Legislature(2009 - 2010)BELTZ 211
03/23/2009 08:00 AM Senate EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| HB109 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 109 | TELECONFERENCED | |
HB 109-EDUC. LOANS: SUPPLEMENTAL & FAMILY
8:04:44 AM
CHAIR DAVIS announced consideration of HB 109.
8:04:57 AM
KATIE KOESTER, Staff to Representative Seaton, presented the
sponsor statement. HB 109 addresses the problem of the Alaska
Commission on Postsecondary Education's (ACPE) inability to sell
bonds to generate money for student loans. It was brought to
Representative Seaton and the House Education Committee by Diane
Barrans, Director of ACPE.
HB 109 requires that borrowers have good credit or a co-signer
with good credit to get an Alaska Student Loan, and it is
important to note that this only applies to Alaska Student Loans
called Alternative Education Loans; it does not apply to
federally guaranteed loans such as the Stafford Loan.
Currently, a borrower can get an Alaska Student Loan just as
long as he or she does not have bad credit. This means that a
borrower with no credit can still get a loan.
8:05:49 AM
SENATOR OLSON joined the meeting.
MS. KOESTER continued; if a borrower has no credit, investors in
the current fiscal climate are not willing to back the loan.
Consequently, ACPE cannot use the loans as they are currently
structure as collateral to fund the program. Without this
change, ACPE will either be forced to stop lending to Alaska
students or the state will have to directly fund the program to
the tune of $40 or $50 million in general fund dollars.
MS. KOESTER said HB 109 also changes the Family Education Loan
(FEL), which allows a family member to borrow on behalf of
another family member. The rate is currently set in statute at 5
percent; this would give the Alaska Student Loan Commission
(ASCL) the flexibility to set that rate according to the current
fiscal environment, not to exceed 8.25 percent.
She advised that the committee members' packets should contain a
sponsor statement, fiscal note, some bullet points that go into
more detail, some articles about how this problem is affecting
student loan corporations across the state and explanations of
the various loans that this bill will affect.
8:07:30 AM
SENATOR HUGGINS said he was looking through the ACPE Quick Loan
Comparison charts included with her handouts and had a question
about the one showing the 2008-2009 interest rates with
benefits. He pointed to footnote 3 on the annual percentage rate
for the Family Education Loan, which shows a higher rate and
asked if she can explain the differences between the two rates.
MS. KOESTER said that the best person to describe the details of
this chart would be the executive director.
SENATOR HUGGINS thanked her.
8:08:21 AM
SENATOR OLSON asked what prompted Representative Seaton to bring
this legislation forward and if a large number of students who
cannot finance their educations have been contacting his office.
MS. KOESTER answered that Ms. Barrans contacted Representative
Seaton's office to discuss her concern about keeping the
commission running.
SENATOR OLSON opined that this is more of a preemptive strike
than a response to an immediate situation.
MS. KOESTER said yes, but just barely; Ms. Barrans has been told
by a number of investors and potential investors that there is
no way they can back the commission's bonds. Students will be
applying for loans soon, and the commission can't accept new
applications because of the current problem.
8:09:30 AM
CHAIR DAVIS recalled the recent legislation passed by her
committee which provided for the Department of Revenue to back
ACPE bonds; she asked Ms. Barrans exactly what this piece of
legislation will do for them for the next school term.
8:09:55 AM
DIANE BARRANS, Executive Director, Alaska Commission on
Postsecondary Education, responded that student loans have been
subject to the same kind of skepticism and concern that is
related to subprime mortgages, a residual effect on any asset
that doesn't have a particular credit standard applied to it. In
the past, the commission has been able to use its loans to back
bonds with the modest credit criteria that have been in place
since 1998, but ACPE has been advised by potential bank partners
as well as rating agencies and insurers that the current loans
will not be considered adequate collateral. One bank that they
had hoped to partner with indicated that, at best, they would
value these loans at 50 percent of their face value.
With respect to Senator Davis's question regarding the other
bill that was before the committee, the commission needs to do a
variety of things this year in order to finance loans for the
2009/10 school year. There currently is not a market in which
they can issue bonds, regardless of the quality of their
collateral; the price of issuing bonds at this time would not
allow them to make low-cost loans. So the bill the committee
heard earlier is to allow interim financial support from the
State of Alaska working in partnership with the Student Loan
Corporation. Even with that support, when they issue bonds in
the future, while the federally guaranteed student loans can be
used as collateral because of the federal guaranty, these
alternative state loans could not be effectively used because of
the lack of credit quality.
8:12:37 AM
CHAIR DAVIS asked if the rate on the Family Education Loans
would go up to 8.25 percent immediately.
MS. BARRANS answered no; they would expect it to be set at the
same rate they charge on the state alternative loans, which is
7.3 percent. With that rate they offer some credit and benefits
that can drive the rate down lower, depending on borrower
choices. For example, if students attend school in Alaska they
get a discount; if they are in repayment and use an automated
payment method they can also get a rate reduction.
8:13:39 AM
SENATOR HUGGINS said, while the committee is supportive of the
educational loan program, there is some risk to the state in the
present environment. He asked if that is an accurate statement.
MS. BARRANS asked if he means there is some risk based on the
changes represented by this bill.
SENATOR HUGGINS clarified that he is referring to the fact that
the state has agreed to back the loans.
MS. BARRANS agreed that under the legislation the committee
heard previously, the state will bear some risk.
SENATOR HUGGINS observed that the state is providing financial
backing for a number of things, and that could present a
frightening scenario at some point in time if things don't turn
around.
8:14:36 AM
MS. KOESTER thanked the committee for taking up this
legislation. She said that Representative Seaton is concerned
about the state placing any limitations on borrowers, but that
this is a needed change to lending for students in Alaska.
8:15:08 AM
CHAIR DAVIS closed public testimony on HB 109.
SENATOR OLSON moved to report HB 109 from committee with
individual recommendations and attached fiscal note(s). There
being no objection, the motion carried.
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