United States USSA Association The Merger of the U.S. National Student Association and the National Student Lobby STATEMENT OF JOEL PACKER LEGISLATIVE DIRECTOR UNITED STATES STUDENT ASSOCIATION BEFORE THE HOUSE POSTSECONDARY EDUCATION SUBCOMMITTEE ON REAUTHORIZATION OF THE MAY 30, 1979 RAYBURN HOUSE OFFICE BUILDING Mr. Chairman and members of the Subcommittee, it is a pleasure to appear before you again. As you know, my name is Joel Packer and I am Legislative Director of the United States Student Association (USSA). The topic under consideration in this portion of the reauthorization hearing, student loans, was described in the House Committee Report on the Guaranteed Student Loan Amendments of 1976 (Report #94-1232) as "the most complex, the most controversial and the most comprehensive of the programs operating under the Higher Education Act". If you add confusing to the list, that would be a pretty good description of the current state of affairs in the Federal student loan programs. There are several main areas that need review capital availibility, subsidy levels, and repayments, including defaults. Before I touch on these let me review quickly a bit of history and current operations. According to the Administration's budget proposal FY79 spending for the National Direct Student Loan Program (NDSL) will be $329 million, which will support a total lending level when the campus revolving funds are included of $649 million to provide loans to 917,000 students. For FY80, the request is for only $235 million in new Federal funds which the Administration claims will still produce a total lending volume of $640 million for 902,000 loans, due to increasing collections to $412 million. In the Guaranteed Student Loan Program (GSL), in FY79, the government will spend $972 million in interest subsidies, special allowance, default claims, and other costs to promote $2.36 billion in loans for 1,140,000 students. The projections for FY 80 show $960 million in Federal spending, a total loan volume of almost $2.64 billior, and 1,160,000 loans. Therefore, a total of $3.28 billion will be lent under both the GSL and NDSL programs, supported by Federal spending of $1.135 billion. The history of the programs goes back to 1958 when NDSL was established as the National Defense Student Loan. Essentially, the program is the same today as it was then with the 3 percent interest, the need factor, cancellation provisions, and the school as lender and collector. GSL was established in 1965. Initially loans were provided at 6% interest, with in school interest subsidy for those students whose families had adjusted income of less than $15,000. This program has been amended several times, often resulting in confusion and reduction in lending. P.L. 90-460 raised the interest rate from 6 percent to 7 percent and created reinsurance authority for state guaranty agencies. P.L. 91-95, the Emergency Insured Student Loan Act of 1969, created the special allowance of up to 3 percent. P.L. 92-318, the Education Amendments of 1972 increased the loan maximums, insured interest as well as principal, created the Student Loan Marketing Association (SLMA), and instituted a needs test for eligibility for the interest subsidy. P.L. 92-391, a joint Congressional Resolution in 1972, suspended implementation of the needs test until March 1, 1974, P.L. 93-269, the Education Amendments of 1974, eliminated the needs test for those students from families with adjusted incomes under $15,000 (in effect, the status of things before the 1972 Education Amendments.) P.L. 94-482, the Education Amendments of 1976, made substantial changes such as raising the income ceiling for the interest subsidy to $25,000, raising the maximum loan limits, placed special restrictions on schools acting as lenders, required that loan proceeds be disbursed by checks to the borrower, permitted shorter loan payback periods, prevented students from declaring bankruptcy for five years after graduation, increased the special allowance to lenders, and placed significant emphasis on the encouragement of state agencies by increasing reinsurance rates, and providing an administrative allowance for them. P.L. 95-566, the Middle Income Student Assistance Act, completely removed the income ceiling for eligibility for the interest subsidy. And lastly, recent changes in the Bankruptcy Act expanded and revised the prohibition on student bankruptcy. Obviously these constant statutory changes would make it difficult to keep any program running efficiently, especially one that involves such diverse groups as 11,000 lending institutions, 8,000 plus eligible educational institutions, 39 states guaranty agencies, Sallie Mae, HEW, and of course the more than one million students receiving loans. And of course each new law must be implemented by regulations. We are all well aware of the delay in the Administration's issuance of regulations, yet the problems in getting out GSL regs seems ridiculous. There are no final regs out yet to implement the 1976 Education Amendments! The last proposed regs came out in April 1978 and that's the last we've seen of them. Some provisions of the '76 Amendments have not even had proposed regs issued. Yet with all this confusion and chaos the program, we believe, is working relatively well, and can be improved with some modifications and most important time. There are obvious problems which I will review below. However, to throw out the entire system, which has not been allowed the time necessary to fully work, in favor of some completely new scheme, such as the Administration proposes, strikes us as contrary to the 15 year history and Congressional intent of the program, disruptive, short-sighted and likely to create more new problems than will be solved. The basic choice, in broad terms appears to be do we maintain and stabilize the basic structure and thrust of the loan program, which is to encourage the creation and expansion of state guaranty agencies, and make improvements to increase capital availability and reduce defaults, or do we sweep away the system for an unproven national loan plan that would be basically financed by the Federal government through the Federal Financing Bank? As the Education and Labor Committee stated in 1976, "...the law was intended to put a priority on the creation of state guarantee agencies (or the use of private non profit insurers, as is done by some states) and to allow the "Your Committee still believes that the state guarantee These words are even more appropriate today. STATE GUARANTY AGENCIES VS. A NATIONAL LOAN BANK The Administration's proposal, or what there is of it, seems to be based on the premise that capital availability is insufficient under the current system. They have stated that every student must have assured access to loans and that they will provide such assurances directly. They also believe their plan will be less costly than the current system. (State Let's take a look at how the State agencies are working, Prior to the 1976 Amendments, there were 26 such agencies in existance. As the law stood at the time they were definitely un an unequal footing with the non-ayy states, where the Federal Insured Student Loan program (FISL) was utilized. guaranty agencies only received 80 percent reinsurance, while the Federal government provided 100 percent guarantee on loans in non-agency states.) Since enactment of the '76 Amendments 13 new states and territories have created an agency (California, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Minnesota, New Mexico, South Carolina, South Dakota, Utah, and the Virgin Islands). The total loan volume guaranteed by these states will be $4.5 billion since 1976, compared to $5.2 billion for the eleven years prior to that. Some of the well established agencies will have more than doubled their volume since 1976. An example would be Michigan where the annual loan volume increased by 288 percent from $25 million to $72 million. |