Hawaii Carpenters Union United Brotherhood of Carpenters and Joiners of America, Local 745 July 1, 1991 Rep. William D. Ford and Members of the Committee on Education and Labor U.S. House of Representatives 2461 Rayburn House Office Building Washington, D.C. 20515 RE: Post Secondary Education Funding Dear Chairman Ford and Committee Members, My name is Warren Chong. I am a Field Representative with the Hawaii Carpenters Union. Our membership totals over 8,000 statewide, with the majority of our members in the 20-60 age group. That We see a definite need to provide funding for this group of so called average people with average income. group of people that have not been afforded the opportunity to participate using the traditional Education Program Financial Aids that our government offers. There are all types of definitions of what encompasses a "good job". I will share my attempt. For a person to hold what is considered to be a "good job", they must: 1) be challenged in a field that interests that 2) 3) be compensated financially in a fair manner. The searching for a "good job" or for one's "place in life" is evident as statistics say that a person changes jobs somewhere about every 7 years. Often, an individual simply cannot know their interests in life until some later stage in life when experiences have allowed some feedback to refine a career direction. We look forward to have our membership benefit from your committees appropriations in ways that will allow them to pursue new opportunities. It is unfortunate that these opportunities are often limited by the responsibilities that STATE HEADQUARTERS & BUSINESS OFFICES OAHU: 1311 Houghtailing St., Honolulu, Hawaii 96817 • Ph: (808) 847-5761 Fax (808) 841-030U KAUAL OFFICE: Kuhio Medical Ctr Bldg., 3-3295 Kuhio Hwy, Suite 201. Lihue, Kaua) 96760 • Ph. (808) 245-8511 Fax (808) 245-8513 HILO OFFICE: $25 Kilnça Ave Hilo. Hasan 96720 • Pb. (808) 435 6575 Fax (808) 35-STA 2 sider Hawaii Carpenters Union United Brotherhood of Carpenters and joiners of America, Local 745 correspond to the economics of middle age. Expenses such as Pre-School, House Mortgages, Job Stability and Earning Power, and Time Restrictions that accompany these responsibilities. The lack of financial options leaves Bany, that are in our nations most productive age group, a frustrating career. A situation, which in turn leads to lack of full productivity. in I was a teacher before moving into the Carpentry Field. There are many stories I personally heard from other teachers, of how frustrated they were. Yet, they already had 15 years credit and only had 10 more years to stick it out. You and I both know that frustrated teachers only produce frustrated students. Sadly, I am only part of the small minority that had the courage to try a change. I am currently working with an Accountant, a Career Resort Manager, and a long-time State Harbors Manager to try to find the financial balance that would allow them to pursue our Carpenters Apprentice Program. We also deal with many of our Journeymen that now are burning to expand their potential in fields such as Law, Business, and Teaching. They likewise are looking for financial aid that could afford them that same opportunity to advance their education and expand their horizons. Financial Sacrifice is often the Major limiting factor. should not be! It We need to provide opportunities for those who are courageous enough to pursue their goals. We must earmark some of these funds for this "gap group". This will allow them the Financial Aid that will allow continued education or re-education. This will lead to lives that will be more productive, satisfying, and challenged. STAIL HEADQUARTERS & BUSINESS OFFICES OAHU: 1311 Houghtailing, Homedalu How .• ih seses17-576 FaxxiLOGO Mrs. MINK. Thank you very much, Mr. Chong. If not, thank you very very much, and especially your comments with reference to Senator Akaka's bill. Senate Bill 923, I believe, is the number. I am not sure. That legislation is, of course, very important, and I am sure the House will be looking into all of its provisions. The Senator would have wanted to be here today, I know, but he has his own hearings going on in Honolulu. We have to make use of the time we have away from Washington. He had to cover his agenda in Honolulu and could not be here. Thank you very very much. Mrs. MINK. Our final panel is headed by Ms. Lorraine Teniya, Executive Director of the Hawaiian Education Loan Program, and Hansford Chock. If both of them will now come forward. We welcome you, Lorraine Teniya and Mr. Chock from Bank of Hawaii. Again, we have your testimony. It will be entered in the record in full. You may summarize. STATEMENTS OF LORRAINE TENIYA, EXECUTIVE DIRECTOR, HAWAIIAN EDUCATION LOAN PROGRAM, AND HANSFORD CHOCK, MANAGER, STUDENT LOAN CENTER, BANK OF HAWAII Ms. TENIYA. Good morning Representative Mink and Members of the committee. My name is Lorraine Teniya. I am the Executive Director of the Hawaii Education Loan Program, known as HELP. It is a privilege to have the opportunity to appear before you today. In short, I am representing the guarantee agency. I would like to describe the significant role the Guaranteed Student Loan Program has played in assisting Hawaii students from all income levels and all ethnic backgrounds in accessing postsecondary education and to discuss the strengths of the Guaranteed Student Loan Program. Despite reports in the press, abuse is found only in isolated pockets. The Federal student loan program is not perfect, and our statement suggests several possible modifications aimed at increasing the financing options available to students and lessening the risk to the Federal Government and the taxpayer. But we are convinced that the laws authorizing the current Federal student loan program are basically sound policy decisions and have resulted in a successful program of investment in postsecondary education. That investment is necessary for us to advance our national goals of competitiveness and opportunity for every citizen willing to work and study. Let me briefly describe the background of the HELP program. In September, 1979, Governor Ariyoshi designated United Student Aid Funds, Inc. (USA Funds), a national not-for-profit student loan guarantor, to serve as the guarantor and administrator of the guaranteed student loan program for Hawaii. In October, 1979, USA Funds opened an office in Honolulu to develop lender participation and inform the public about the availability of the program. The Hawaii Education Loan Program is the name of the GSL program for Hawaii. The HELP Office provides day-to-day guidance and technical support to Hawaii's lenders and schools in the administration of all three GSL programs Stafford, PLUS and SLS and information and advice to students and parents. In the last 12 years, HELP has guaranteed $211 million for 47,000 students with 6,706 students borrowing $19 million in 1990 for an average loan balance of $2,840. The program is carefully administered in this State, in which students, schools, lenders and HELP have put together a successful record. These loans support students at the two 4-year campuses of the University of Hawaii and its seven community colleges. In addition, students at the six private 4-year universities in Hawaii and 10 proprietary (for-profit) vocational schools participate in these programs. Close to 52 percent of the loans have gone to students attending schools in Hawaii, the remainder to Hawaii students who have taken their loans to mainland campuses. Banks are the larger lenders, and a number of Hawaii credit unions make loans to their members and members' children. All eligible borrowers have access to loans under the HELP program. There has never been a student unable to obtain a loan because there was not a lender willing to make the loan. We are proud of HELP's excellent record of service to Hawaii. We are projecting a 3 percent default rate for HELP this year. Last year, Hawaii's default rate was 3.07 percent. Over the last 5 years, HELP's default rate has exceeded 5 percent only in 1988, when loans for the Pacific Islands were merged with HELP loans for reporting purposes. HELP's excellent record of loan repayments is a tribute to the responsible student borrowers in our State and also reflects our efforts to carefully screen our participating schools for any patterns of difficulty. The current program structure works very effectively to support Hawaii's students in achieving the education to which they aspire-be it vocational training or academic pursuits. The program also works largely without abuse in Hawaii and throughout the country. Any widely-publicized instances of abuse are found in isolated pockets. They do not describe the condition of the program. In fact, the program has never been stronger. Congress has taken steps over the past several years to tighten rules governing the program. Some of the key changes are the following: requiring that the checks be sent directly to the school for delivery to the student; requiring that the funds be delivered to the student in multiple disbursements; and eliminating schools with default rates over 30 percent from participating in the SLS program. These changes have addressed the underlying causes of default and have served to improve the integrity of the program. Because each change is appropriately effective only into the future, its impact is seen over time, rather than immediately. To repeat, the program is serving students well and instances of abuse are isolated. Therefore, we recommend that in the 1991 Reauthorization of the Higher Education Act you focus on minor changes which strengthen the program instead of on massive changes which we believe are inspired by isolated, sensationalized press reports. We have several recommendations for change, which have been grouped into three areas: changes to reduce the costs of the program and to strengthen its structure; changes to increase the integrity of the program; and changes to modify the loan terms to bring them into conformance with the borrowers' needs. To reduce costs, we recommend guarantors assume additional default risk through a reduction in Federal reinsurance to a flat 95 percent in lieu of the current sliding scale. A second change recommended to reduce Federal costs is changing the interest rate paid by Stafford borrowers to a floating rate, as is the case with PLUS and SLS loans. This change would reduce or eliminate the Special Allowance payments to lenders. The Special Allowance was established in 1969 when the 7 percent interest did not yield an equitable return to lenders but when many States still defined usury as interest over 7 percent. We believe that once a borrower is out of school and in repayment a Stafford borrower can afford to pay a floating interest rate that is capped. The structure of the program can be strengthened by enhancing the strength of guarantors. The administration has recommended requiring guarantors to maintain a minimum reserve level and requiring that they meet general standards of fiscal soundness. The administration has also recommended that guarantors which do not meet these standards cease independent operation. We concur. Also, we believe that the program must continue to provide guarantors with the opportunity and incentives to strengthen their financial positions. Changes to increase the integrity of the program: One area in which the integrity of the program can be strengthened has not yet been addressed by legislation. This is the structure for establishing eligibility for proprietary school participation in the Guaranteed Student Loan Program. It has been established, most recently in the report made by the Permanent Subcommittee on Investigations, that the triad of State licensure accreditation and Department of Education Certification is not working effectively to determine the financial and administrative strength of the proprietary schools prior to admitting them to participation. The steps Congress recently has taken to tighten the program and eliminate schools with excessive default rates have addressed the "back end," that is, controlling schools' participation in the program after admission into it. Our recommendation is to address the "front end" by more tightly controlling initial eligibility to participate in the program. Changes to modify the loans term to bring them into conformance with borrowers' needs: Recently, the focus of attention on GSL has shifted away from the needs of students. The concerns over costs and the pockets of abuse have grabbed press attention. We believe reauthorization must also retain a strong focus on serving students. To wit, the annual and aggregate maximums are no longer sufficient to cover a reasonable portion of the dramatically increased costs at many schools. We support the several recommendations by others for increased loan maximums. Borrowers also would benefit from repayment options which lower their monthly payments. Lengthening the maximum repayment term will permit borrowers to lower their payments by ex |