sonable limits on the amounts that can be borrowed, along with the natural desire of the great majority of students to avoid excessive indebtedness, will prevent over-use of the program.

6. The disadvantages of a short period of repayment-difficult to avoid when banks predominate among lenders-in view of the life cycle in income and expenditures. Not only does income tend to be relatively low in the early years after college graduation and to rise to a peak in late middle age, but youthful families also tend to borrow in the early years of marriage to acquire a home and appliances. They reach a point at which their debts for these purposes are paid off and net savings are feasible at some point in middle age. Moreover, it is in the early years of marriage that a wife, who may also have borrowed as a student, is likely to be out of the labor force because of childbearing. For all of these reasons, and also because inflation lightens the burden of repayments as the years go on, a relatively lengthy repayment period is very advantageous for student. borrowers.

There has been some tendency in Congress to prefer the Direct Student Loan program and to be highly critical of the Administration for making no provision for that program in the 1975 Budget. This attitude is understandable, but the Direct Student Loan program presents problems, also, especially serious problems of differences in treatment of different students if it is to exist side by side with the Guaranteed Loan Program. The 3-percent interest rate was appropriate when the program was adopted in the late 1950's, but does it make sense today for some students to be eligible for 3-percent loans while others have to pay well over 7 percent? There is also an understandable tendency on the part of institutions to give preference to able students in the allocation of loans under this program and, I have been informed, to be more concerned about the credit standing of the student, because the institution's own funds are involved, than when it is determining need for a guaranteed loan.

Let me very briefly review the main features of the National Student Loan Program recommended by the Carnegie Commission:

23

1. The Federal Government should charter a National Student Loan Bank, a nonprofit private corporation to be financed by the sale of governmentally guaranteed securities. The Bank would be self-sustaining, except for administrativecosts and the cost of any cancellations of interest because of low income and of principal for any reason other than death, which would be met out of Federal appropriations.

2. The Bank would make loans in amounts not to exceed $2,500 per year up to a total of $6,000 for undergraduate studies and $10,000 for graduate studies. No student would be eligible to obtain more in loans or in other types of student aid in any year than his costs of education, including subsistence costs.

3. Borrowers would be required to repay loans by paying at least 4 of 1 percent of income each year for each $1,000 borrowed until the total loan and accrued interest was repaid. This level of repayment would permit the average income earner to repay his loan in approximately 20 years. (Lower earners would require a longer period.) For borrowers filing a joint tax return, the appropriate rate of repayment for the combined debt of the husband and wifewould be applied to the combined income of the husband and wife.

4. Provisions relating to the beginning of initial repayments after completion. of studies and after years of service in the armed forces or in national serviceprograms would resemble those in existing legislation. There would also be pro-vision for deferral of payments during any periods of exceptionally low income. 5. The Bank would be authorized to enter into an agreement with the Department of the Treasury under which the Internal Revenue Service would undertakeall collections.

6. The interest rate charged the student would be set at a level which is adequate to permit the Bank to obtain the funds and to cover cost of cancellation upon the death of the borrower.

7. There would be no needs test.

8. There would be no cancellation of indebtedness for entering particular professions. Any remaining indebtedness would be canceled upon the death of the borrower or at the end of 30 years from the date of first payment.

pp.

23 Carnegie Commission: Quality and Equality, Revised Recommendations 9-13. The loan program recommended in this 1970 report was more carefully spelled out and somewhat modified as compared with the proposals in the earlier 1968 report on Federal aid.

Unlike full contingency loan programs, such as the proposed Economic Opportunity Bank, this program does not involve redistribution of income through differing levels of repayments for individuals with different levels of income. Lowerincome borrowers would have to repay their entire debt but would be able to spread repayments over a longer period. The program is modeled to some extent after the well-established Swedish student loan program, but differs in some details from that program."

We recognize that there may be serious obstacles in the path of early adoption of this type of program, but we believe that its many advantages over existing provisions will lead to increasing support for a program structured along these general lines. The new Carnegie Council plans to work out a more detailed set of recommendations for this type of loan program in the near future.

PART-TIME STUDENTS

Although provisions of Federal legislation relating to the various student aid programs generally allow aid to part-time students on a pro-rated basis, administrative regulations, notably in the case of the BOG program, have limited aid to full-time students. This has been an understandable limitation in view of the inadequate funds available. We believe that in the future there should be no discrimination against part-time students in the allocation of aid. In the last few years, the number of part-time students has been increasing much more rapidly than the number of full-time students. Between 1970 and 1973, part-time enrollment increased 27 percent, as contrasted with a 6 percent increase in full-time enrollment, on the basis of Office of Education data. In the case of women, the increase in part-time enrollment was particularly pronounced-37 percent as compared with 12 percent for full-time enrollment. Among men, the corresponding increases were nearly 20 percent for part-time enrollment and 2 percent for fulltime enrollment. Expressing the relationships in a slightly different way, parttime students accounted for 38 percent of the women and 33 percent of the men who were enrolled in the fall of 1973.

These changes reflect accelerated enrollment in occupational programs in twoyear colleges, where part-time enrollment is particularly common; an increased tendency for mature married women to enroll-necessarily in many cases on a part-time basis; and probably, also, a trend toward the more flexible patterns of participation in higher education that the Carnegie Commission advocated in its report, Less Time, More Options. In addition, in our report on Opportunities for Women in Higher Education, we advocated liberalization of many rules and policies that restrict enrollment of part-time students or employment on a parttime basis on university and college faculties.

COST-OF-EDUCATION SUPPLEMENTS

In all three of its reports on Federal aid, the Carnegie Commission advocated cost-of-education supplements based on the number of enrollees holding Federal student grants in higher education. By the fall of 1971, it was clear that all the major associations representing institutions of higher education were supporting a different approach to institutional aid, calling for capitation payments based on total enrollment. In the face of this situation, the Carnegie Commission carefully reviewed its position at several meetings and concluded that the arguments in favor of the approach it had recommended were compelling. As a result of these discussions, the Commission issued its report entitled Institutional Aid in February 1972, which, among other things, included detailed analyses of how differing aid formulas would affect the various types of institutions. In that report, the Commission stated that, in framing its provisions for Federal aid, the following principles were considered to be most important:

Basic support of and responsibility for higher education remain with the states and with private initiative. We are opposed to the development of a single national system of higher education. . . As a consequence of this principle, we do not favor lump-sum across-the-board grants to institutions from the federal government. This would be the initial step toward a nationalized system as, first, the state would reduce their sense of basic responsibility, and, second, controls would inevitably follow the lump-sum across-theboard grants.

24 For a discussion of Swedish student aid programs. see Woodhall, M.: Student Loans: A Review of Experience in Scandinavia and Elsewhere, George C. Harrap & Co., Ltd., London, 1970.

The highest single priority for federal funding in higher education in the 1970s is to help fulfill the two-century old American dream of social justice...

Students should be given the maximum freedom of choice in choosing the institution they wish to attend.

Federal aid should be given in a manner which does not encourage the states and private sources to reduce their support.

...

The form of federal aid should minimize constitutional problems and hopefully eliminate them altogether. . .

The autonomy of institutions should be preserved.25

The provisions for cost-of-education supplements in the 1972 Amendments reflected the general principle supported by the Commission while incorporating some special features that the Commission had not advocated. There has been no funding of the provisions. The argument is now being heard that there is no longer a case for funding the cost-of-education supplements, because the slow growth of enrollment in the last few years has left many institutions with unfilled student places and therefore no special inducement in the form of costof-education supplements is needed to encourage these institutions to enroll students holding Federal grants. We would reply that recent enrollment shifts have affected different types of institutions in a highly variable manner and that unfilled student places are by no means universally found in all institutions. Furthermore, the need for institutional payments to assist institutions in providing special educational services to students with inferior preparation continues to be very great. In a recent study of disadvantaged students in higher education, it was found that, even in institutions that have developed special programs for these students, future funding of such programs tends to be very precarious.20

In an editorial of May 28, 1974, entitled "The Student Aid Hoax," the New York Times expressed some cogent arguments in favor of funding the cost-ofeducation supplements:

Three years ago the Carnegie Commission on Higher Education recommended a formula to aid students and institutions simultaneously. Modeled on the concept of a guaranteed annual income, it would automatically entitle to scholarship aid any college-age student whose parents' income is below a set minimum. At the same time, every college would receive a cost-of-education grant for each federally subsidized student.

...

Now the Administration has asked for the full funding of the Basic Opportunity Grants (B.O.G.) at a level of $1.3 billion, while not only scuttling other important grants and loans, but without making any provision for cost-of-education grants to institutions-a fatal defect.

The plan to link aid to the students and to the institutions is a tandem that cannot run successfully on one wheel. Aid to students does nothing to solve the institutions' budget problems. The colleges' only alternative then will be to raise tuition, thus wiping out the gains promised to the students. ...

The specific recommendations for cost-of-education supplements included in our 1972 report differed somewhat from those included in the two earlier Federal aid reports. They called for:

1. $500 to an institution for each undergraduate student that is the recipient of a grant from the federal government which was made to the student because of his financial need, and proportionate supplements for parttime students holding such grants.

2. $200 for each student who receives a subsidized loan provided, however, that no such payment shall be made for students who hold federal grants or for students who borrow less than $200 during the fiscal year. (This provision was intended to aid institutions in enrolling students from families with incomes of $10,000 to $15,000.)

A recommendation for cost-of-eduaction supplements for needy graduate students holding Federal grants that had been included in the two earlier Federal aid reports was dropped, largely because the increasing problems involved in using parental income as a criterion for the determination of need were considered to be particularly acute in the case of graduate students and a special Federal program of aid to needy graduate students was therefore no longer

Carnegie Commission: Institutional Aid

, pp. 2-3.

26 Astin. H. S., and others: Higher Education and the Disadvantaged Student, Human Service Press, Washington, D.C., 1972.

appropriate. The report did, however, recommend cost-of-education supple-ments of $5,000 for each Federal doctoral fellow enrolled at an institution, in line with earlier recommendations that had been associated with a proposal for doctoral fellowships for especially able graduate students who had been advanced to candidacy for a Ph.D. or equivalent research doctorate. I shall return briefly to the problem of aid to graduate students at a later point.

The cost of these proposals for institutional aid was estimated in our 1972 report at $950 million, with the needed amount anticipated to rise somewhat in subsequent years as the number of student grantholders increased. The provisions in the 1972 legislation differ, of course, in material respects from the Carnegie Commission recommendations, especially in scaling down the amount of the supplements with increasing size of campuses. We have some reservations about these provisions, and we also believe that some of their details. e.g., the definition of a separate campus, are in need of redrafting. For these reasons, and also because the problem of estimating the cost of implementing the intricate provisions is complex, I have not attempted at this point to develop a careful cost estimate. However, because the final provisions resemble much more closely the Senate bill that was under consideration at the time, rather than the House bill, I would suggest that an adequate initial appropriation should not, as a rough order of magnitude, be less than about $500 million. We expect to undertake a detailed analysis of possible proposed revisions of the provisions for cost-of-education supplements during the coming.

year.

27

TUITION POLICY IN PUBLIC HIGHER EDUCATION

The Carnegie Commission recommendations relating to tuition policy in publichigher education, as set forth in Who Benefits?, have been subject to a certain amount of misinterpretation and have been erroneously assumed in many quarters to be essentially equivalent to the recommendations of the Committee for Economic Development. We hope that the recent clarification of our policy in Tuition, a copy of which has been supplied to some members of the Subcommittee, has served to overcome misunderstandings.

Let me briefly review the Commission's recommendations on tuition policy as they developed chronologically :

1. In the Open-Door Colleges, issued in June 1970, the Commission stated its belief that tuition charges in community colleges should be held to low levels and that, as Federal aid is expanded and the States strengthen their financial support of community colleges, a Statewide no-tuition policy should be followed in as many States as possible. It was specifically recommended that:

...

states revise their legislation, wherever necessary, to provide for uniform low tuition or no tuition charges at public two-year colleges." 2. In The Capitol and the Campus, issued in April 1971, the Commission broadened this recommendation to call for no tuition or very low tuition in the first two years of all public institutions, including community colleges, state colleges, and universities. It also warned that, when public institutions found it necessary to raise tuition and other required fees, increases should be at no higher rate than increases in per capita personal disposable income. As indicated earlier in this statement, moreover, the Commisison recommended that States should not consider raising tuition levels at public institutions until after establishment of a tuition grants program."

20

3. In Who Benefits?, it was again recommended that public institutions and especially community colleges-should maintain a relatively low-tuition policy for the first two years of higher education. It was also recommended that public colleges and universities should carefully study their educational costs per student and consider restructuring their tuition charges at upper-division and graduate levels to more nearly reflect the real differences in the cost of education per student, eventually reaching a general level equal to about one-third of educational costs.30

This same recommendation for restructuring tuition charges in favor of lowerdivision students, and for progressively higher charges at upper-division and graduate levels, was also made for private institutions. Private colleges and universities, in addition, were urged not to increase their tuition charges more

rapidly than per capita disposable income and, if possible, to hold increases below such a rate."

This aspect of the recommendations in Who Benefits? was largely ignored in the response of the press and of some critics.

Why was the Commission so consistently in favor of low or no tuition in the first two years of higher education? The most important reason, I believe, was that it felt that students should be given maximum opportunity to try out their chances for successful achievement in higher education in the first two years, with a minimal financial burden. At this stage, many students are uncertain about their probability of succeeding and, sometimes, even of their motivation or taste for advanced study. The community colleges, it was felt, had an especially important role to play in offering a truly open door to many students who, for one reason or another, had not performed up to their potential in high school and should be given a "second chance." A door is not very open, even with unselective admission policies, if tuition is a barrier. And many youthful students are wary of borrowing, especially if they are from low-income families and have experienced the extremely difficult problems that indebtedness can sometimes cause for those families.

Once a student has successfully advanced to upper-division work, he can be expected to be more confident and, if he wishes to continue in, or transfer to, an institution with costs beyond those available to him through student grants or his parents' contributions, should be prepared to augment his resources through part-time work or borrowing.

I now come to the Commission's recommendations for raising tuition somewhat at upper-division and graduate levels, in those cases in which it falls below about one third of educational costs per FTE student. This recommendation must be interpreted in the light of a background in which a good many economists had been pointing out, during the previous 10 to 15 years, that low tuition benefited students from middle- and upper-income families far more than it benefited students from low-income families. The reason for this was that many students from low-income families would not be able to afford to go to college even with the benefit of low or no tuition, because they would have great difficulty in meeting the subsistence and other expenses involved. In many cases, they and their families could not afford to do without the earnings they could receive if not enrolled. Or, to put the point somewhat differently, foregone earnings represent a much sacrifice for students from low-income families than for students from affluent families.*

On the other hand, the Carnegie Commission was not prepared to move toward a full-cost tuition policy for public institutions, as advocated by a significent number of economists and by many strong supporters of private higher education. This, it felt, would force too many students into heavy debt and would involve a sudden, and probably undesirable, change in the rules for today's generation of students, in contrast with older generations who had enjoyed the benefits of access to low-cost public higher education.

Let me now set forth the Commission's reasons for its recommendation as stated in the recent report on Tuition:

"The basic reason is that public subsidies can be channeled to students who need assistance more effectively through a combination of modest tuition charges and student aid than through primarily reliance on very low or no tuition. When students are subsidized primarily through very low or no tuition, the benefits flow to all students attending public four-year institutions regardless of family income. In other words, the benefits flow to many students who could well afford to pay at least a modest tuition charge...

"A low tuition policy by itself tends to channel more subsidies to higher-income groups in total because more young persons attend college from those groups. A targeted student aid policy by itself tends to channel more subsidies to lowerincome groups... Current policy, which combines some elements of each approach, channels somewhat more total aid proportionately to higher-income groups. The recommendations of the Carnegie Commission would more nearly balance subsidies among income levels (see Chart 2).

The report emphasized, however, that the Commission did not favor tuition increases that were not accompanied by increased student aid. In fact, it indicated that the Commission favored an increase in student aid in the near future that would exceed, in total amounts of dollars, any increase in tuition revenue. The report also pointed out that the one-third standard was consistent 31 Ibid., p. 110.

For a particularly able statement of the case against low tuition, see Nerlove. M.: "On Tuition and the Costs of Higher Education: Prolegomena to a Conceptual Framework," Journal of Political Economy, vol. 80, no. 3, pp. S178-S218, May-June 1972.