENT FINANCIAL ASSISTANCE, PRINCETON, N.J.

Mr. KORNFELD. Thank you very much, Mr. Chairman. I genuinely thank you for the opportunity to be here as a private citizen. I do feel strongly about these programs and I do want to express my own personal opinion about these programs.

Also, fortunately, it does give me a chance to see some of my old friends.

This morning, in addition to talking about the loan program, I would like first to present some general observations I have about student aid and then make some specific recommendations regarding the loan programs and some of the other programs.

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I would like only to discuss, for the sake of brevity, the major points and not get into all the detailed aspects of these programs. First, six general observations I would like to make. First, even after this time, being out of government now for about 2 months, I still think that the thrust of the administration's proposals are the proposals that are still the most sound, objective and serve the purpose of student aid more so than any set of programs that have been set forth and presented to date. Although I have some minor disagreements which I would like to present with the administration's proposals, I think they are good proposals.

As you stated before, and as pointed out earlier this morning, the Kennedy-Bellmon program is very similar to the administration's proposal as far as the loan program, and I would like to comment about that, too.

The second general observation I would like to make is that I think it is a mistake to add significant dollars to student aid at this

point. I do think some additional dollars are needed, but I think it is unnecessary and a waste of dollars to add billions of dollars again to student aid after what the MISAA program did last year.

I think the economy cannot support that additional influx of billions of dollars in student aid, nor do I think it is really necessary. When you look at the general picture of student aid dollars in the community today, we are close to having met the basic objective of access to postsecondary education to every person in this country. Now, admittedly, there are still pockets where people are not being served as well as they ought to be. There are still people who are being treated inequitably, but to add billions of dollars, again, at this point is just not necessary, in my opinion. I think the emphasis ought to be in making sure that the program gets delivered as it ought to be. Also I believe it is more important to simplify the program than add billions of dollars to the program. The third general observation I would like to make is that the loan program must be controlled. If the loan program is not controlled, it is going to have an adverse impact on the entire student aid picture. The loan programs are costing this Government large sums of money, and at the rate we are going, it will not be long, I think, before the cost of that loan program will adversely impact the basic grant program and other financial aid programs. This will definitely impact the low-income groups; this is not in the best interests of the program.

It seems to me what we must do at this point is not patch that loan program but redo it. That loan program has been patched now for 11 years. There are hardly any people in Government who even understand that program in detail any more. To patch it again is incorrect and will cause another degree of complexity which the Government employees and the financial aid community, the parents and the students, just cannot cope with any more.

The fourth general observation I would like to make is that nobody should get a free ride; low income, middle income, et cetera, and that everyone should have to contribute something toward their education. The fact that one is from a low-income family, a middle income family or any income family, everyone should do something, and I would like to elaborate on that later.

The fifth general observation is that the programs, all programs, be it the basic grant, the loan program, must be made simple. The Federal Government cannot cope with the complexity. Some of the problems we have in these programs is due to their complexity. Some of the problems of the financial aid administrators are also due to program complexity. Some of the problems that the people in this community have, the citizens, the students, their parents, are, they are too complex, and the way to help these programs is to try to make them more simple so people know what is out there rather than just keep adding billions and billions of dollars and making the programs more and more complex.

A very good example of that is the seven loan programs. For years, we have had seven loan programs in this country. There is no need to continue that move. It just makes it so complicated that no one knows what they are doing. People still do not understand the difference between loan and grants out there.

The sixth general observation I would like to make is that the middle-income people do need help. They have to have help. The cost of education is expensive. In many families in this country, education is probably the second largest expenditure they make, other than purchasing a home. They do need help, but they do not need doles. They do not need subsidies. What the middle-income families, in my opinion, need is cash flow liquidity. They cannot afford to pay these high educational costs. The Federal Government's role, in my opinion, ought to provide that liquidated but not provide subsidized loans. These people need a way to spread out those high educational costs in a way similar to the mortgage system of the country. Very few people in this country would own a home today if we did not have a mortgage system in place where you can spread out the payments over 20 years, 25 years or whatever it might be.

Now, regarding some specific suggestions, and, again, I repeat I am only going to concentrate on the major points. First, I think there ought to be a $900 work component required of everyone who gets any aid. There had been some statistics that indicate that people who work while at school are better students. They get better grades, and stay in school longer than other persons. It is not only the matter of the savings of dollars to the Federal Government, but it is a good way to keep students more interested in the program. I think we ought to have a required work component where the student either works in the summertime or during school or gets some money to contribute toward his or her education.

Obviously, we need flexibility in this. If a person is handicapped or a person has special needs, they ought to be excused of this requirement. I think we ought to assign that judgment to the financial aid administrators and let them make the decision.

The second point: I think we ought to come to grips once and for all about the seven loan programs and consolidate them. This subject has come up many times before. As you may recall, Mr. Chairman, Secretary Califano had a Fraud and Abuse Conference some months ago where this subject came up, and this item was mentioned over and over again at that meeting. A major complexity in the loan programs is that there are seven different ones with different terms, different conditions, different everything.

As a matter of fact, as I recall at that Fraud and Abuse Conference, the President himself made that statement, that we were going to reduce the seven loan programs.

Now, for a variety of reasons, the administration did not propose that and I think it is now time to reopen this issue. The interesting aspect about this matter is that be it either through the KennedyBellmon bill or the administration's bill, a framework is provided where we can reduce this complexity.

What makes the seven loan programs even more important a problem right now, and a problem that we must cope with, is the fact that now we are going to be faced with a separate Department of Education. In the past the seven programs were all in one department. Now, they are going to be even further fragmented. Furthermore, we still have the VA bill, the law enforcement loan program, and others. I would like to strongly stress, Mr. Chairman,