The overall effect of the "freeze" on increasing these appropriations, the increase in eligible institutions, the allotment formulas written into the higher education amendments of 1972, and the impact of inflation is seen in the results of the regional panel allocation process operated by the Office of Education. This year California schools received only 42% of their panel approved requests for funds under these programs, while in the state of Utah, for instance, schools received 87% of their panel approved request. It seems to us that the manner of allocating these funds to the states and the freeze on increasing these funds discriminates against state's, such as California, who are working very hard to open up postsecondary education to all income groups. Of the approximately $770 million available this year for these programs, California will receive only 10% or $77 million, while enrolling 1.27 million students or 15% of national higher education enrollments.

While the language setting up allotments for SEOG and NDSL requires a distribution of funding based on a state's proportion of national enrollment, it is qualified by language prohibiting any state to fall below its fiscal year 1972 allotment. This freezes us into the results produced by the old allocation formulas since we have not seen any increase in funds available since 1972. The Work/ Study program on the other hand still contains language which apportions funds on a basis other than on a strict proportional one. Again this process discriminates against states such as California that are working hard to increase access.

We should also point out that inflation has eaten up nearly 25% of the constant dollar value of the money appropriated for these three categorical aid programs. This fact, when coupled with the nearly 25% increase in the number of institutions competing for these limited funds, has seen many institutions faced with a 50% decline in aid from these programs.

We would urge Congress to do three things in the area of the three categorical aid programs during the next year as it prepares to extend the authorization granted by the Higher Education Amendments of 1972.

1. Increase the base level of appropriations for these programs by 25% to reflect the increase in eligible institutions authorized in 1972.

2. Change the state allotment formulas so they are strictly tied to the state proportion of national postsecondary enrollments.

3. Build in a permanent year to year cost of living increase factor into the appropriations for these programs so that we won't lose ground to inflation. We think these programs are a very good complement to the BOG and FISL programs and we would like to see them adequately funded along with a fully funded BOG program.

WORK/STUDY

Another aspect of this area of federal student aid which I would like to touch upon is the work/study program. Work/study is one of the most popular forms of student aid, both with students and with financial aid officers. It is a form of "self-help" which does not burden the student with an excessive loan burden, while at the same time helping institutions of higher education and other non profit agencies carry on many essential tasks. We see two major problems clouding the horizon of the work/study program.

The first is the funding problems touched on above. The freeze on funding, plus the effects of inflation and increased competition for limited funds has resulted in dwindling work/study program in the UC system. We should hope that you would give first priority to the work/study program when you consider addition funding for the three categorical aid programs from limited federal

resources.

The second problem deals with the question of the proportion of work/study or "self-help" in a students' aid package. We note with dismay the trend towards greater and greater reliance on loans to finance higher education. To the extent that BOG's do not grow fast enough to keep pace with inflation and rising demand and to the extent that the categorical aid program fail to grow at all, more and more students are told to rely on loans and summer earnings to fill the gap between college costs and their expected family contribution.

In normal times there is a limit to how much we can realistically expect students to earn during summer break. In times of economic difficulty, summer employment becomes an even less likely source of student support. Unless sources of school terms employment such as work/study are developed to a greater degree than currently exists, more and more students will be saddled with huge loans debts when they leave school.

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To meet this problem we urge you to develop a formula that would relate the three components of an aid package (loans, grants, and work) to one another and then develop a funding formula that would allow for the future growth of the work/study program so as to maintain this ratio between loans, grants, and work/study earnings. This would help guarantee well balanced student aid packages for all students and relieve the increasing pressure towards greater and greater reliance on loans.

The urgency of this problem can be seen by examining the current situation at the University of California. In 1972 the average indebtedness of UC graduates who had received some kind of financial aid during their undergraduate years was $2100. It was not unusual for students to graduate with total loan debts of $7-8,000 (made up of FISL, NDSL, AND UC loans). This trend towards loans is continuing unchecked at this time. We really need to establish some realistic balance between the proportion of loans, grants, and work in student aid package.

STATE STUDENT INCENTIVE GRANTS

We are pleased that Congress has agreed to fund the State Student Incentive grant Program for 1974-75. California is ready to take advantage of all the funds offered in order to expand its already extensive student aid program. Our only concern, however, is that Congress be prepared to continue funding over a period of time and give the state's clear advance information about future funding possibilities. This is necessary because in California scholarship commitments are made to students for up to four years of undergraduate work, provided the student still deomonstrates financial need. A sudden withdrawal of federal matching funds could leave many students in a serious bind. We hope you will clearly state the long run future funding possibilities for this program so that states and students may plan accordingly.

GENERAL ADMINISTRATIVE PROBLEMS

Before concluding this portion of my remarks it might be helpful if I note several pure administrative problems in this area.

The first is the complete lack of HEW-Office of Education guidelines or regulations for the three categorical aid programs. It is almost two years since the Higher Education Amendments of 1972 were approved and OE has yet to issue new guidelines for the three categorical aid programs. This failure has caused confusion among campus aid officers. When they are confused it's students that suffer the consequences.

The second problem concerns the near impossibility of obtaining information, certain applications (especially FISL forms), or general guidance from the Region IX office of the Office of Education. For instance, a written request from one of our US Student Lobby staffers for some data on 1973-74 allocations of federal student aid to California has gone unacknowledged for over 5 months. A request for additional FISL loan applications this fall went unanswered for nearly four weeks. This is simply inexcuseable. While we understand that part of the problem might be a very high staff turnover rate (over 30%) we urged you to do something to rectify this situation.

We understand that Congress is now considering a proposal for a "National Center for Educational Statistics" designed to provide better public access to Office of Education data. We see this as a very important step in helping student groups such as ours have a bigger role in making public policy. We hope you will guarantee student groups as well as other parts of the public full access to the resources of the proposed center.

One final comment on administrative matters concerns federal allowances for administrative costs of financial aid programs. Current allowances seem to be inadequate to fund existing work loans in the categorical aid programs and non-existent when you consider BOG and FISL. It's the student, at least in California, who makes up the difference between federal allowances and real costs. At UC, students pay for this through their registration fee. Currently 110,000 US students pay $2.3 million a year to finance the administration of financial aid. This is the case in many other California schools as well. We hope you will keep this in mind as you reexamine financial aid programs during the next year.

GUARANTEED STUDENT LOAN PROGRAM

The final portion of my testimony deals with the Guaranteed Student Loan program. This program has attracted increasing attention in recent years because

it is the only federally subsidized aid program for middle income families-a group that is increasingly hard hit with the rising cost of college.

The change in GLP eligibility made in 1972 has had real detrimental effects in the UC system. As you can see from our Appendix C volume has dropped off considerably in the last year. At UCLA, for instance, we have seen a drop of 27% in the number of students receiving GLP loans and a drop of 31% in the total dollars awarded to UCLA students. Similar figures could be presented from other UC campuses.

We urge you to return to the old system of not requiring students from families with adjusted incomes of $15,000 or less to file a statement proving need. The red-tape and confusion caused by this requirement has excluded many students. Furthermore, despite attempts by the chairman of this committee to clarify the intent of Congress and thus give bankers more flexibility in approving loans, many students are still turned down because on paper they lack need.

Another very serious problem in California is the fact that many banks have a blanket policy forbidding loans to first year students and persons over the age of 26 who are not veterans. They justify this because they consider these groups to be "high risk" groups likely to default on their loans. The banks' reluctance to loan here is understandable given their obligations under the program. However, we still must protest the effect this policy has on many needy students. One solution to this problem currently being tried in California, especially at UC and many private colleges, is for the institution to become a FISL lender on its own. They then make loans to many of these "riskier" students. This is one way they attempt to aid these large groups of students currently excluded from the FISL program. However, its quite likely that, in spite of the best efforts of the institutions to ensure a low default rate, they will experience a higher default rate than banks, who in one sense, "skim off" the best risks. We know that much attention has been focused on the default rate under the GLP program. We hope that you will take into consideration the special problems that institutions are trying to solve when they enter the GLP program. Perhaps you should expect and plan for two different levels of defaults, one for banks and one for institutions.

LOANS DEFAULTS

The most critical issue facing the GLP program today is the default rate among outstanding loans. I would now like to briefly explore what we see as the factors behind defaults and how the rate might be lowered.

We see three factors that affect the default rate.

1. A simple attitude by some irresponsible students that they will never repay the money because the Federal government guarantees the loan and no one will ever make him pay.

2. Inadequate advance information and planning by the student about the size of his monthly payments and how to fit them into his personal or family budget.

3. A simple problem of too great a monthly payment compared to a person's income early in his/her working career.

As to the first problem, we can only condemn such irresponsible persons and urge you to develop a staff to pursue such persons and seek full repayment. We see them as free loaders who jeopardize the future education of thousands of needy students who are only asking a chance to borrow money for their education.

In regard to the second problem we see a need for your to require an "exit" interview for all students receiving GSLP loans before they leave school. This would be similar to the requirements by the NDSL program. Such an interview could be used to do several very critical tasks;

(a) Inform the student of the size of his total debt and when he must begin repayment.

(b) Inform his of his legal obligations and the consequences of default. (c) Advise him of the size of his money payments and the impact they might have on his personal budget.

(d) Answer questions the student might have about his personal circumstances. Such exit interviews could be conducted on a group basis and still be effective. Schools should be designated as responsible for conducting these exit interviews in conjunction with lending agencies. An administrative allowance of 1% would seem to be a reasonable way to finance these exit interviews. We think this is a very important step towards lowering the FISL default rate.

One final way the GSLP program can be adjusted to curtail defaults would be to develop a form of graduated repayment of GSLP loans. If we accept that

the early years of a working career are the hardest ones in which to make extensive loan repayments, a graduated repayments program makes a great deal of sense. One way of working such a program would be to lower the payments during the first two or three years of the repayment period to the cost of interest only and then accelerate repayment during the last years of the loan period to pay off the loan within the ten year limit. Such a plan could be presented to the student as an option at the time he begins repayment as a means of helping him/her through the first and roughest years of his/her career. We think this kind of a graduated repayment plan and perhaps several variants of it should be tried on an experimental basis as a means of curing the default problem. It would help students over the rough spots and encourage them to make repayments as they become better able to afford them.

In conclusion, I'd like to thank the chairman and the committee for the opportunity to appear before you today. I hope you will find my testimony of some value to you as you review the whole area of student aid.

I'd be glad to answer any questions.