Legislature(2013 - 2014)BELTZ 105 (TSBldg)
03/17/2014 08:00 AM Senate EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| SJR23 | |
| SB195 | |
| SB100 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 195 | TELECONFERENCED | |
| += | SJR 23 | TELECONFERENCED | |
| += | SB 100 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 195-POSTSECONDARY EDUCATION LOANS/GRANTS
8:08:23 AM
CHAIR STEVENS announced the consideration of SB 195.
SENATOR ANNA FAIRCLOUGH, Alaska State Legislature, Juneau,
Alaska, reviewed SB 195. She said bill makes substantive and
housekeeping changes to the Alaska State Statutes regarding the
Alaska Commission on Post-secondary Education and the Alaska
Student Loan Corporation. These changes include allowing the
commission to set favorable terms for borrowers and increase the
total loan limit a student may borrow. Currently, loan limits
have not been changed in almost 20 years. The cost of post-
secondary education has almost doubled since 1995. Alaska
students and their financial aid officers report that borrowers
with a high unmet cost of attendance are increasingly choosing
loans with higher loan limits, even those that have higher
interest rates.
She explained that this bill defines what an on-time student is
so that they can reach and accomplish their goals. It enables a
student to enter the workforce earlier and enter repayments
sooner so that they have less debt to carry. There is strong
evidence that shows the correlation between the intensity of the
enrollment of a student and their completion rates.
CHAIR STEVENS asked who the bill would affect and how many years
the loan can be used.
SENATOR FAIRCLOUGH deferred to Diane Barrans to answer. She said
on page 13, lines 12-14, it takes the loan limit from $42,500 to
$56,000 and from $60,000 to $87,000 for undergraduates and
graduate students respectively. The bill also allows
consolidation of loans.
CHAIR STEVENS asked how many years the loan is available to a
student.
DIANE BARRANS, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development
(DEED), Juneau, Alaska, answered questions regarding SB 195. She
explained that there is not a limit on the number of years a
student can access the loan; there is a total dollar amount.
CHAIR STEVENS inquired if part-time students can receive a loan.
MS. BARRANS said they can be part-time students and they have to
be matriculated into a degree or certificated program.
CHAIR STEVENS noted the presence of Senator Gardner.
SENATOR GARDNER understood that currently a student with
multiple loans is required to pay the oldest one first, not the
one with the highest interest rate. She asked about the interest
rate and impact of consolidated loans, as provided for in the
bill.
8:12:53 AM
MS. BARRANS clarified that Senator Gardner's understanding is
not correct. As long as the student's other loans are paid to a
current status, they can prepay any loan they select. Paying the
highest rate loan first would be to their benefit. She stated
that consolidation is done at the prevailing rate, which is 7.3
percent now. Currently, the only education loans eligible for
consolidation are Alaska state loans; SB 195 would allow for
other loans.
CHAIR STEVENS asked if the provisions in the bill would apply to
parent loans.
MS. BARRANS said they would.
SENATOR STEDMAN asked for additional information regarding the
7.3 percent interest rate and why there is no forgiveness
program.
8:14:31 AM
MS. BARRANS replied, with respect to the interest rate, the
market environment post-2008 has substantially changed. The
rates have risen substantially. Currently, the loan volume has
dropped to the extent that the corporation can use available
cash to fund loans. The previous legislation, SJR 23, would
allow the corporation to leverage the AAA rating of the state,
even though the bonds would be paid down with revenue from the
loans.
She addressed the forgiveness program question. She related that
the loan forgiveness program was a very generous program funded
through 1987. As a result of the fluctuation of oil revenues,
that program was eliminated. The corporation was established in
1987 for the purpose of allowing student loans to become an
enterprise operation of the state. She added that the only thing
keeping the corporation from instituting a forgiveness program
would be making funding available to pay the costs.
SENATOR STEDMAN asked if the borrower would be better off with a
forgiveness program or with a 7.3 percent interest rate.
MS. BARRANS replied that very few students enjoyed any benefit
from the forgiveness program. When looking at the almost $500
million of loans that the state funded, fewer than 30 percent of
the students enjoyed any benefit. Only 21 percent of those
received the full 50 percent forgiveness and the cost to the
loan program was larger in loan write-offs from individuals who
failed to repay the debt than the cost of loan forgiveness
itself. About $74 million in loans were forgiven. She noted she
was one of those who benefitted from loan forgiveness. She said
it would depend on which of those students you were, as to
whether or not it would be more beneficial to have loan
forgiveness. The mind set of borrowers during that time was that
it wasn't really a loan.
CHAIR STEVENS said he also received loan forgiveness. He
remarked that if people spend five years working in Alaska they
will probably stay. Legislators have always liked the idea of
loan forgiveness.
8:19:05 AM
SENATOR STEDMAN said he also had a forgiveness loan. He opined
that a person who signed a note in the 80's was under the same
payback obligation as someone today. He said he has a hard time
drawing a conclusion that there was a different attitude in the
past. He suggested that underwriting requirements could be
rectified. He said the state has some tools available that
should be considered for the future. He noted that a 7 percent
interest rate is a whole lot different than 50/50 forgiveness.
As far as a policy call, the state has tools available to use.
The resources in the treasury are owned by everyone, and he said
he is more inclined to come up with a mechanism to encourage
students to return to the state.
8:21:54 AM
MS. BARRANS said it is up to the will of the legislature. She
encouraged loan repayment programs, which are programs that are
not entitlements but would pre-fund an account and could be used
to pay down loans for individuals who complete credentials in
areas that have economic interest to the state. The legislature
created such a program two years ago that focused on health care
professions; however, the budget for that program has been cut
in half. Individuals were recruited into health care jobs and
are now at risk for not receiving that benefit. She concluded
that SB 195 is more sustainable without relying on year-to-year
funding.
8:23:35 AM
CHAIR STEVENS said more work is needed on this issue.
SENATOR FAIRCLOUGH hoped the committee would move the bill out
of committee. She said she and Ms. Barrans have been working on
SB 195 for over a year in order to provide a tool the
legislature can use at its discretion to help assist students.
CHAIR STEVENS asked Ms. Barrans if she had any further comments.
MS. BARRANS requested support of the bill and thanked the
sponsor. She summarized that the key provisions in the bill are
the ones that incent on-time enrollment and expedite the time it
takes to get a degree. A large portion of students attend part
time and complete their credentials in very low numbers.
SENATOR STEDMAN if there was an increase in the number of staff
needed to manage today's student loan programs.
MS. BARRANS explained that the current loan portfolio is about
$500 million and the staffing has not substantially changed in
numbers. The last significant increase in staff was in the early
90's. Some staff have been reallocated through creating more
efficient loan serving systems. Staff now provide outreach and
early awareness out of the Anchorage office, and the number of
staff on loan servicing has been reduced.
CHAIR STEVENS asked how much the loan portfolio was in the past.
MS. BARRANS explained that when the corporation was making both
federally guaranteed and state loans, it was issuing in excess
of $80 million a year in loans. The program was ended by the
current administration in Washington, D.C. in 2008. Since then,
there has been a rapid decline in the loan volume due to
Congress's seeking to protect consumers against lenders who are
not federal education loan lenders. That created barriers
because they failed to make a distinction between state-based
programs and other lenders. The state can no longer partner with
schools to recommend a state loan. The other factor is that the
state previously promoted the federally guaranteed loan. At the
same time, in order to issue bonds the state had to change the
underwriting criteria so that students now have to be credit
worthy or have a credit-worthy cosigner. She concluded that this
has resulted in a decline rate for about 40 percent of
applicants.
8:29:37 AM
SENATOR HUGGINS asked if any schools are precluded, such as
religious schools.
MS. BARRANS said the requirement is that the school be
accredited or approved by the commission to participate in the
loan program.
SENATOR GARDNER asked if the average 18-year-old requires a
cosigner.
MS. BARRANS said yes.
CHAIR STEVENS opened and closed public testimony.
SENATOR DUNLEAVY moved to report SB 195 from committee with
individual recommendations and attached fiscal note. There being
no objection, the motion carried.
8:31:39 AM
At ease
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