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 Lelp 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, at 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 $1500. 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 , 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 ems to me that there is no validity to that objection. At the present e virtually all families, particularly those in their productive years, Day 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 lege age, are between the ages of 38 and 58, which are the top earng 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 lowincome 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 deduction-with a limit of $500 or something in that neighborhood, for donations to higher education.

By such means the institutions would be enabled to meet their requirements within the next years far better than they otherwise would.

ENROLLMENT OUTLOOK

I want to quickly review now, with your permission, Mr. Chairman, what the requirements are in higher education and what the prospects

We all know that enrollment in higher education will increase

substantially in the next few years. The President in his message on education suggested that enrollment in education will increase more rapidly in the balance of the 1960's than it has and quite specifically that by 1970 college enrollment will nearly double and secondary school enrollment will increase by 50 percent.

Now, I went over the available projections prepared by the Bureau of the Census and by the Office of Education and I found that these enrollment projections going up to 1970 and beyond are very close and almost identical. They show that the rate of enrollment growth in the next 8 years at every level of education will be less than it has been in the past 8 years. In other words, the rate of enrollment increase is going down and not going up.

To be quite specific, if you take all levels of education, you find over the last 8 years an increase of 35 percent according to the Census Bureau compared with an increase over the next 8 years taking the average of four projections, of only 17 percent or about one-half of the past rate. In the common schools the increase was 32 percent and in the next 8 years will be 14, or less than half. At the college level it was 74 percent and the next 8 years will be 51 percent as an average of the four projections. If you take the range of the four projections, the minimum will be 38 and the maximum 64 percent according to the Bureau of Census. If you take the three projections of the Office of Education, then the minimum is 25 percent and the maximum is 67 percent rather than the doubling as the President suggested in his

message.

The sharply declining trend of enrollment growth in the common schools has a very important bearing on higher education because while in the past 8 to 12 years the States had to allocate a major part of their resources to the schools, with school enrollments certain to increase at less than half the rate of the past, States will be able to devote an increasing share of their financial resources to higher rather than to lower education.

Moreover, the rate of increase in enrollment, which in the past 12 years has been greater than the rate of growth in GNP, will be smaller than GNP in the next 8 years.

Senator YARBOROUGH. Mr. Freeman, this subcommittee desires to hear everyone fully on this vital educational matter and we wouldn't suggest any limitation on your statement, but I do suggest that there are eight other witnesses whom we had hoped to hear before noon and any of them, like you, have come vast distances.

Without wanting to limit anyone's time, I would be hopeful that those who also prepared papers might have an opportunity to present them, and the committee might have an opportunity to hear them. And I realize that you are working diligently to condense your statement, but I wonder if in the part of this 45 minutes remaining we might not give some of those other distinguished educators representing nationwide councils and representing some of the other great educational institutions of this country like yours, if the subcommittee an opportunity to testify on their views also. We would be apprerative if you could be helpful to the subcommittee in this regard.

Dr. FREEMAN. Well, sir, do you wish that I conclude, and would you wish to ask questions?

Senator YARBOROUGH. No. We have ordered the entire statement printed previously, all of it, and the staff has been studying it as you have testified, but it is 11:15 and we have this panel with State officials from New York, Arkansas, and representatives from the Massachusetts Institute of Technology, University of Wisconsin, West Virginia University, the Air Force Association, Syracuse University. We have many great universities and then a number of these are representing nationwide organizations, and we have 45 minutes left. So if you could arrange that they be given an opportunity to be heard and the subcommittee hear their statements, we want all the information we can get.

Dr. FREEMAN. Yes, sir. If I may have another 2 minutes, I would like to conclude by saying that in my written statement I recite the presently available estimates of enrollment increase, of the facilities needed in higher education and projections of the available resources. I came to the conclusion that these resources will be sufficient to take care of the needs of education, that there are potential major savings in higher education by better utilization of the available facilities, by a year-round use of the campus and by various other methods, and that therefore it seems to me that resort to grants in aid, even if they were politically possible, is neither necessary nor desirable.

This concludes, then, my oral statement, Mr. Chairman, and if there are any questions, of course, I shall be happy to answer them. Senator YARBOROUGH. Any questions by members?

Senator Randolph ?

Senator RANDOLPH. No.

Senator YARBOROUGH. Senator Kennedy?

Senator KENNEDY. NO.

Senator YARBOROUGH. Any questions by the staff? (No response.)

Senator YARBOROUGH. Thank you, Dr. Freeman. Your statement will be printed in full in the hearings so we might have it for consideration of all the members.

Mr. FREEMAN. Thank you, Mr. Chairman.

Senator YARBOROUGH. Thank you.

(The prepared statement of Mr. Freeman follows:)

PREPARED STATEMENT OF ROGER A. FREEMAN, SENIOR STAFF MEMBER, THE HOOVER INSTITUTION ON WAR, REVOLUTION, AND PEACE, STANFORD UNIVERSITY, STANFORD, CALIF.

My name is Roger A. Freeman; I am a senior staff member of the Hoover Institution on War, Revolution, and Peace, Stanford University, Stanford, Calif. For the information of your committee, I would like to mention that I directed the research for the Education Committee of the U.S. Commission on Intergovernmental Relations in 1954 and 1955, was a consultant on school finance to the White House Conference on Education in 1955, and subsequently served on the White House staff. Previously I had been assistant to the Governor of the State of Washington. Opinions I may express are my own and do not necessarily reflect the views of any of the organizations with which I am or was connected. I appreciate the invitation of your committee to testify on pending proposals for Federal aid to education, and have prepared a statement which focuses primarily on aid to construction of academic facilities in institutions of higher learning (to which I shall refer from this point on as IHL); it is herewith submitted. Some of the considerations also apply to other parts of the education program.

The President in his message on education of January 29, 1963, emphasized the paramount importance of education to the well-being and security of the Na

tion and described the precarious situation which many of our schools, colleges, and universities face in adequately financing their activities. Since the end of World War II educational enrollment has jumped from 28 to 50 million, an increase of 76 percent. This was accompanied by a growth in funds from $4 to $29 billion which, when adjusted for the simultaneous loss in the value of the dollar, amounts to an increase of 334 percent. The share of the national income devoted to education meanwhile tripled-from 2.3 to 6.8 perceint.1

But 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 Government-has a vital interest in the activities and satisfactory performance at the other levels. The word “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 bas 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 IHL appears in Title II, Part A: Higher Education Facilities.

FEDERAL LOANS FOR ACADEMIC FACILITIES

The President proposed Federal loans to IHL for the building of academic facilities, totalling $1 billion in the years 1964, 1965, and 1966. A similar plan, the college housing program, has been quite successful for the past dozen years in promoting and assisting in the building of dormitory and dining halls and other auxiliary structures. But doubt was expressed at these hearings in 1961, as well as 2 weeks ago, that a loan program would be particularly helpful in building academic facilities and, in fact, that it would be of any help to most IHL, public or private.

Long-term borrowing is employed for the financing of many types of construction but is not widely used to build academic facilities. In recent years less than percent of the funds for instructional buildings came from the proceeds of institutional bonds. Residence and dining halls are commonly debt financed because they produce sufficient income to service the securities which therefore conitute no drain on general revenues and may be regarded as self-financing. But the only income which academic buildings may be held to produce are the fees of the additional students whom the new structures accommodate.

IHL have shied away from debt financed academic construction programs because debt retirement and interest would restrict the funds available for salaries and operations in future years. If institutions wished to engage in debt financing, they could sell very susbtantial amounts of bonds in the market at reasonable interest rates. But IHL have, on the whole, been suppliers rather than borrowers of funds in the money market: Their endowment and ther funds total well in excess of $5 billion, growing at the rate of more than $300 million a year. What IHL needs is not a market for their bonds but additional revenues. Those the Federal loan plan would not provide.

To finance expansion, private IHL prefer to rely on available funds and on donations which often are much easier to obtain for the construction of permanent (and name-bearing) buildings than for general operations. It is quesLobable whether even the somewhat lower Federal interest rate which Federal loans offer would cause many IHL to commit future income, although the year terms might tempt some. At least 90 percent of the loan funds set aside for private schools under title III of the National Defense Education Act lapse each year for lack of applicants. Some institutions with an astute managetent could conceivably take advantage of Federal 50-year 3.5-percent loans for building, instead of using their own funds which they then would invest at higher rates of interest.

"School Life" (Office of Education), January 1963, p. 23.