Legislature(1995 - 1996)
04/24/1995 01:45 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 257
"An Act relating to student loan programs, interstate
compacts for postsecondary education, and fees for
review of postsecondary education institutions; and
providing for an effective date."
DR. JOE L. MCCORMICK, EXECUTIVE DIRECTOR, ALASKA COMMISSION
ON POSTSECONDARY EDUCATION testified in support of HB 257.
He asserted that the legislation will achieve three broad
objectives: It will improve customer service, strengthen
the financial stability and independence of the Alaska
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Student Loan Program and improve overall program
administration. Mr. McCormick elaborated on the objectives:
* FIRST OBJECTIVE: IMPROVE CUSTOMER SERVICE
Section 1: Section 1(1) raises graduate limits
from $6,500 to $9,500 thousand dollars. Section
1(2) raises undergraduate loan limits from $5,500
to $8,500 thousand dollars. Section 1(3) would
allow $5,500 thousand dollars for a full-time
student attending a career education program of
nine months or more. Section 1(4) would allow
$3,000 thousand dollars for a full-time and $1.0
thousand dollars for a half-time student attending
a career education program of less than nine
months.
Mr. McCormick noted that tuition at the University of Alaska
has increased 250 percent since 1984. He pointed out that
loan limits have not been raised since 1981.
Section 3: Increases consumer protection by giving
the Alaska Commission on Postsecondary Education
the ability to insure the financial and
administrative capability of schools using Alaska
Student Loan Program funds. In addition, section
3 requires that Alaska Student Loan Program funds
be used only for attending career education
programs that are operating on a fiscally sound
basis, have been in operation for two years before
the borrower attends, have submitted an executed
program participation agreement; or for attending
colleges or universities that have operated for
two years prior to the borrowers attendance and is
accredited by a national or regional accreditation
association.
Section 4: Provides greater flexibility to both
the borrower and the Commission by setting the
maximum amount that can be borrowed at a dollar
amount rather than on number of loan years.
Section 6: Amends the terms of repayment.
Extends the period of repayment from 10 to 15
years. Decreases the grace period from 12 to 6
months. Sets the monthly payment minimum at $50
dollars a month.
Section 12: Extends the period before a loan goes
into default from 120 to 180 days. This gives the
borrower more of an opportunity to resolve short-
term financial difficulties and avoid going into
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default.
Sections 16, 21, 27: These sections allow family
members to borrow on behalf of a student at the
same time a student borrows on his own behalf.
This is meant to address the rising costs of
education. The combined loans cannot exceed the
cost of attendance.
Mr. McCormick observed that the Family Education Loan
Program (FEL) differs from the Alaska Student Loan Program
in that the borrower must begin repayment after the loan is
disbursed. He maintained that the rate of default on these
loans is almost nonexistent. Loan maximums are the same for
both the FEL and Alaska Student Loan programs.
Section 26: Allows the Commission to establish
fees for the review of institutions requesting
approval for participation in the Alaska Student
Loan Program.
* SECOND OBJECTIVE: INCREASE THE FINANCIAL VIABILITY OF
THE ALASKA STUDENT LOAN PROGRAM
Section 5: Eliminates interest-free deferment
periods. By eliminating the interest free grace
period. The cost to a student with a loan of
$5,000 thousand dollars at 8% interest will be
approximately $450 hundred dollars. This could be
paid off during the deferment period or added to
the loan principle.
Section 14: Allows the Alaska Commission on
Postsecondary Education to set origination fees by
regulation. The origination fee is currently at
one percent. Under this legislation, the fee
could not exceed five percent. This fee will
cover loan losses due to death, disability,
default, and bankruptcy.
Section 18: Gives delinquent student loans
priority, behind child support enforcement, for
wage garnishment.
* THIRD OBJECTIVE: IMPROVE OVERALL PROGRAM
ADMINISTRATION
Sections 8, 15, 20, 24, and 27 contain technical
changes which decrease administrative costs and
reduce duplication such as: Elimination of costly
and unnecessary mailings to borrowers; requiring
illegally obtained loans be paid on demand; and
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removing arbitrary caps on loan volume.
Mr. McCormick concluded that the goal is to ensure that the
Alaska Student Loan Program is financially viable so that
future generations of Alaskans can be assured access to
postsecondary education opportunities. He maintained that
passage of this legislation will go a long way toward
achieving this important objective.
In response to a question by Co-Chair Hanley, Mr. McCormick
stated that the Commission could not issue bonds within
three years if the loan servicing problems are not
addressed. The Commission issues between $40.0 and $50.0
million dollars a year in bonds.
Representative Brown questioned if the Fund would be self
sustaining with the passage of HB 257. Mr. McCormick stated
that the legislation alone would not make the program 100%
whole. He noted that students do not pay interest on the
loans while they are attending school. He stated that until
interest is charged on the period students are in school the
program will not be financially sound.
Representative Brown asked the effect of the legislation on
the typical borrower. Mr. McCormick noted that 70% of the
loans pertain to students at the University of Alaska.
Those students would have an undergraduate loan limit of
$8.5 thousand dollars and a graduate limit of $9.5 thousand
dollars. The current loan limit is $5.5 thousand dollars.
He estimated a 10 to 20 percent increase in loan volume.
The bond issue would have to be increased to cover the
demand.
Representative Brown noted concern regarding page 2, item 4,
line 3 regarding the limit on career education programs to
$3.0 thousand dollars for a full time student. Mr.
McCormick stressed that the $3.0 thousand dollar limit was
the result of staff recommendations. He noted the that the
default rate for programs for less than 9 months range from
24 to 56 percent. He stated that the average cost is $4.8
thousand dollars. He emphasized the high risk of vocational
education programs.
Representative Brown maintained that there is a public
interest in making it possible for people to obtain
vocational education. She pointed out that university
students are being treated differently. Mr. McCormick
stated that the University of Alaska has budgets ranging
from $9.0 to $18.0 thousand dollars a year. He pointed out
that a $8.5 thousand dollar loan does not finance an entire
year. He added that university students attend an entire
academic year, while vocational programs may be as short as
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20 weeks.
Representative Brown noted that the accompanying fiscal note
is zero. Mr. McCormick stated that costs will be absorbed
in the capital and operating budget requests.
In response to a question by Representative Brown, Mr.
McCormick explained that page 10 of the legislation attempts
to bring the WITCHIE participation up to date. The new
language asks the Commission in cooperation with the
Department of Labor and Department of Commerce and Economic
Development to prioritize programs. He noted that funding
for WITCHIE has been reduced. He added that this will be
the second year without funding for new students.
(Tape Change, HFC 95-97, Side 1)
Representative Grussendorf referred to section 4 on page 3.
Mr. McCormick noted that students attend school on an
intermittent basis. He stressed the difficulty of tracking
years in attendance. He stated that it is easier to track
the amount lent.
Representative Grussendorf noted that the default period is
being extended by 60 days. Mr. McCormick stressed that
another 60 days is helpful in settling accounts. He stated
that the addition allows students additional time to make
arrangements for payments.
Representative Martin spoke in support of the legislation.
He expressed concern that academic progress be required.
Mr. McCormick stated that students must demonstrate academic
progress.
JENNIFER DEITZ, TRAVEL ACADEMY, ANCHORAGE testified via the
teleconference network. She provided members with a letter
stating her position, dated April 24, 1995 (Attachment 1).
She testified in support of HB 257. She expressed concern
with the provision of limiting eligibility for students
participating in educational programs of less than nine
months. She urged that section 1(4) be revised. Section
1(4) would allow $3,000 thousand dollars for a full-time and
$1.0 thousand dollars for a half-time student attending a
career education program of less than nine months.
BONNIE SMITH, PEOPLE COUNT, ANCHORAGE testified via the
teleconference network. She spoke in opposition to section
1(4), page 2.
MARIE BECKER, FAIRBANKS testified via the teleconference
network. She expressed concern with section 1(4). She
stressed that proprietary schools help persons that would
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not otherwise attend a university.
Representative Mulder asked the statute of limitation on
debt collection. Mr. McCormick stated that there is no
statute of limitation in regards to debt collection. He
emphasized that the federal limit for short term programs is
$4.2 thousand dollars. The federal limit for programs of
less than six months is $2,375 thousand dollars.
In response to a question by Representative Mulder, Ms.
Deitz noted that the average tuition at the Travel Academy
is $3.6 thousand dollars for a 10 to 20 week program. She
added that there is a federal grant aid program that is not
available to Alaskan students.
Mr. McCormick noted that under current law a program can be
as short as 6 weeks and receive the full $5.5 thousand
dollars. He stressed that the average cost is $4.8 thousand
dollars.
Representative Navarre noted that students that attend
proprietary schools are higher risks by their nature. He
emphasized that there have been a number of students of
proprietary schools that have made successful transitions
from a welfare lifestyle.
Ms. Becker gave examples of students that have been
successful in obtaining jobs after attending People Count.
Representative Brown referred to section 18, regarding
attachments of permanent fund dividends. Mr. McCormick
explained that the legislation would place the Commission as
second in line behind child support attachments. He noted
that the entire dividend can be attached.
In response to a question by Representative Brown, Mr.
McCormick clarified that interest will accrue during a
borrower's deferment. He expressed support for allowing the
interest to be paid during the deferment payment. He
stressed that a deferment of six years for military service
is too long.
Representative noted that the legislation requires a person
to be 100 percent disabled. Mr. McCormick stated that the
legislation acknowledges that there are abuses in the
program. He noted that a person that is 50 percent disabled
is typically able to earn income. Representative Brown
expressed concern that someone who is 90 percent disabled
and unable to work would loose their permanent fund
dividend. Mr. McCormick clarified that such a person could
receive a hardship deferment. He stated that the portion of
loans affected would be minimal. He noted that the only
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time a permanent fund dividend is garnished is if the
borrower is in default. The right to defer a loan due to
disability is given up when the loan goes into default.
Hardship cases that have not defaulted would receive their
dividends.
WENDY REDMAN, VICE PRESIDENT, UNIVERSITY OF ALASKA spoke in
support of HB 257. She stated that the University of Alaska
offers shorter certificated programs. She noted that the
University does support the reduction level of short term
programs. She noted that the only way the Masters of Social
Work Program will be instituted is to double the cost of
graduate tuition. She stressed that graduate programs are
becoming market driven.
Representative Navarre MOVED to delete "$3.0" and insert
"$4.5" and delete "1.0" and insert "1.5" on page 2, line 2.
He spoke in support of increasing the limit on loans for
short term programs. Representative Mulder OBJECTED. He
stressed that some of the programs do not result in jobs
that can support the repayment of the loan.
Representative Navarre suggested that language be added that
would allow up to $4.5 thousand dollars but not more than 90
percent of the program cost. Mr. McCormick stated that the
administrative cost of the program would be increased by
allowing up to 90 percent of the program cost. He stressed
that the risk should be limited based on the high default
rates of short term programs.
A roll call vote was taken on the MOTION.
IN FAVOR: Brown, Grussendorf, Navarre, Hanley
OPPOSED: Kelly, Kohring, Martin, Mulder, Therriault
Representatives Foster and Parnell were absent for the vote.
The MOTION FAILED (4-5).
Representative Navarre MOVED to delete "$3.0" and insert
"$4.0" and delete "1.0" and insert "1.5" on page 2, line 2.
There being NO OBJECTION, it was so ordered.
Representative Brown noted that hardship cases can be
extended for up to five years in increments of no longer
than 12 months each. Mr. McCormick stated that some
hardship loans due to disability are written off.
Representative Martin MOVED to report CSHB 2357 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes.
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Representative Brown suggested that the Commission revise
its fiscal note to reflect the cost of the legislation. She
stressed that the fate of the capital request is uncertain.
(Tape Change, HFC 95-97, Side 2)
Mr. McCormick clarified that the revenue derived from the
Fund would be used to run the Commission. Representative
Brown summarized that the funding source is not the General
Fund.
There being NO OBJECTION, CSHB 257 was moved from Committee.
CSHB 257 (FIN) was reported out of Committee with a "do
pass" recommendation and with two zero fiscal notes by the
Department of Education, one dated 3/22/95.
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