couple of years ago suggested that the program at that time was geared more to the low-income people than the middle-income people since banks were unwilling to make the unsubsidized loans. There seems to be adequate data for doing this kind of analysis availability in any case. The studies that came out of the Office of Education indicated perhaps a 10-percent shortfall a year ago and I think that most of that is being filled with geographically designed programs in the District, in Colorado, and in California.

I would like to get to one last point and then move on. It has to do with the comments that are constantly being made about Sallie Mae, its performance, whom it does business with, and the like. The record has been corrected four times now following public comment or testimony before this committee by representatives of either HEW or OE who appeared before you or made comments publicly about our performance, our ability to meet the needs of our constituents, how we raise our funds, the meaning of our profitability, or things of that sort. Time after time the record has had to be corrected.

I would like to state now that Sallie Mae has reached out all over this country to a very large and significant number of constituents, larger perhaps than any other secondary market that is operating for the Federal Government right now. We have twice as many commercial banks with whom we are doing business than any housing-related secondary market.

You can add all of the secondary markets together in housing and you will find that we have provided twice as much in the way of market support, 14 percent of outstanding program assets as compared to 7 percent, and we have only been in business for 5 years. How we are being measured and under what standard we are being measured by the Office of Education and HEW I do not know. By any logical measurement we have reached out and done the job. I will submit for the record a point-by-point refutation of all the comments that have been made about Sallie Mae in terms of whom we do business with, the number of participating institutions, the fact we do business with small institutions, the fact that we have been willing to step out and provide service in high-risk, highdefault areas.

As a matter of fact, those institutions seem to be more attracted to Sallie Mae rather than to the low-default, low-risk institutions. I will provide information on every one of those points as we have done in the past, as we have done for the Secretary and the Undersecretary in the past, and as we provided to all our constitu

ents.

Finally as to the recommendations pertinent to Sallie Mae, it has been suggested that Sallie Mae should be phased out and that it should be put under HEW control or a new agency should be created to put under the control of the Office of Education.

I think the record will show that the only thing that would be accomplished by doing that is not improvement in the program, not access to a greater number of institutions, but just control of Sallie Mae by the Office of Education. I don't believe the Office of Education has the capacity to make a multibillion-dollar banking institution. That is what you are asking these people to undertake.

They are asking you to allow them to take the place of banking institutions and Sallie Mae and become loan guarantors, originators, subsidizers, administrators and a full time collector in these programs. I find no capacity existing nor do I think they can in the future create a multibillion-dollar banking institution to provide better service and support for this program than is currently provided. I think it is illogical. I think lenders and Sallie Mae are providing reasonable and cost effective service. I don't think by putting this under OE you are going to get better service.

I would like to suggest perhaps two things that Sallie Mae might be able to do that would be supportive of the existing programs with modest changes.

Sallie Mae was given a very limited franchise originally. It was told to provide liquidity for lenders within the program. We were not asked to be the owner of all the loans in the program. We were just one of many tools to provide credit and liquidity to lenders within the program. I think we have demonstrated that we can do that. We think that in the 6 years since you created us that times have changed, that markets have changed, that access capital has changed. It would not be inappropriate to change Sallie Mae's character and expand what it can do in support of the existing programs.

For example, there is no reason why we could not do something like we did in the District of Columbia on a simpler and broader basis. If a jurisdiction, a State jurisdiction, had inadequate capital in some geographic area and if with the concurrence of the State and the Federal Government Sallie Mae were to be invited in to be a primary lender, we think we could replicate what we did in the District of Columbia but only if all parties agree this would be an appropriate alternative vehicle and Sallie Mae was an appropriate entity to do it.

We are doing it now as a secondary market by obtaining a commitment to get a third-party lender to come in as an intermediary. In the District of Columbia it was easier because it is small, but larger areas would be difficult under our current limitations. I think that is one direction in which Sallie Mae can offer service. We have a lot of learning and understanding of the administrative process. If it is of interest to the committee I think it would be useful for Sallie Mae to have that kind of authority. I think we could expand the existing programs where necessary and meet the limited unfulfilled demand that apparently is out there.

We think we can accomplish that without a massive change in the programs.

The last point I would like to make is that everybody has talked about loan consolidation for students. I don't see anything in any of these proposals that will address that in a way that makes sense. Perhaps Sallie Mae or banks might be authorized to make consolidation loans whereby if the students desired they could come to a financial institution or Sallie Mae and say:

I have $5,000 of indebtedness. I have more than one program lender. Will you make me a loan that pays off these existing loans, a loan that is perhaps a liquidiating GSL loan and I will work out a single repayment scheme with you. I will have only one institution with which to deal and only one payment with which to deal.

For once you will have an instrument where a student could find some means to get a simplified and less costly means of repaying this proliferation of debt programs. These are the kinds of initiatives that I think can be taken by the committee that can enhance the program without traumatic change and I think will be a useful way of providing additional service to the lenders and to the students.

A final comment. Last night reading on the plane I saw a comment that was attributed to the late Speaker, Sam Rayburn. He said, "If it ain't broke, don't fix it." I think that applies here, Mr. Chairman.

Thank you for the opportunity to testify this morning.
Mr. FORD. Mr. Martin.

STATEMENT OF DALLAS MARTIN, EXECUTIVE DIRECTOR OF THE NATIONAL ASSOCIATION OF STUDENT FINANCIAL AID ADMINISTRATORS

Mr. MARTIN. Let me thank the chairman and Mr. Buchanan for the leadership that they have given in resolving the technical amendments and also to compliment the subcommittee on the manner in which they have allowed various representatives to meet and to have the opportunity for exchanging with representatives from the administration on these proposals.

It is a pleasure for me to identify myself today with the remarks that have been made by Mr. Holst, Mr. Packer, and Mr. Fox. As you know, Mr. Chairman, the student loan programs have been the subject of much debate in the past several months and, unfortunately, many of the facts and significant features of the programs have been distorted, misreported, and taken out of context. Consequently, persons not familiar with the detailed operations of these programs are often led to believe that the existing student loan programs, specifically NDSL and GSL, are not working and therefore should be substantially modified or replaced by new approaches and new mechanisms. Obviously, from the proposals advanced, the administration is also of the opinion that a complete overhaul is needed.

It appears to us that in general the administration has recommended the elimination of the NDSL program, changed the GSL program to be the new basic loan program, and replaced the GSL program with a new supplemental loan program that seems tailored after the HEAL program which is currently funding medical and health profession students.

These proposals are advanced by the administration as necessary to insure adequate capital availability, reduce governmental costs, improve collections, and reduce defaults. However we question whether any of these objectives will be achieved under the administration's proposals. In fact, we suggest that with slight legislative modifications, timely administrative support from the Office of Education, and insured program stability, two of the administration's objectives could be achieved.

The third objective which the administration purports to resolve is to reduce governmental outlays for the loan programs. Unfortunately, the suggested approach would simply transfer the costs

from the Federal Government to the individual student and his or her family.

In addition, Mr. Chairman, we are very concerned about the impact these proposals will have on students. The administration would ask students and their parents to pay a substantial rate of interest in order to receive a supplemental loan. The Middle Income Student Assistance Act was specifically intended to help middle-income families by removing the income limit in order for a student to qualify for interest benefits. The administration's proposal would take away this benefit recently enacted by Congress. Let us look at some examples of how the administration's proposals would affect students. A student from a low-income family may be affected in two ways. First the $700 self-help requirement may not be available since many students from such families are unable to find employment or must devote all their time to their studies. While provisions would be made to waive the self-help requirement, it could impose a barrier to the neediest students. Second, these students would pay 7 percent interest rather than 3 percent as is currently the situation in the NDSL program. If a student were to borrow $5,000, the total interest paid by the student would increase from $768.80 to $1,712.81, an increase of $944.01.

As Mr. Packer points out, a student who in some cases is unable to find a job would be required to perhaps go out and borrow the $700 self-help requirement from the supplemental loan program before he or she could qualify for the needs-based program which is designed to assist him.

Students from moderate income families would be even more seriously affected. While they are generally eligible for a basic grant to cover part of their educational costs, many still find it necessary to borrow to help meet the expected parental contribution.

Currently, the interest on these loans, GSL, is paid while the student is in school and the student pays 7 percent interest during repayment.

Under the administration's proposal, these students would pay interest at the Treasury bill rate plus 1 percent, or approximately 11 or 101⁄2 percent at the current rate. Thus, a student borrowing $2,500 for each of his other 4 years in school would incur approximately $2,750 in interest costs while attending school. An amount, I might add, which is currently paid by the Government. This interest could either be deferred until the repayment period or the loan increased to cover the interest costs.

Thus, the needy student has to incur an increased cost of $2,750 while in school in order to obtain his or her education, assuming they have funds available to pay the interest while in school. If not, the interest is deferred thus increasing even more the costs to the student.

Students from upper middle income families who generally do not qualify for a basic grant or other Federal assistance, unless they attend a high-cost institution, currently rely almost entirely on the guaranteed student loan program.

Under the administration's proposal, such students and their families would have to pay interest on the loan from the day the promissory note is signed.

Therefore, these students would lose the benefits they recently received under the Middle Income Student Assistance Act. In fact, they would be worse off, as Mr. Packer pointed out, than before MIŠAA, since the interest rate under the supplemental loan program would be approximately 11 percent, assuming the current Treasury bill rate, rather than 7 percent.

Thus, these students are significantly affected by these proposals. In fact, a student who borrows $2,500 per year to replace their family contribution, would be forced to pay $2,211.88 more than under the current law during the repayment period.

Further, graduate students enrolled in health professions, business, or law are currently eligible to participate in both NDSL and GSL. Under the administration's bill, they would be adversely affected. In fact, they would be excluded from the basic loan proposal entirely. Under the administration's plan, they could borrow funds, but only under the supplemental loan program which requires a higher interest rate.

While it is true that the administration's plan would reduce the costs which the Government is currently paying for the loan programs, they would be doing so at the expense of parents and students.

Further I would like to remind the administration that less than 1 year ago we were faced with the choice between tuition tax credits or increased student aid in order to respond to the plea from the middle-income families having difficulty meeting the costs associated with paying for their children's postsecondary education. At that time this Congress and the administration chose to support the Middle Income Student Assistance Act. One reason for this was that in the long run, such outlays would be less costly and manageable since they are governed by appropriations and are on budget.

In addition, the increased student aid dollars directed the majority of the dollars to students with the great financial need. If my memory serves me correctly, it was anticipated at that time that the tuition tax credit legislation would grow to approximately $4 to $6 billion in annual outlays.

At that time, the administration was more than willing to support and subsequently to sign the Middle Income Student Assistance Act. Now we find ourselves less than 1 year away from the enactment of this legislation and faced with the same administration now concerned about the growth in the very program which was designed to assist middle-income families.

Mr. Chairman, I am sorry if I sound too critical, but, unfortunately, this is not an issue we view lightly in light of the past efforts.

We also encourage this committee to examine carefully who can best administer student loan programs. Will the performance under a federalization of loan servicing and collection really be better than the performance by institutions or State agencies? The current administration has made positive moves and we compliment them for that, to bring the default rate under control in the federally insured student loan program.

However several previous administrations ignored the problem of loan defaults, thereby creating today's high default rate. With