3

1 Commissioner in proceeding to collection of the defaulted

2 amount.

3 "(C) Agreements entered into pursuant to this para

4 graph shall contain such provisions as may be necessary to 5 ensure that

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"(i) no information is disclosed by the Commissioner unless its accuracy and completeness have been

verified, and no information stating that a loan is in default is disclosed until the Commissioner has made a reasonable effort to collect the debt;

"(ii) as to any information so disclosed, such organizations will be promptly notified of, and will promptly record, any changes or corrections in, or objections by the borrower with respect to, any such information; "(iii) no use will be made of any such information which would result in the use of collection practices. with respect to such a borrower that are not fair and reasonable or that involve harrassment, intimidation, false or misleading representations, or unnecessary communication concerning the existence of such loan or concerning any such information.

"(D) The Commissioner shall, within ninety days after

23 the date of enactment of this paragraph, take such steps as 24 may be necessary to establish the disclosure of information 25 described in subparagraph (A) (i), (ii), and (iii) as a routine

4

1 use in accordance with section 552a(b)(3) of title 5, United 2 States Code, and to establish a system for the prompt notifi3 cation of any borrower of any disclosure made pursuant to 4 this paragraph.".

5

(b)(1) Section 427(a)(2) of the Higher Education Act of

6 1965 is amended by redesignating subparagraphs (H) and (I) 7 as subparagraphs (J) and (K), respectively, and by inserting

8 after subparagraph (G) the following new subparagraph:

"(H) contains a notice of the system of dis

closure of information concerning such loan to

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credit bureau

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organizations under section

430(b)(2),".

(2) Section 428(b)(1) of such Act is amended by redesig14 nating subparagraphs (O) and (P) as subparagraphs (P) and 15 (Q), respectively, and by inserting after subparagraph (N) the

16 following new subparagraph:

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"(0) provides that the note or other written agreement evidencing the loan contains a notice of the

system of disclosure of information concerning such

20 loan to credit bureau organizations under section

430(b)(2),".

SEC. 2. (a) Section 463 of the Higher Education Act of

23 1965 is amended by adding at the end thereof the following

24 new subsection:

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"(c) For the purpose of promoting responsible repay

26 ment of loans made pursuant to this part, the Commissioner

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1 shall enter into cooperative agreements, in accordance with 2 the requirements of section 430(b)(2), with credit bureau or3 ganizations providing for the exchange of information con4 cerning student borrowers concerning whom the Commis5 sioner has received notice pursuant to subsection (a)(4).". 6 (b) Section 464(c)(1) of such Act is amended by striking 7 out "and" at the end of subparagraph (G), by striking out the 8 period at the end of subparagraph (H) and inserting in lieu 9 thereof "; and", and by adding at the end thereof the follow10 ing new subparagraph:

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"(I) contains a notice of the system of disclosure of information concerning default on such loan to credit

bureau organizations under section 463(c).”.

SEC. 3. (a) The amendments made by section 1(b) and

15 2(b) shall apply with respect to loans made more than one 16 hundred and eighty days after the date of enactment of this 17 Act.

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(b) The Commissioner shall take such steps as may be 19 necessary to inform borrowers of loans made under part B or 20 E of title IV of the Higher Education Act of 1965 of the 21 establishment of the system of disclosure of information con22 cerning such loans to credit bureau organizations under sec23 tions 430(b)(2) and 463(c), respectively, and of the applicabil24 ity of such system to loans made to such borrowers.

Mr. FORD. Thank you. I believe Carol Wennerdahl, director of the State program in Illinois, has been in contact with you on this. She has written directly to the committee concerning your bill. Mrs. FENWICK. It was Illinois, that is right. Thank you, Mr. Chairman.

Mr. FORD. She makes reference to her conversations with Mr. Nester of your State regarding this practice. Apparently it is done in Illinois as well. I am informed that, while the Office of Education does not now do this, it is one of the alternatives being studied in conjunction with other things as they are moving step by step into more aggressive collection of student loans.

I think that it probably is permissible under the present law but clearly there would be no harm in establishing as a matter of law that they could do it. There is some hesitancy, however, on mandating that all of the State agencies or the Department would have to do it at any given time.

Some of the State agencies might resist doing it. But the Department may or may not be able to do it. We would rather see what they plan to do before they put it into action with regulations. We have a chance when we do that if we mandate it by statute.

I am afraid that they might get their practice into existence without coming back to us in a way that could lead us into trouble. The only trouble I have is whether or not you would consider the language in your bill that says that the Department "shall" as language that we can examine with the possibility of saying "can" or "will" or "may" turn into a clearly established power within the jurisdiction of the Department and the State but not mandate that they do it.

Mrs. FENWICK. I would be worried about that, Mr. Chairman. The fact is that, as you say, by inference if not exactly, it is now permissible and it is simply not being done. I think we have allowed a great many young students to be lulled into a feeling that this is not a serious loan program in the sense of a loan but rather something that can be forgotten if it is not convenient.

It does make a difference; it means we can help more students if we have loan returned on time. This has been recommended by the GAO and it is in accord with the Privacy Act too; it would be proper under the Privacy Act. I think we come to a time now with $1 billion outstanding when we can no longer continue with purely permissive measures.

I think there should be that flexibility that would allow for special individual problems but I really think we are going to have to be a little stronger in defending the public purse, not because we want to be mean but because we want to be able to take care of more students if we get the loans paid by those who can afford to pay.

Mr. FORD. Thank you very much. Perhaps we can get a reaction to this from the administration during the next panel when we have some of their most able representatives of the brain trust now in charge over there on our next panel. I am sure that one or more of them can respond to the initiative on your part and give us some idea of what they have in mind.

Mrs. FENWICK. We have one right here beside me.

Mr. FORD. He is going to be right in the middle for the rest of the morning. Thank you very much.

Mrs. FENWICK. Thank you, Mr. Chairman.

Mr. FORD. Now, to discuss the administration's student loan proposal we will have a panel consisting of Fred Bohen, Assistant Secretary for Management and Budget; Michael O'Keefe, Deputy Assistant Secretary for Planning and Evaluation, both of the Department of Health, Education, and Welfare; Joel Packer, U.S. Student Association; Helge Holst, Massachusetts Higher Education Assistance Corp.; Edward Fox, president, Student Loan Marketing Association; Dallas Martin, executive director of the National Association of Student Financial Aid Administrators; Jerry Gibson, Consortium of Financing Higher Education; and Ed Piana, executive vice president, Bay Bank Norfolk County Bank and Trust, Dedham, Mass., representing the American Bankers Association. Without objection, the prepared statements presented to the committee by the members of the panel will be inserted in full in the record.

We will proceed first with Mr. Bohen to discuss the subject matter this morning. I want to give everybody an opportunity to give their comments and then come back with an exchange which we hope will be among you on the panel rather than between members of the committee and the panel.

We will appreciate very much if this panel will develop for us a dialog on the reactions to the administration and the administration's responses thereto. We will start with Mr. Bohen.

STATEMENT OF FRED BOHEN, ASSISTANT SECRETARY FOR MANAGEMENT AND BUDGET, ACCOMPANIED BY MICHAEL O'KEEFE, DEPUTY ASSISTANT SECRETARY FOR PLANNING AND EVALUATION/EDUCATION; THOMAS BUTTS, BUREAU OF STUDENT FINANCIAL ASSISTANCE; AND BOB DAVIDSON, POLICY ANALYST, BUREAU OF STUDENT FINANCIAL ASSISTANCE, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Mr. BOHEN. Mr. Chairman, I am pleased to be here today to discuss in more detail and to respond to questions from my colleagues on the administration's loan proposals which were contained in Secretary Califano's July 19 testimony. I have a full statement which has been provided and which will be inserted in the record.

I would like to hit the salient points of that testimony as I see them. The administration has conceived these loan reform proposals in the context of current economic and budgetary limitations and the anticipated future cost of existing programs.

We are committed to fully phasing in these proposals if they are enacted by the Congress over the next 3 years. As I indicated 2 weeks ago, we believe the existing Federal student loan programs are plagued with severe problems that need to be addressed. These include inadequate access to loan capital, administrative complexity, overlapping and unclear purpose, high default rates, as has just been referenced by Congresswoman Fenwick, and high costs to the taxpayer.