DOCUMENT RESUME HE 025 320 ED 342 345 Hearings on the Reauthorization of the Higher TITLE Education Act of 1965: Stafford Loans. Hearings before the Subcommittee on Postsecondary Education of the Committee on Education and Labor. House of Representatives, One Hundred Second Congress, First Session (Washington, DC, June 6, 12 and 19, 1991). Congress of the U.S., Washington, D.C. House INSTITUTION Committee on Education and Labor. ISBN-0-16-035717-9 REPORT NO PUB DATE 91 362p.; Serial No. 102-43. Portions contain small, NOTE marginally legible print. For related documents, see HE 025 317-319. U.S. Government Printing Office, Superintendent of AVAILABLE FROM Documents, Congressional Sales Office, Washington, DC 20402. Legal/Legislative/Regulatory Materials (090) PUB TYPE MF01/PC15 Plus Postage. EDRS PRICE Access to Education; Educational Legislation; Federal DESCRIPTORS Aid; *Federal Legislation; Financial Needs; Financial Support; Hearings; Higher Education; Loan Default; Paying for College; Postsecondary Education; *Student Financial Aid; *Student Loan Programs Congress 102nd IDENTIFIERS ABSTRACT record of testimony presented This doculent is during a series of three hearings concerning changes that may be needed in the Stafford Loan Program, which each year generates the largest apv)unt of financial assistance fcr college bound students. Testimony Was heard from witnesses represting all sectors of postsecondary education, as were suggestions from representatives of those institutions and persons involved with the program: institutions, students, lenders, financial aid administrators, guaranty agencies, and the Student Loan Marketing Association. Among the witnesses were the following: Michael Farrell, Acting :%ssistant Secretary, Office of Postsecondary Education, U.S. Department of Education; Selena Dong, Legislative Director, United States Student Association, Washington, D.C.; Lawrence A. Hough, President and Chief Executive Officer, Student Loan Marketing Association; Donald A. Saleh, Director of Financial Aid and Student Employment, Cornell University; and Joe Belew, President, Consumer Bankers Association. The texts of four related House Dills, H.R. 179, H.R. 709, H.R. 1462, and H. R. 2336, are provided. Numerous prepared statements, letters, and supplemental materials submitted by witnesses and others are also included. (GLR) ********************************* ***** *********rIt********r*X**r******** Reproductions supplied by EDRS are the best that can be made from the original document. ********* r********************* ,N***,?*********V*********t********0!***** HEARINGS ON THE REAUTHORIZATION OF THE HIGHER EDUCATION ACT OF 1965: STAFFORD LOANS HEARINGS BEFORE THE SUBCOMMITTEE ON POSTSECONDARY EDUCATION OF THE COMMITTEE ON EDUCATION AND LABOR, HOUSE OF REPRESENTATIVES ONE HUNDRED SECOND CONGRFSS FIRST SESSION 12, AND 19, 1991 HEARINGS HELD IN WASHINGTON, DC. JUNE ti, Serial No. 102-43 Printed for the use of the Committee on Educatitm and Labor V S. DEPARTS'S OFT OF SOMAVON Ottce of EducHOrtIR.Hrch and improv EDUCATIONAL RESOURCES INFORMATION CENTER (ERIC) Thi CloCumt !mg boon toprodycct H lOCINvCi fralln IA* Hiram Or OrganitHO ongrnatenc st o 161mot cRenge ha.* Him mad* t ,mptove roproduchOn Quilt?). Pmtot Yell, of 00011011i Mated ow MS 130CY Tent do not rwcssagrOp repro/4RM Off.tqlif posrflo 0 pOi.cr OE U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1991 47-22I t k h Govenuncnt Prinimp nfik Ivy ht S 244(t: gfitV SfIrwrinfrnifet0 4 X 'ongfellSit F9,31 IhkE1111111i1. ISBN 0-.16-035717-9 MAILABLE 2 BEST COPY LABOR COMMITTEE ON EDUCATION AND Michigan, Chairman WILLIAM D FORD. WILLIAM F. LAX/DUNG. Pennsylvania JOSEPH M. GAYDOS, Pennsylvania E. THOMAS COLEMAN. Missouri WILLIAM IBILLt CLAY. Missouri THOMAS E. PETRI, Wisconsin GEORGE MILLER. California MARGE ROUKEMA, New Jersey AUSTIN J. MURPHY. Pennsylv n STEVE GUNDERSON. Wisconsin DALE E. KILDEE. Michigan RICHARD K. ARMEY, Texas PAT WILLIAMS, Montana HARRIS W. FAWELI Illinois MATTHEW 0. MARTINF2, CahtOrnia PAUL B. HENRY, Michigan MAJOR R. OWENS, New York CASS BALLENGER. North Carolina CHARLES A. HAYIS, Illinois SUSAN MOLINARI, New York CARL C. PERKINS. Kentucky BILL BARRETT. Nebraska THOMAS C. SAWYER. Ohio JOHN A WEIMER. Ohio DONALD M. PAYNE. New Jersey SCOTT I. KLUG, Wisconsin NITA M. LOWEY, New York MICKEY EDWARDS. Okhihiona JOLENE UNSOELD. Washington CRAIG A. WASHINGTON. Texas JOSE SERRANO, New York PATSY T. MINK. Hawaii ROBERT A. ANDREWS, New Jersey WILLIAM J. JEFFERSON. Louisiana JOHN F REED. Rhode Island TIM ROEMER, Indiana PETER J. VISCLOSKY. Indiana RON DE LUGO. Virgin islands AIME R. EUSTER, Puerto Rico Staff Dipribo- PATRICIA F ANI1REW F HARTMAN, Aftriorit% Stilfr Arr, tor SURCOMMITTEE ON POSTSWONDARY EDUCATION Michigan, Chairman WILLIAM D FORD. E THOMAS COLEMAN. Missouri l'AT WILLIAMS. Montana SUSAN MOI.INARI, New York CHARLES A HAYES. Illinois SCOTT L KIM Wisconsin JOSEPH M GAYDOS. Pennsylvania WILLIAM F. GOODLING, Pennsylvania GEORGE MILLER, California THOMAS E. PETRI. Wisconsin NITA M LOWEY, New York MARGE ROUKEMA, New Jersey THOMAS C SAWYER. Ohio STEVE GUNDERSON, Wisconsin DONALD M PAYNE, New Jersey PAUL B. HENRY. Michigan JOLENE UNSOELD Washington RICHARD K. ARMEY. Texat. CRAIG A WASHINGTON. Texas BILL BARRETT, Nebraska JOSE SERRANO. New York PATSY T MINK. Hawaii ROBERT A ANDREWS. Now JriNey WILLIAM J JEFFERSON, Louisiana JOHN E REED Rhode Island TIM ROEMER, Indiana DALE KILDEE, Michigan CONTENTS Paw Hearings held in Washington, DC: June 6, 1991 ,,,,, 1 June 12, 1991 157 June 19, 1991.. ... ....... 301 Text of H.R. 179 322 Text of H.R. 709 336 Text of H.R. 1482 303 Text of H.R. 2336 172 Statement of: Farrell. Michael, Acting Assistant Secretary, Office of Postsecondary Education, U.S. Department of Education. Washington. DC; Selena Dong, Legislative Director. United States Student Association, Wash- ington, DC; William L. Banks, Vice President, Chemical Bank, Jericho, NY; Carl Donovan, President, Northwest Education Loan Association, Seattle. WA; Lawrence A. Hough, President and CEO, Student Loan Marketing Association, Washington, DC; Joe Paul Case, Dean of Finan- cial Aid, Amherst College. Amherst, MA; Gerald Murphy, Director. Univeraal Technical Institute, Glendale Heights, IL; and Donald W. Grigley, Senior Vice President. Connecticut National Bank, Hartford, CT 10 Penny. Hon. Timothy J., a Representative in Congress form the State of Minnesota 307 Petri, Hon. Thomas E., a Representative in Congress from the State of Wisconsin 158 . Saki). Donald A.. Director of Financial Aid and Student Employment, Cornell University; John P. Whalen, Chairman. University Support Services; Thomas A. Butts, Associate Vice President for Government Relations, University of Michigan; Joe Belew, President, Consumer Bankers Association; and Patricia Smith. Director of Legislative Analy- sis. American Council on Education 204 Shaw. Hon E. Clay, Jr., a Representative in Congress from the State of Florida 326 Prepared statements, letters, supplemental materials, et cetera: Association of American Medical Colleges, prepared statement of 344 Banks, William L.. Vice President, Chemical Bank, Jericho, NY, prepared statement of 36 Belew, Joe. President, Consumer Bankers Association, prepared state- ment of 250 Butts, Thomas A., Associate Vice President for Government Relations, University of Michigan. prepared statement of 230 Case, Joe Paul, Dean of Financial AiJ, Amherst College. Amherst, MA, prepared statement of 86 Dong, Selena, Legislative Director, United States Student Association, Washington. DC, prepared statement of 21 Donovan, Carl, President, Northwest Education Loan Association. Seattle, WA. prepared statement of 5.3 Farrell, Michael, Acting Assistant Secretary, Office of Postsecondary Education, U.S. Department of Education, Washington, DC, Prepared statement of 12 Gaydos, Hon. Joseph M., a Representative in Congress from the State of Pennsylvania, prepared statement of 8 Grigley, Donald IN., Senior Vice President, Connecticut National Bank, Hartford. CT. prepared statement of 123 Iv Page Prepared statements, letters, supplemental materials, et ceteraContinued Hough, Lawrence A.. President and CEO, Student Loan Marketing Asso- 65 ciation, Washington, DC, prepared statement of Klug, Hon. Scott L., a Representative in Congress from the State of 306 Wisconsin, prepared statement of 341 Medical Society of the State of New York, prepared statement of Institute, Glendale Universal Technical Murphy, Gerald, Director, 110 Heights, IL, prepared statement of Penny, Hon. Timothy J., a Representative in Congress from the State of 309 Minnesota. prepared statement of Petri, Hon. Thomas E., a Representative in Congress from the State of 161 Wisconsin, prepared statement of &lel', Donald A., Director of Financial Aid and Student Employment, 207 Cornet! University, prepared statement of Sawyer, Hon. Thomas C., a Representative in Congress from the State of Ohio: 7 Prepared statement of June 6, 1991 300 Prepared statement of June 12, 1991 State of Shaw, Hon. E. Clay, Jr., a Representative in Congress from the 37 Florida, preparM statement of Smith, Patricia, Director of Legislative Analysis, American Council on 271 Education, prepared statement of Whalen, John P., Chairman, University Support Services, prepared state- 219 ment of HEARING ON THE REAUTHORIZATION OF THE HIGHER EDUCATION ACT OF 1965 THURSDAY, JUNE 6, 1991 HOUSE OF REPRESENTATIVES, Suscombirrria ON POSTSECONDARY EDUCATION, COMMITITE ON EDUCATION AND LABOR, Washington, DC. The subcommittee met, pursuant to call, at 9:45 a.m., Room 2175, Rayburn House Office Building, Hon. William D. Ford [Chairman] presiding. Members present: Representatives Ford, Williams, Hayes, Miller, Lowey, Sawyer, Payne, Unsoeld, Andrews, Jefferson, Reed, Roemer, Kildee, Coleman, Petri, Roukema, and Gunderson. Staff present: Thomas Wolanin, staff director; Jack Jennings, education counsel; Maureen Long, legislative assistant; Gloria Gray-Watson, administrative assistant; Jo-Marie St. Martin, minor- ity education counsel; and Rose Di Napoli, minority professional staff member. Chairman FORD. I am pleased to convene the Subcommittee on Postsecondary Education for this, the 18th hearing in a series of 44 on the reauthorization of the Higher Education Act. Today is the first of three hearings on the Stafford loan program, which gener- ates the largest amount of financial assistance each year. Federal contributions of $4.24 billion during this fiscal year will generate about $11 billion in loan capital, providing almost 4 mil- lion students and their parents with guaranteed loans to attend postsecondary institutions; 3.2 million of these students will receive subsidized loans. Today we will hear testimony from witnesses representing all sectors of postsecondary education and all the players in the Staf- ford student loan programinstitutions, students, lenders, finan- cial aid administrators, guaranty agencies and the student loan marketing associationall with suggestions for changes in the loan program. And I'm particularly pleased that Michael Farrell, the Acting Assistant Secretary for the Office of Postsecondary Education at the Department of Education has joined us here again. You're soon going to set a record, Mike, for appearances on reauthorization, but we're very pleased to have you. Mr. FARRELL. I'm glad to be here. Chairman Form. And I was very pleased in the presence of others to report to the Secretary last night that every time you've ap- (1) 2 and he's well repre- peared here you've been helpful to the process sented. loan pro- Today we will hear suggested reforms to the Stafford the most costly problems, and that gram, which is becoming one of While the net de- the program itself facesthe default problem. increased fault rate for Federal guaranteed student loans has not important. Ten years ago the student over the past 10 years, this is 9.6 percent. So it's loan default rate was 9.7 percent; in 1989, it was when anxiety about actually come down very slightly in a period loan default costs has gone up. view of the And I hope in our discussion we can keep a separate there and the rate of cost of defaults, the accumulated portfolio out those two defaults. Too frequently, when it s written in the press, idea that during the terms are confused and it gives the public the 10 year period, the rate of defaults has increased. responsive than So they think that more students are being less They don't make the distinction because it was previously the case. we're talking about isn't made for them in the newsvaper. When about paying for the this tremendous annual cost, we re talking since the beginning of the cost of loans that have been made ever program, not what the current status is. suggestions of the I look forward to hearing the comments and Stafford loan pro- witnesses we have today on ways to improve the from all of the witnesses, gram. We have prepared statements objection, the full pre- which we've had time to examine. Without immediately following the pared text will be inserted in the record oral presentation by each of the witnesses. Mr. Coleman. student loan Mr. COLEMAN. Thank you, Mr. Chairman. The that help families and stu- aspect of Title IV and of its programs integral part of it. And dents attend colleges and universities, is an brief statement be- I would like to take this opportunity to make a clarify our situation here. cause I think it's helpful for us to which I think Mr. Ford and I have agreed to a hearing schedule forties, as far as the number of hearings. And now numbers in the GSL's, yesterday we're doing it on an issue basis. Today the issue is hearings, and so and the day before were two days of Pell grant forth. done in past years, At the same time, Mr. Ford and I, as we have produce have agreed that it probably would not be constructive to committee in ad- legislation to place in introduction or before the And I want to confirm that, vance of going through this process. given up that option that both myself and Mr. Ford have kind of have all been heard. Then we will try to now until these matters and try to come up with a put together some legislation afterwards regarding which we're bipartisan approach to these major issues having all these hearings. legislation intro- Having said that, I know that there may be we go duced that has any impact on these various programs as and we will certainly through the process, and those can be helpful But I want to take those into consideration when the time comes. markup vehicle or a remind you that we don't have a particular abeyance those options, bill and, basically, we are going to hold in this member, in the hopes that we at least for the Chairman and 3 might be able to ultimately put together a proposal that would not of be divisive, but uniting. And we feel that this is the best way doing it. So if there are those who wonder where my bill on such and such Others is, or why Ford hasn't introduced his bill, that's the reason. have their own bills to introduce; there are other on the panel may members involved. But there may be some questions from time to time regarding that. I know the Chairman and I have just visited with the Secretary regarding that issue, and I think he understands our position and respects it as well. Thank you, Mr. Chairman. Chairman FORD. I want to thank the gentleman for bringing that people that Mr. Coleman and up. I think it should be made clear to back I solicited from all of the education establishment, if you will, in January your specific recommendations to be given to us, I think, it was by April the 8th. Those have been collated and were put in a side by side form so that everybody can see what everyone else is suggesting and what their rationale is for it_ This is the same procedure we followed 5 years ago in reauthorization. We, at the same time, have promised people that there would not be a Ford bill or a Coleman bill or a Democratic bill or a Republi- bill standing by itself in front of can bill or an administration people as we went through the hearing process. We're trying to proceed through the hearing process examining all of the facets of Title IV as concepts rather than being for or against anybody's par- ticular initiative. And it should be clearly understood. We met with the Secretary before their legislation was introduced. I believe it's being intro- duced today, or will be before tomorrow. It's up here now and we have a copy. We have no prejudice against that because neither of us are ea sponsoring, even by request, and we explained to the Secretary that it would be inconsistent. Mr. Williams has, introduced a Middle Income Student Assistance Act that I have had a long and abiding interest in. And I've resisted becoming a co-sponsor on that for the same reason. idea. And I don't want anybody to think I've given up on that I'm going to be fully supportive of Pat's efforts at the appropriate of time, but it would not be fair for .!ii; to superimpose our ideas legislation on the process before we find out what people think. So the absence of the Chairman and the Ranking Republican be from any bill that's introduced from any quarter should not explained. taken to mean anything other than what we have just It's neither a repudiation of that legislation or a lack of interest in it or any indication it won't get full consideration. It's just a matter later of trying to stay pure for as long as we can, and sooner or deci- that will break down, as you know, when we have to make sions. But I would add to that that in discussing Pell, for example, we discovered that the education community, the spokespersons that fre- we've heard from, the organizations that we hear from most 4 approach to the future quently, have come together with a common in the past. of Pell earlier than they have ever done so talking to each The publics and privates usually aren't even and they've al- other by this stage in the reauthorization process, without a specific ready presented us with a unified approach, that will have to be dollar amount attached to it. That's something unifies the seg- determined later, but at least it is an approach that this early in the process in ments of education as they haven't been the past. Mr. Williams. As you mentioned, I Mr. WILLIAMS. Thank you, Mr. Chairman. Majority Leader Gep- have a bill that I introduced yesterday, with Means Committee hardt, Caucus Chairman Hoyer, Ways and with Member, Mr. Downey. We will be seeking other co-sponsors, Ranking Minority Member, the exception of the Chairman and the on that legislation. Federal student financial It's a simple bill that simply extends but most importantly, middle aid to all students in this country, the bed rock of Amer- income students. They and their families are difficult to fi- ica's tax system, and yet they find it increasingly college education. nance their children's public school was $2,600; Just 10 years ago, the average cost of a cost of a private today it's $5,000. Just 10 years ago, the average is quickly becoming school was $6,000; today it's $11,000. College think folks. And those families, I out of the reach of middle income finding that they worry now most if not everyone would agree, are with at least as good about not being able to provide their children education as their parents provided them. this bill, Mr. Chairman; I have another reason for introducing for the Act that it's political. It has to do with the political support aid attempting to reauthorize. A student you and the rest of us are middle income people to fund system that relies on the support of benefits from it is losing the sup- it but provides them virtually no port of the American people. find cannibalism with And at a time when we increasingly be spent, it seems to me regard to where scarce dollars are going to support of the loan and that we need to significantly broaden the grant programs. things. It provides as- Briefly, Mr. Chairman, my bill does three loan program to all families sistance under the guaranteed student do away with that without resort to a needs test. That means we problem. Say that to cumbersome and complex loan application folks and you'll hear them applaud. home and the family Second, it removes the value of the family for the other student aid pro- farm from the calculation of need That's going to make that program grams, including Pell (grants. income families. and others more accessible to middle colleagues and friends, it And finally, Mr. Chairman and my of the Pell grants back to brings fmal decisions concerning the size those decisions belong, rather Congress, where many of us believe will provide families with a than leaving them down at OMB. That to them when better idea about the availability of the program children's college bills. they're trying to figure out how to pay their 9 ....=16 5 Mr. Chairman, I'm grateful for your remarks of support for the legislation that you made this morning, and I look forward to con- tinuing to work with you and my other colleagues to see if we can't include middle income American students as recipients to a greater degree than they have been in the recent past of student financial assistance. Thank you, Mr. Chairman. Mr. COLEMAN, Would the gentleman yield? Mr. WILLIAMS. I'd be pleased to yield. Mr. COLEMAN. I thank the gentleman for yielding. As he knows, throughout this series of hearings that we've held so far, it has become clear that one of the prime efforts that this member has been involved with, and Mrs. Roukema, I know, has an interest in this as well, that the introduced legislationand both of us in the past have pursued thisthat it will be something that we, on this side of the committee aisle, will find great interest in. Perhaps with a few turns or twists from your legislation. But the thi ust of it is that we recognize the essential poirtts that you've raised. And that is, first of all, that going to a colleg,... today, and paying tuition and room and board, is probably the second largest expenditure that a family will make, second only to the purchase of a home. That's a very important thing to remember for all people with all incomes. The second thing is that for too long we have seen a removal of the middle class, the working middle class, from program eligibil- ity. A loan program which was essentially designed by Mr. Ford and others, before we became members of this body, was created to serve that middle class. And they have been, basically, removed or driven out by budget concerns and considerations through the years. So there we do have a political problem. The problem is the people who pay full tuition, the people who pay the taxes, are now being told when they fill out the forms, "I'm sorry. You're not eligi- ble." So they pay twice, while others who are less fortunate finan- cially may benefit, and others who are more fortunate financially and can accept those costs. The middle class is being squeezed more more and more. You will find on this side of the aisle great sympathy and inter- est in this subject. And I believe that removing the home equity and family farm part of the formula will essentially help with this issue. Non-liquid assets should never have been made part of that for- mula in the first place. Because the only way you can utilize those assets is to place a second or third mortgage on them, and endan- member of ger your own home or farm, or sell them in order for a the family to attend college. None of these options are good, and I hope that we can find a common ground to agree on. Mr. WILI1AMS. I want to thank the gentleman for that indication of support, if not for the precise language of my bill, for the gener- al thrust of it. And I, of course, Tom, know of your long support for it because you and I have visited about this for years and I'm look- ing forward to working with you and your colleagues on that side and seeing that before this Congress is out, we make middle 1