1/ Savings show as positive amounts; increased costs as negative amounts.

Note:

Proposals with negligible or no cost impact are:

o $800 self-help expectation

o independent student redefinition

o PLUS eligibility expansion

o PLUS loan limit increase

• PLUS market-determined interest rate

o PLUS special allowance elimination

1/ Budget authority cannot be allocated by activity. Budget authority (appropriation) levels, in total, take into account receipts and net unobligated balances. Since receipts and net unobligated balances are not allocated by activity, no meaningful way to allocate budget authority by activity exists.

Purpose and Method of Operation

This activity includes two kinds of payments in support of guarantee agencies: Administrative cost allowances The Department of Education makes quarterly payments for each of two statutory allowances to guarantee agencies. The primary and secondary allowances are each equal to up to one-half of one percent of newly insured loan volume. To receive the secondary allowance, an agency must insure out-of-State residents and must meet certain other conditions. The allowances may be used to meet broad categories of agency costs, and to pay lender incentive fees.

• Advances for guarantee agency reserve funds - Based on statutory formulas and agency applications, interest-free Federal loans of indefinite maturity are made to establish and strengthen agency reserve funds from which default claims are paid.

Accomplishment s

Through the provision of advances and administrative cost allowances, the States and territories have been assisted in establishing guarantee agencies. Guarantee agencies now operate in all 50 States, American Samoa, the District of Columbia, Guam, the Northern Mariana Islands, Puerto Rico, the Trust Territory of the Pacific Islands and the Virgin Islands.

Guaranteed Student Loans

4. Guarantee agency subsidies

1986 Budget Proposal

No funds are requested to support this activity in 1985 (in the 1985 supplemental) or in 1986 or beyond.

Administrative cost allowances and loan advances are subject to funding availability. As a result of the 1985 funding insufficiency, the Department is suspending all cost allowance and loan advance payments for 1985 to conserve funds to meet mandatory program costs. (It should be noted that payments being made for these two activities in 1985 are for costs related to 1984 activity.) No funds are requested for these activities in 1986 and no funds are assumed to be available in 1987 and beyond. Elimination of the cost allowances would require agencies to bear partial responsibility for financing the administration of the GSL program. Loan advances are no longer required to help establish or maintain agency reserve funds. Agencies would still be authorized to retain up to 30 percent of default collections and still could charge insurance premiums to help defray their administrative costs. In keeping with the Department's request for no funds for these activities, the Department is proposing to repeal the statutory authority for administrative cost, allowances and loan advances. The Department is also proposing to require guarantee agencies to repay all outstanding advances by October 1, 1986.

* Estimated amount agencies retain from their total collections. Net Savings Resulting from Proposed Policy 1/

17 Under current law, no funds are requested to support payment of administrative allowances and advances for 1985 and beyond. The amounts saved as a result of this policy, which does not require statutory changes, are: $55.5 million, $87 million, $86.4 million, $91 million, $96.2 million and $101.7 million for 1985 through 1990, respectively.

WEDNESDAY, MAY 1, 1985.

HIGHER EDUCATION

WITNESSES

EDWARD M. ELMENDORF, ASSISTANT SECRETARY FOR POSTSECONDARY EDUCATION

C. RONALD KIMBERLING, DEPUTY ASSISTANT SECRETARY FOR HIGHER EDUCATION PROGRAMS

SALLY K. KIRKGASLER, DIRECTOR, OFFICE OF POLICY DEVELOPMENT, OFFICE OF POSTSECONDARY EDUCATION

WILLIAM DINGELDEIN, DEPUTY DIRECTOR, BUDGET SERVICE, OFFICE OF PLANNING, BUDGET AND EVALUATION

JOHN S. HAINES, DIRECTOR, POSTSECONDARY ANALYSIS DIVISION, OFFICE OF PLANNING, BUDGET AND EVALUATION

Mr. NATCHER. At this time we take up the budget request for Higher Education for the Department of Education.

We have before the committee the Assistant Secretary for Postsecondary Education, Dr. Edward M. Elmendorf. Doctor, who do you have with you there at the table?

Dr. ELMENDORF. Thank you, Mr. Chairman.

I have with me, on my left, Ms. Sally Kirkgasler, the Director of the Office of Policy Development in the Office of Postsecondary Education; and on my right, Dr. Ronald Kimberling, Deputy Assistant Secretary for the Higher Education Programs; to his right, I have Mr. William Dingeldein, who is the Deputy Director of the Budget Service for the Office of Planning, Budget and Evaluation; and Mr. John Haines, Director of the Postsecondary Analysis Division of the same office.

Mr. NATCHER. Doctor, we appreciate your appearance before the committee, and we will be delighted to hear from you. Dr. ELMENDORF. Thank you, Mr. Chairman.

For the record, we are requesting in the Higher Education Program account approximately $252 million. The aim is to assist disadvantaged students, to target the activities to those institutions that enroll a high percentage of minority and disadvantaged students, particularly the historically black colleges.

TITLE III-AID TO DEVELOPING INSTITUTIONS

For institutions, that means we would like to level-fund the Title III program where we are asking for $141.2 million to go to 478 grantees, and continuing a $45.7 million set-aside for historically black colleges and universities.

We are moving this program, Mr. Chairman, in the direction of encouraging institutions to become self-sufficient. You will note by what we are asking for, that we are attempting to build up the endowment provision, Part C of Title III.

The changes that we are going to be asking for legislatively in this program call for the merging of Parts A and B into one part. We would like to maintain the endowment program, which we believe has the potential of being very, very successful, and we would like to improve program management without adversely affecting the grantees. For the MISIP program, Minority Institution Science Improvement Program, we are requesting $5 million level funding, for about 38 grants. That program has the same objective of trying to help minority institutions in the area of science, math and technology.

SPECIAL PROGRAMS FOR THE DISADVANTAGED (TRIO)

The TRIO programs are being requested for a funding level of $82.4 million. Funding for the Special Services and Upward Bound programs is called for, while no funding is requested for the other three programs under TRIO.

We would purpose to serve about 190,000 participants through over 1,000 projects. Currently, we are serving 492,000 participants in all programs in a little over 1,300 projects.

The legislative changes we ask for would require that the grantees share in the cost of operating these programs and ultimately graduate from the program. In the Upward Bound program, we would like to have a 20-percent project cost-sharing with the institution. The objective of both of these programs, of course, is to simplify and target eligibility to those who most need these services. We would be allowing for some new projects to be developed and for the continuation of existing projects.

INTEREST SUBSIDY GRANTS

We would like to get the amount of $23.5 million for interest subsidy grants, basically to make up the difference between the commercial lending rate and the three percent interest rate institutions actually pay.

PROGRAMS PROPOSED FOR ZERO FUNDING

Elimination of certain programs we feel is necessary under our 1986 budget, including the Fund for the Improvement of Postsecondary Education, which has about $12.7 million for 194 grants in fiscal year 1985. It has been a good program, Mr. Chairman, but we do not feel in times of austerity and budget cutting we can afford to continue funding this program.

The same argument would hold for international education, where we propose curtailing $32 million to 270 projects and 972 fellowships.

For the Academic Facilities Grants program, we are requesting no money for 1986. We plan to use the $28 million appropriated in 1985 to award 56 grants under this program.

The 1985 appropriation provided funds for: the Veterans Cost-ofInstruction Program, $3 million for 710 institutions; the Co-Op Ed program, $14.4 million to 204 grantees; the Law School Clinical Program at $1.5 million to 60 grantees; the Graduate and Professional Opportunity Fellowships Program, $11.8 million to 1,400 fel