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1/ Distributed on the basis of population with a minimum allotment of $200,000

to each of the 50 States, D.C. and Puerto Rico and 0.125 of 1 percent of the total available to each Outlyiag Area.

2/ Population as of July 1, 1986, as published by the Department of Commerce,

Bureau of the Census News Relea se CB 87-02, dated December 31, 1986. 3/ The State of California chose not to participate in this program in FY 1987. 4/ The Trust Territory 18 not participating in the Independent Living Program.

The funds will be redirected to other States and Territories on a formula basis.

Tuesday, April 12, 1987.

STUDENT FINANCIAL ASSISTANCE

WITNESSES

BRUCE M. CARNES, DEPUTY UNDER SECRETARY FOR PLANNING,

BUDGET, AND EVALUATION SALLY K. KIRKGASLER, DIRECTOR, OFFICE OF POLICY DEVELOPMENT,

OFFICE OF POSTSECONDARY EDUCATION JOHN S. HAINES, DIRECTOR, POSTSECONDARY ANALYSIS DIVISION,

OFFICE OF PLANNING, BUDGET AND EVALUATION

INTRODUCTION OF WITNESSES Mr. NATCHER. At this time we take up the budget request for fiscal year 1989 for Student Financial Assistance. We have before the committee Dr. Bruce Carnes.

Dr. Carnes, before you give us your statement, tell us who you have with you there at the table.

Mr. CARNES. Thank you, Mr. Chairman.

At my immediate right is John Haines who is Director of the Postsecondary Analysis Division in my office, and on my left is my old friend, Sally Kirkgasler, Director of the Office of Policy Development in the Office of Postsecondary Education.

Mr. NATCHER. Thank you. Now we will be pleased to hear from you, Dr. Carnes. Mr. CARNES. Thank you, Mr. Chairman.

FISCAL YEAR 1989 STUDENT ASSISTANCE BUDGET REQUEST I have a statement which I would appreciate having included in the record.

Mr. NATCHER. In its entirety.

Mr. CARNES. Thank you. I will just summarize briefly some of the key points of that statement.

Mr. Chairman, members of the committee, it is a pleasure to be here to present our budget request for the Student Financial Assistance account. Our budget request for fiscal year 1989 is $6,100,000,000, an increase of $555,000,000 or 10 percent over the 1988 appropriation. Under this request, we estimate that the total amount of aid available will increase by about $900,000,000 to $16,500,000,000.

LEGISLATIVE PROPOSALS Increased funding should be accompanied by program improve ments and reforms to ensure the proper expenditure of Federal funds. Consequently, we are proposing modifications to the Federal student aid programs designed to ensure educational quality, promote institutional accountability and reduce program abuse. We owe students more than simply access; we owe it to them-and to taxpayers-to do what we can to insure that the money given or loaned in these programs is provided wisely and that they benefit from it.

Our budget proposal includes legislation that provides a system of incentives designed to improve the quality of education at insti. tutions participating in the campus-based programs, addresses the unacceptably high level of defaults in the student loan programs, and reduces unnecessary Federal subsidization.

PROPOSAL TO ELIMINATE “ABILITY TO BENEFIT" LOOPHOLE The Administration is recommending additional legislative changes that would eliminate the "ability to benefit" loophole, a provision that inadvertently increases dropping out by students, and increases defaults and the admission of unqualified students. Receipt of Federal student aid would require the student to possess a high school diploma or its equivalent. As you know, the Department recently released a report describing a variety of abuses by private vocational-technical schools, including their abuse of "ability to benefit." A number of these schools are racking up profits by enticing poorly-prepared students with promises of financial aid and good-paying jobs, then keeping the Pell Grants and GSLs when the students drop out, disillusioned and indebted. The Department is taking a number of administrative, regulatory, and legislative actions to deal with these abuses.

PROPOSALS AFFECTING NONLIQUID ASSETS AND SAVINGS We also propose, for a two-year trial period, to simplify the student aid application and need analysis procedures by deleting the assessment of nonliquid assets (including homes, farms, businesses and other real estate investments) in the determination of financial need. This would be the first step toward the possible elimination of all assets from needs analysis, which would greatly reduce award errors and end the current system's disincentive to family savings. Long-term family financial planning and saving for postsecondary education will also be encouraged through the Administration's College Savings Bond initiative.

IMPACT OF BUDGET REQUESTS In total our fiscal year 1989 Student Financial Assistance and Guaranteed Student Loan budget requests would generate approx! mately $16,500,000,000 in aid to students, an increase $867,000,000 over the previous year. Total aid available to students under these programs would be higher than ever before. Almost 6,000,000 students would be helped. Our proposals have been developed in consideration of the traditional Federal commitment to providing access to postsecondary education for disadvantaged students while reinforcing program integrity through needed reforms. Overall there will be expanded educational choice, fewer awards to unqualified students, greater equity in awards, improved quality of education, and reduced program abuse.

FULL FUNDING OF PELL GRANTS EXPECTED

If I could just add one thing that is not in my statement concerning the Pell shortfall. We have recently done a re-estimation of the carryover in the Pell program from 1986 and 1987. Earlier estimates, made when preparing our budget, indicated we were going to have a shortfall in the Pell program in the neighborhood of $260,000,000. By various means we were able to reduce that to the neighborhood of $99,000,000, and we then imposed linear reduction.

We have done a re-estimate of the carryover from previous years and we now find that we are very close to the target for full funding. As a consequence, we are going to withdraw the linear reduction and fully fund the program.

PELL GRANT SUPPLEMENTAL LANGUAGE REQUEST These are estimates, however, and it is conceivable as we get farther down the road and go through the estimating process again, which we do periodically, that we will find that the carryover stream that we are now estimating in fact has not materialized, and we will have a shortfall.

For that reason, I would again ask that the Congress enact the supplemental language that we have proposed giving us authority to reduce an award across-the-board. But at this time I don't foresee that as being a necessary action that we will have to take.

This concludes my statement, Mr. Chairman. My colleagues and I will be pleased to respond to any questions you may have.

[The prepared statement and biography of Mr. Carnes follow:]

84-626 0-88-27

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