Legislature(2013 - 2014)
04/18/2014 09:48 AM House FIN
| Audio | Topic |
|---|---|
| Start | |
| SB195 || SB195 | |
| SJR23 | |
| SB64 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 195(FIN)
"An Act relating to the membership and authority of
the Alaska Commission on Postsecondary Education;
relating to the Alaska Student Loan Corporation;
relating to teacher education loans; relating to
interest on and consolidation of postsecondary
education loans; relating to Alaska supplemental
education loans; relating to AlaskAdvantage grants;
relating to the Alaska family education loan program;
relating to postsecondary educational institutions;
and providing for an effective date."
9:49:10 AM
LAURA PIERRE, STAFF, SENATOR ANNA FAIRCLOUGH, offered a
sponsor statement:
Senate Bill 195 makes both substantive and
housekeeping changes to statutes regarding the Alaska
Commission on Postsecondary Education and the Alaska
Student Loan Corporation. These changes include
allowing the commission to set favorable terms for
borrowers, increase the total loan limit a student may
borrow, and define "on-time" status for a student to
reach completion.
With increasing amounts of debt in the state of
Alaska, borrowers need to make the best and most
informed decisions when they borrow for their
education, as well as when they are preparing to enter
repayment. By allowing the corporation to set
favorable terms, Alaska's students will receive their
education for the best deal.
The cost of tuition is going up at postsecondary
institutions around the country; however, state
education loan maximums have not been modified in
almost twenty years. Increased loan limits will allow
students easier access to enough financial aid from
one loan servicer, thereby easing the processes of
both borrowing and repayment.
National trends show students are taking longer to
complete their postsecondary education. In the past,
an undergraduate degree took, on average, four years
to complete. Now it is more common to see students
take longer to complete their degree. By staying in
school longer, students are accruing more debt and
delaying entry into the workforce. Defining "on-time"
status as 15 credits per semester encourages students
to complete their postsecondary education in a timely
manner. This, in turn, will keep their debt lower,
more manageable, and allow them to enter the workforce
sooner.
The changes proposed in Senate Bill 195 will allow the
commission to better assist Alaskans accessing higher
education. It will create incentives for students to
enroll in sufficient credits to expedite completion of
their degree as well as begin their career as part of
Alaska's workforce.
Ms. Pierre noted that the bill interplayed with SJR 23,
both would allow for a lower interest rate for students and
incentivize early and on-time graduation.
DIANE BARRANS, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON
POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT, testified that the legislation would help to
better meet the needs of students in the state.
Co-Chair Stoltze thought that a constitutional amendment
that would be a mechanism to reduce student loan rates was
an attractive provision.
Ms. Barrans relayed that the relatively attractive market
prior to 2008 had never returned. She said that through the
combination of the bill and the resolution, debt could be
issued at a lower rate than could be otherwise achieved.
Co-Chair Stoltze asked about the federal interplay related
to student loan rates.
Ms. Barrans answered that Congress and the U.S. Department
of Education had created barriers between non-federal
lenders and the consumer. She felt that this had been done
under the guise of consumer protection but with respect to
other governmental agencies, such as the state trying to
offer low rates to students, they had created barriers in
terms of schools being able to recommend state programs.
Representative Holmes asked for clarification on interest
rate changes and borrowing amounts.
Ms. Barrans replied that one advantage would be a rate
decrease of between 1 and 1.25 percent of what could be
achieved with a revenue backed bond. She said that the
other advantage would be that rating agencies and the
market looked to the rating status of the state when
examining general obligation debts rather than the
underlying collateral. She said that credit criteria had
been imposed in recent years that made the loans less
accessible to Alaska residents. She believed that while
credit criteria would need to remain in place, it could be
moderated and make the loans more generally available. She
hoped that by increasing the loan limits varied loan limits
would be set according to the student's level of
enrollment.
9:57:05 AM
Representative Gara asked if the bill would allow for the
reduction of the student loan rate by 1.25 percent compared
to other bonds used currently.
Ms. Barrans replied that yes, when comparing a revenue
backed bond with a general obligation backed bond.
Representative Gara asked whether the 1.25 percent was
lower than the current rate.
Ms. Barrans replied in the affirmative.
Representative Gara asked whether students would be
required to have a guarantor. He wondered whether low
income students would be eligible to get the loan.
Ms. Barrans answered that it would depend on the students
credit score. She said that the combination of changes
would not eliminate the need to have a performing loan
portfolio. She furthered that the concept behind the bill
was that general obligation debt would be issued but that
the state would not be expected to repay the debt; the
revenue on the loans would repay the debt. It was expected
that the credit criteria could be reduced from what it
currently was, but it could not be eliminated altogether.
She said that a student would need to have adequate credit
or a credit worthy co-signer.
Representative Gara asked how low income families, with
little or no credit, could qualify for the program.
Ms. Barrans replied that the student would need to look to
federal aid and state and federal grants. She said that
under the legislation the maximum grant amount would be
increased and the hope was that students would be able to
package other aid to meet their needs.
10:00:27 AM
SENATOR ANNA FAIRCLOUGH, SPONSOR, hoped that the committee
would support both the legislation and SJR 23 unanimously.
She said that the bill was one step closer to consolidating
loans and making sure that students could borrow what they
needed a t a particular point in time instead of having to
go to several creditors. She noted that students that had
to go to several creditors had higher interest rates than
the state was charging; 7.3 percent. She asserted that the
bill would expand the state's authority to let students
borrow loans in one place and reduce their debt.
10:03:00 AM
Co-Chair Stoltze mentioned a 1982 constitutional provision
for veteran's housing bonds. He requested an explanation as
to why the state constitution required provisions like SJR
23.
Senator Fairclough testified that SJR 23 proposed to amend
Article 9, section 8 of the Alaska State Constitution.
Currently, state debt can only be borrowed for capital
projects and veteran's homes. She asserted that the state's
forefathers could never have imagined what student debt
would look like in the future. She said that at the time
that the constitution was written debt was a bad thing and
most things were paid for in cash. She stated that students
could not pay for school in cash and needed to borrow
money. She shared that the legislature could help students
borrow money at a lower interest rate by offering the full
faith and credit of the State of Alaska. She explained that
the constitutional amendment would insert very few words
into the constitution that would allow the ability of the
full faith and credit of the state to be used for student
loans and the advancement of postsecondary education. She
believed that if the amendment passed then the
postsecondary education student loan corporation would have
to advance a plant to the legislature asking whether debt
should be taken on, but this time when going to the bond
market the interest rate would be a full percentage point
lower for students. She said that as the student loans
would all be repaid. She emphasized that the language was
permissive and would allow the state under the right
circumstances to use a better way to finance student loans
if the state wanted to take on or offer additional student
loans.
Co-Chair Stoltze appreciated the need to amend the
constitution by anybody but the court system.
10:07:28 AM
Representative Gara offered his support for the
legislation.
Co-Chair Stoltze CLOSED public testimony. He MOVED to ADOPT
Amendment 1:
Page 13, line 6:
Delete "8,000"
Insert "10,000"
Representative Wilson OBJECTED for discussion.
Co-Chair Stoltze spoke to the amendment.
Senator Fairclough had no problem with the addition of the
amendment. She noted that the bill had yet to be amended
and a concurrence vote would be required.
Co-Chair Stoltze appreciated the notation.
Vice-Chair Neuman offered support for the amendment.
Representative Guttenberg noted that the $2,000 was more
significant for students pursuing vocational education.
Representative Holmes supported the amendment but warned
that comparing one student category with another could be
unfair.
Representative Thompson requested confirmation that the
amendment would change the amount given to an eligible
student attending a career education program to $10,000.
Co-Chair Stoltze thought that the amendment could be made
clearer.
10:12:31 AM
Ms. Barrans interjected that currently career education
students could borrow more than one certificate, the cap
that applied to them was the undergraduate cap.
Co-Chair Stoltze wondered if the amendment would cause any
kind of drafting deficiency.
Ms. Barrans replied in the negative. She said that the
vocational loans covered a broader array of certificates;
historically, the limit had been lower because the
vocational programs had higher default rates. She said that
differentiation between high value and those that produced
a lower return on investment could be researched during the
interim.
Representative Edgmon expressed support for the amendment.
Representative Gara asked whether the amendment would
hamper the department's ability to make loans to all
classes of students.
Ms. Barrans answered no.
Representative Thompson understood that under the amendment
a student could borrow up to $56,000 for a career education
loan.
Ms. Barrans replied that the student would have to have
borrowed to gain a series of credentials; under the
amendment they could borrow up to $10,000 for each separate
program of study, up to $56,000.
Representative Thompson understood that the $10,000 loan
would be for one program. Ms. Barrans replied in the
affirmative.
Co-Chair Stoltze expounded on the history of abuses of the
system in the vocational education field.
10:19:36 AM
Representative Wilson WITHDREW her OBJECTION to the
adoption of Amendment 1. There being NO further OBJECTION,
Amendment 1 was ADOPTED.
10:22:14 AM
Co-Chair Stoltze OPENED public testimony.
Co-Chair Stoltze CLOSED public testimony.
10:23:14 AM
Co-Chair Stoltze queried the fiscal note for SB 195.
Representative Costello discussed the one previously
published fiscal impact note from the Department of
Education and Early Development.
Vice-Chair Neuman MOVED to REPORT HCS CSSB 195(FIN) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
HCS CSSB 195(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published
fiscal impact note: FN2 (DEED).
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