HOUSING AMENDMENTS OF 1957 MONDAY, MARCH 25, 1957 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE ON HOUSING, The subcommittee met, pursuant to recess, in room 301, Senate Office Building, at 10: 10 a. m., Senator John Sparkman, chairman of the subcommittee, presiding. Present: Senators Sparkman, Clark, Capehart, and Bush. Other members of the committee will be here a little later, but I think we had better get started. We have a rather long list of witnesses for this morning. Before we start, there are a couple of announcements that I want to make. First of all, Senator Fulbright, the chairman of the full committee and a member of this subcommittee, wanted very much to be here when we discussed the matter of college loans. However, he is speaking this morning at a student convocation at the University of Maryland upon the invitation of President Elkins of the universtiy, and therefore will not be able to attend this hearing. The second announcement I want to make pertains to testimony that was to have been given by Senator Clinton Anderson on behalf of Dr. Tom L. Popejoy, president of the University of New Mexico at Albuquerque, N. Mex. Dr. Popejoy has sent along a statement that he wishes to have placed before the committee. Senator Anderson was going to present that statement along with his own testimony. Unfortunately for us, however, there is a very important meeting of the Finance Committee that he must attend this morning. He regrets not being able to be present, but he has sent along the testimony of Dr. Popejoy, and that will be placed in the record. (The prepared testimony of Tom L. Popejoy follows:) STATEMENT OF TOM L. POPEJOY, PRESIDENT, UNIVERSITY OF NEW MEXICO, ALBUQUERQUE, N. MEX., REPRESENTING THE STATE UNIVERSITIES ASSOCIATION I am Tom L. Popejoy, president of the University of New Mexico, Albuquerque, N. Mex., and speaking to you today on behalf of the State Universities Association, an organization of 22 separated (non-land-grant) State universities. The presidents of the institutions for which I speak strongly endorse the college housing loan program and express the hope it may be continued during the years immediately ahead to assist these and other institutions of higher learning in accommodating the increased numbers of students who we know will soon apply for admission, and for whom provisions must be made now if they are not to be turned away. This Federal loan program by itself will of course not be the total answer to the needs of institutions which must also seek financial support from many sources -State appropriations, private benefactions, corporations, and alumni. However, the Federal loan program has enabled institutions, and I hope will continue to do so, to construct needed housing and dining facilities so that such other funds as we are able to obtain can be used for faculty salaries, scholarships. classroom buildings, and equipment essential to providing higher education of quality. Certainly the majority of the members of the State Universities Association have not favored Federal subsidies to their institutions except for direct services furnished to the Federal Government such as the Reserve Officers' Training Programs. This probably explains why our association has not hitherto presented testimony before any committee of the Congress. However the college housing loan program is not a subsidy. We welcome it strictly on a loan basis. We are testifying for it today because of suggestions emanating in some quarters that the program should be curtailed or altered. Naturally we favor retention of the present formula governing interest rates on these loans. State universities traditionally have endeavored to educate all youths regardless of their or their families' economic status. In consequence these universities have generally enrolled a larger percentage of students from the less wealthy families than have other institutions. That we have been able to borrow Federal money for housing purposes at a moderate interest rate and certainly lower than could be obtained in the private money market has made it possible to furnish housing accommodations at a reasonable cost to students. Any increase in interest rates will inevitably transfer to the students an additional financial burden which in many cases will be the determining factor as to whether those students can remain students to degree completion. Fifteen of our member institutions have received loans from this program or have applications pending; two others will file applications for loans within a short time. It is the consensus of our members that this program has met an imperative need in higher education which could not have been met otherwise except at the sacrifice of a higher education for many able young men and young women. Your committee is also faced with the problem of deciding how much increase should be made in the loan authorization for the college housing loan program in order to take care of needs for the coming year. The President's budget message indicated the administration would request an additional $175 million in loan authorization. Subsequently, in testimony before the House committee, by representatives of the Housing and Home Finance Agency, this request was reduced by $25 million, or to $150 million. Senator Fulbright has introduced as S. 1553 a bill to increase the borrowing authority of the Housing and Home Finance Agency for this program by $200 million. We favor the enactment of this proposal, rather than the $150 million recommended by the Housing and Home Finance Agency, for the following reasons: This is a loan authorization, and not an appropriation. If there is no demand for the additional $50 million above the amount suggested by the administration, there will be no occasion to use it. If there is a demand, the funds will be available. Since all parties are agreed that the program should proceed on the basis of the volume of sound loan requests made, there is no point in limiting the amount of funds available and running the risk of having to shut down the program during the closing weeks of the coming fiscal year. I would remind you that a year ago the Housing and Home Finance Agency requested an increase of $100 million in borrowing authority. The Congress, in its wisdom, saw fit to make the increase $250 million. Events clearly have demonstrated that had the recommendations of the agency been followed, we would be before this committee today urging emergency action on an increase in authorization for the current fiscal year to permit the program to continue to operate. STATE UNIVERSITIES ASSOCIATION MEMBERS University of Alabama, University, Ala. Montana State University, Missoula, Mont. University of Oklahoma, Norman, Okla. University of Oregon, Eugene, Oreg. University of South Carolina, Columbia, S. C. University of South Dakota, Vermillion, S. Dak. University of Utah, Salt Lake City, Utah. Senator SPARK MAN. I understand Senator Capehart is on his way, and other members will soon come in. Our first witness this morning is Dr. Lewis Jones, president of Rutgers University. Will you come around, please? We are glad to have both of you gentlemen with us. Dr. Jones, if you will identify the gentleman who accompanies you, for the record, we shall appreciate it. STATEMENT OF LEWIS WEBSTER JONES, PRESIDENT, RUTGERS UNIVERSITY, NEW BRUNSWICK, N. J., ACCOMPANIED BY JOHN D. LONG, SCHOOL OF BUSINESS, INDIANA UNIVERSITY, REPRESENTING THE AMERICAN COUNCIL ON EDUCATION Dr. JONES. This is Dr. Long, of the University of Indiana, who has been coauthor of a study on this problem of college housing. Senator SPARKMAN. What is your first name or initial, Dr. Long? Dr. LONG. John D. Long, of the University of Indiana. Senator SPARKMAN. All right, Dr. Jones. We will be very glad to hear from you, sir. Dr. JONES. Senator Sparkman and gentlemen, I am Lewis Webster Jones, president of Rutgers University. I am appearing as a member of the committee on relationships of higher education to the Federal Government, of the American Council on Education. The council membership includes 143 organizations and 972 institutions, among them nearly all the accredited junior colleges, colleges, and universities in the United States. I have also been authorized to speak on this occasion for the American Association of Land-Grant Colleges and State Universities, which I served at one time as president. The essence of our request, Mr. Chairman, is that the college housing loan program, which has operated effectively on its present basis since 1955, be permitted to continue to meet the urgent need of college students for housing. This need has been recognized by the Congress for a number of years. It is now entering its most critical period. We submit that the paramount issue involved here is not a highly technical debate over interest rates, but the very simple and yet the enormously significant question: When an American boy or girl is ready for college during the next 10 years, will there be a college ready for that boy or girl? The answer means a great deal in the lives of our young people, and for the strength of our country. It is our considered judgment that abandonment of the program with its present rate formula, which all agree is now getting the job done, will result in a sharp reduction in dormitory construction. This cannot be justified as sound national policy. Officials of the Housing and Home Finance Agency have recommended to the Congress that the authorization for college housingloan funds be increased by $150 million, and that the present interest rate formula, producing at present a rate of 27 percent, be abandoned in favor of a new formula calculated to increase the rate to a minimum of 311⁄2 percent. Mr. Chairman, it is difficult to reconcile this proposal, which amounts to a proposal for a drastic curtailment of the college-housing program, with the eloquent statement in the same document concerning the expanding needs of the colleges. Here I quote the words of the Commissioner of the Community Facilities Administration: In this connection I would like to point out that the need for student housing, which was intensified during fiscal year 1956, has become even more acute during fiscal 1957, and will continue to mount during fiscal 1958. Moreover, with fiscal 1958 a special factor is introduced. The first bumper crop of war births came in 1942. In calendar 1960 these children will be 18 years of age. Thereafter in each successive year, another and larger group will reach college age. Since a dormitory will be ready for use in 1960 only if the application is filed in fiscal 1958, it is anticipated that the demand for loans in that year will equal or exceed that in either fiscal 1956 or 1957. Mr. Chairman, those of us who are attempting faithfully to meet our responsibilities as college administrators by preparing for the upsurge in student needs which is so well described by the commissioner, are naturally disturbed. In the face of our emergency demand for housing, we are confronted by a proposal to reduce, by way of a 21.7-percent hike in interest rate, the ability of the colleges to make use of available funds. This is a discouraging situation. It is also a poor prospect for students and parents. If it is determined by the Congress that the recommendation for an increase of nearly 22 percent in the interest rate on college loans is justified, then the fact is that most colleges, and especially the smaller and less adequately financed institutions, will be reluctant to borrow money on a basis that will mean a substantial increase in student rentals. These points are documented in a report, Financing of College and University Permanent Student Housing, which has been prepared for the American Council on Education by Dean Arthur M. Weimer, of the School of Business, Indiana University, and by his colleague, Prof. John D. Long, who is here with us today. Their study is based upon information received directly from 733 institutions, comprising 75.5 percent of the 971 4-year accredited institutions in this country to which a comprehensive questionnaire on housing was mailed. The Weimer report is based on replies from three-fourths of the 4-year accredited colleges and universities, and its value is enhanced by the fact that these 733 institutions which responded have an enrollment of 1,727,205 students, or 87.6 percent of the enrollment in the total of 971 institutions. The substantial scope of the inquiry is emphasized further by the fact that, according to the Housing and Home Finance Agency, of the 402 4-year institutions which had obtained final approval on housing loans by February 28, 1957, there were 383, or 95 percent, which were included in the study by Dean Weimer. The Weimer report shows what happened when the college-housing interest rate was reduced, effective August 1955, from 3.25 percent to 2.75 percent, by adoption of the present formula. In the year prior to this reduction, when the rate was still 3.25 percent, there were only 126 applications for loans totaling in excess of $98,655,000. In the year after the reduction to 2.75 percent, there were 402 applications for loans totaling in excess of $429,709,000. The demand quadrupled in that period after the interest rate was reduced. It seems reasonable to assume that if the reduction from 3.25 percent to 2.75 percent brought such a rapid rise in demand for college housing funds last year, an increase at this time from 2% percent to 32 percent will bring a comparable drop in applications. The Weimer report gives substance to this assumption by showing (table VIII-1) that if the interest rate under the college housing loan program were increased to as much as 314 percent, 68 percent of the colleges questioned believe it would be necessary to withdraw their applications for funds. It is reasonably clear, on the basis of what has happened in the past and on what college officials report about their ability to pay in the future, that the effect of the increased interest rate would be to block much of the planned expansion of the colleges to meet the student needs which were well stated by the Housing and Home Finance Agency, and which are admitted on every side. The primary basis of the demand for a change in the college housing loan program is contained in the charge that the present interest-rate formula involves a "subsidy." The present formula, based on the average rate of interest on all Government securities, plus one-fourth of 1 percent for administration, was adopted by the Congress in 1955 as fair and equitable, and this formula provides no more subsidy in 1957 than it did in 1955. One of the basic arguments previously offered before the Congress, but rejected, is that since the college loans are for 40 years, their interest rate should be based on the average of Government loans extending 15 years or more. This argument suffers from serious oversimplification. When the Treasury floats a long-term bond issue, the entire loan comes due at the maturity date. College housing loans are of a different type, resembling mortgages, in that portions of the principal are repaid at regular intervals before the final maturity date. In effect, therefore, these loans are combinations of loans of varying terms, some quite short. Hence, there is strong logical justification for the present formula, which ties the interest rate to the average rate for all interest-bearing obligations of the United States, short and long. The demand for a higher charge against the colleges has become more insistent because interest rates generally have risen in the last 2 years. This is the only change of significance that has taken place since 1955, when the current formula was adopted. It is our position, however, that a temporary rise in the general interest rate does nothing to destroy the validity of the present interest formula, as can be demonstrated. You will remember that under the current formula the college program started out in 1955 with a rate of 2.75 (2.50 plus 0.25) which was the minimum rate, or in effect a floor rate. Actually, however, if the rate had been based on calculation of the average rates of all Government securities at that time, it would have been only 2.601 (2.351 plus |