lar, amounts to an increase of 334 percent. The share of the national income devoted to education meanwhile tripled-from 2.3 percent to 6.8 percent.

Senator YARBOROUGH. Dr. Freeman, you said you were summarizing your statement. At this point I want to order the statement to be printed in the record, your entire statement, including the appendixes you have attached. You may proceed with your summary.

Dr. FREEMAN. Thank you very much. Even this tremendous increase in financial support has not been enough, the President pointed out, to meet and correct some of the educational deficiencies which continue to plague us. Prompt action is called for.

Few will question that there is a strong national interest in education. Under a division of labor, such as was established by our Federal System of Government, each member-that is, each level of governernment--has a vital interest in the activities and satisfactory performance at the other levels. The world "Federal" itself implies an obligation of mutual aid when needed. There is little doubt but that the National Government by imposing an exorbitant tax burden has made the financing of education more difficult.

If States, communities, and institutions are unable to meet their educational responsibilities and the National Government has the necessary means at its disposal, then it appears proper that it render assistance.

The crucial question to be decided concerns the most appropriate and effective method in which such aid can be given.

To deal with specific shortcomings in our educational system, the President formulated 24 programs which are incorporated in S. 580. His major plan of aiding institutions of higher learning appears in title II, part (A), "Higher Education Facilities."

FEDERAL LOANS FOR ACADEMIC FACILITIES

This type of program has been used for some years very successfully to finance dormitories and dining halls which are self-financing facilities. That means the bonds which are issued are serviced by the revenues from fees and constitute no drain on the revenues of the institutions. When it comes to academic facilities, however, we face an entirely different situation. In fact, bonds have been used very little by colleges and universities to finance academic facilities. Private institutions have shied away from using bonds because the payment of the principal and the interest would restrict future income which is to be reserved for operating purposes and for salaries.

Therefore, they have not used bonds, and public institutions, State universities, and colleges, have not used them either.

In the first place, because of State constitutional or statutory restrictions they can borrow only with the approval of the State government or of the voters, and if they do obtain that approval, then they usually can sell bonds at a lower rate of interest than the Federal Government because of the tax exemption feature.

In other words, what the institutions need is not a market for their bonds but some way of improving their revenue situation.

On the whole, the institutions of higher learning have been suppliers of funds in the money market more than borrowers because they have

at endowment funds which now considerably exceed $5 billion and are Ter increasing each year at the rate of $300 to $400 million.

Therefore, the loan proposal, while it appears attractive, and while ar it seems to parallel the college housing plan, would be of very little aid to most institutions and it would be of practically no aid to those who need more revenue.

Actually, the loans available to private institutions under title III of the National Defense Education Act have not been used, and about percent of them lapse each year. Therefore, I submit that the loan proposal would not solve the problem which institutions of higher arming are facing.

FEDERAL GRANTS FOR ACADEMIC FACILITIES

Now, as you know, it has been proposed that to fill the gap between the needs and the resources, grants should be provided for construct in higher education. These grants have run into difficulty. In the first place, I want to say that the main problem in higher education is not so much construction of facilities as operational costs,

ularly faculty salaries. Funds for construction are on the whole stewhat easier to obtain than funds for operations.

Now, there have been several rather serious objections to grants in gher education which would either include or exclude private instiIrons. They resulted in a deadlock that was mentioned a few minago by Senator Moss and a week ago on the floor of the Senate Senator Ribicoff. The reason is that many of the private instituare church related and some feel that tax funds should not go nominational institutions.

If this were simply a question of constitutionality, then it could be to the U.S. Supreme Court to decide. But on the whole, that ion apparently satisfies neither side of the conflict because the ngs are rather strong on one side that the granting of tax funds tly to church-connected colleges would constitute a breach in the alled wall of separation between church and state. On the other ad it has been traditional for the Federal Government, in any proCs in higher education, not to distinguish between private or public utions for more than 100 years. Private institutions feel that it d be discriminatory to aid one type of higher education and not er. A third point is that the balance in higher education has fed more and more to public institutions, for the simple reason ruitions in higher education in the public institutions average $185 a year, and in private institutions $731. More and more ts find it impossible to finance the education of children in priTolleges and universities.

salary schedules which I listed in my written testimony are erably higher in the public than in the private colleges. If this continued and if tax funds were made available for public insti, but no aid provided for private institutions, it is evident that eight would shift more and more to public universities and coland many of the private colleges would simply have to to go out iness. Eventually the diversity of our educational system and fredom of higher education would diminish.

A second line of objections to grants to private institutions has beer voiced which comes largely, not from higher education, but from public school groups. The reason for this is quite apparent from the enrollment trends.

Since 1940, the enrollment in public schools has increased 55 per cent, and in the nonpublic schools, three times as much, 152 percent This shift took place although class sizes in most nonpublic schools ar considerably larger than in public schools, and although the space pro vided per pupil is 50 to 100 percent larger in the public schools, and although the parents who send their children to private schools have t bear a very heavy burden of tuition or other contributions.

Therefore, if a precedent were established, these groups feel, of pro viding aid to private higher education, it might be regarded as setting a precedent also for the schools, and if the economic penalty of parent sending their children to private schools were reduced, the shift t private schools might increase even more, and the relative standing of public schools in terms of enrollment might decline.

There is also a third line of objections to grants in higher edu cation, both to public and private; namely, that they would lead to Federal control and to greater centralization of government.

FEDERAL TAX CREDITS

What I am basically driving at is that for many years the gran and loan approaches have been suggested and tried. And the net effect has been a complete deadlock. There is no sign at this time that we are any closer to a solution along the line of grants or loans than we have been in the past. Therefore, it seems appropriate to seek other means by which we can find a method by which higher edu cation can be aided. One method has been suggested by quite a fewtax credits. In the last Congress, there were more than 100 bill proposing certain tax concessions, and in the 88th Congress there ar more than 120 bills proposing tax concessions for educational expenses

I am not aware that there is any other subject on which there ar as many legislative proposals pending as tax concessions for educa tional expenditures, which shows that there is a great deal of favorabl sentiment on both sides of the aisle.

I would suggest that tax concessions of this type should aim not s much at providing relief for the students and their families as in enabling the institutions to raise their tuitions and fees without a pro portionate increase in the burden upon those who pay them, that is the students and their families, the reason being that the averag family income at the present time exceeds $8,000 a year, is increasing rapidly, and the main need in the next few years, I believe, will rathe be in the institutions.

The advantage of a tax-credit approach is that it would completely eliminate the church and state issue because there would be no con nection between the Government and the institution. The relation ship would only be between the Internal Revenue Service and the individual taxpayer. It would also eliminate the objection of Federa control, because it would leave completely undisturbed the existing relationships in higher education.

Now, there are several ways that have been suggested. It seem to me that while the institutions are reluctant to commit themselves

by facility bonds, which would restrict their regular income, there would be no such reluctance if they were able to raise their fees and either pledge or earmark those additional funds for these purposes So that their regular income would not be affected.

Three types of proposals along that line are incorporated in the various bills which are pending now. One type proposes deduction of educational expenditures the way State and local taxes and various other types of expenditures are deductible. The second type proposes exemptions. The advantage of exemptions is, of course, that persons who use the standard deduction could still use an exemption. The disadvantage of these two proposals, however, is that persons in the higher income brackets would receive a greater benefit than those in the low brackets.

In the high brackets they would get a benefit up to 91 percent. That means you would pay between 9 percent or 60 or 70 or 50 percent of the cost while those in the lower income brackets would have to bear 80 percent and only get a 20-percent benefit. This would defeat Some of the purpose of this legislation which is to some extent to help those in the low-income brackets to send their children to higher education.

The third type of proposal that has been submitted is tax credits where the money is not deductible from the gross income but can be offset against the tax itself.

Again there is a variety of proposals. If you had a low percentage credit as, for instance, 20 or 30 percent, with a high limit of, shall we say, $1,500 or $2,000, then you would benefit institutions with high fees or private institutions and those in the higher brackets relatively more. If you had 100 or close to 100 percent credit with a low limit, it would benefit public institutions and low-income families more decisively. It seems to me that a combination of those plans through a graduated schedule would provide the greatest equity and best serve the purpose all the way around.

I have prepared a tentative schedule which, of course, can be altered, but intends to demonstrate how such a plan would affect the institutions and individuals. It is subject to change in either direction.

What I propose here is a credit of 100 percent for tuitions and fees up to $100, 30 percent from $100 to $500, and 20 percent from $500 to $100. That means a maximum net tax credit of $420. What it would do is this-whenever an institution raises its fees by $100, there would be no added net cost to the student or family. If it raised its fees by $40, the net cost would be $210, while $190 would be recouped by the Federal income tax.

One objection has been raised against this plan; namely, that it would be of no benefit to families who pay no Federal income tax. It seems to me that there is no validity to that objection. At the present time virtually all families, particularly those in their productive years, pay Federal income tax. We have no statistics on the percentage of families with students in higher education which pay Federal tax. In the last year for which we have income statistics, which is 1960, 92 per

of all persons in the United States appeared as exemptions on Federal tax returns. Moreover, 6 out of 7 fathers of children reaching college age, are between the ages of 38 and 58, which are the top earn"g years. I estimate-and this is only an estimate based on several

tentative studies-that at least 90 percent of the families of students in higher education do pay Federal income tax and it might be as much as 95 percent. So this plan would certainly benefit at least roughly 90 percent of the students now in higher education.

Moreover, if a benefit of this type were provided, many of the students from middle-income families who at the present time enjoy scholarships could then forgo a scholarship and the scholarships could be concentrated on those who pay no Federal income tax.

For example, let us take a family with an income of $4,000, with two children, that is four exemptions. They pay at the present time, using standard deduction $240 in income tax, so they would benefit from the credit. Any family with an income of $4,000 which has a member in higher education most likely has him on a scholarship and if somebody receives a scholarship at the present time, then quite obviously the institution could and probably should forego an increase in the tuition fee.

There is another proposal which I did not include in my written testimony. If somebody still feels that this ignores the fewer than 10 percent who would not directly benefit from a proposal of this type then we can change from a tax credit which is conditional upon tax liability to an absolute credit. If by adding tuition expenditures up to $100, he had a credit coming, he would have it refunded by the Internal Revenue Service.

I am not proposing this. I am simply suggesting it as a possibility. Now, what would a proposal of this type mean? The way I figure it is that during the 1960's it would amount to an average annual tax saving, which is a revenue loss to the Treasury Department of about $700 million a year, of which institutions could recover about $500 million. If the institutions were to issue bonds of about $5 billion on a 25-year basis, they would have annual debt retirement and interest payment during the 1960's of an average of about $360 million which would still leave about $140 million a year for general operating purposes, for salaries, and for additional scholarships for those who can't afford to pay the tuitions.

One additional proposal: At the present time donations for higher education, like certain other items, are deductible for income-tax purposes. This means that persons in the high brackets can donate for higher education at a relatively small net cost to themselves, 9 percent or 20 or 30 percent, depending on the bracket, while persons in low income brackets still face a net cost of 80 percent or something in this neighborhood. I would suggest to broaden the base and make it easier for persons in the lower brackets to donate to higher education by granting a tax credit rather than deduction or in addition to deduc tion-with a limit of $500 or something in that neighborhood, for dona tions to higher education.

By such means the institutions would be enabled to meet their re quirements within the next years far better than they otherwis would.

ENROLLMENT OUTLOOK

I want to quickly review now, with your permission, Mr. Chairman what the requirements are in higher education and what the prospect are. We all know that enrollment in higher education will increas