Legislature(1995 - 1996)
03/20/1995 09:11 AM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SHES - 3/20/95 SB 123 POSTSECONDARY EDUCATION PROGRAMS Number 272 CHAIRMAN GREEN introduced SB 123 as the next order of business before the committee. JOE MCCORMICK, Executive Director of the Alaska Commission on Postsecondary Education, stated that SB 123 would achieve three objectives: the improvement of customer service, strengthen the financial stability of the Alaska Student Loan Program, and improvement of the overall program and its administration. He pointed out that the University of Alaska has increased its tuition by 250 percent since 1984 while loan limits have remained unchanged since 1981. Section 1 of SB 123 raises the loan limits. He presented a sectional analysis of SB 123. In discussion of the bill's objective to strengthen the financial stability of the loan program, Mr. McCormick informed everyone that the loan program is funded entirely through corporate receipts. This results in the program absorbing loans lost due to death, disability, default, and forgiveness on loans prior to 1987. The loss due to interest free deferment payments are also absorbed by the program. He emphasized that the statutory changes outlined in SB 123 are necessary in order for the loan fund to remain self- sufficient. Section 5 would eliminate the interest free deferment periods that students now receive; approximately $4 million in revenue is expected to be generated from the $50 million that would be lent next year. Section 14 would charge a five percent origination fee in order to cover losses in those cases that the program formerly absorbed which would generate approximately $2.5 million of the $50 million lent. Mr. McCormick explained that Section 17 provides that incarcerated persons would be ineligible for Alaska Student Loan funds due to their inability to demonstrate the ability to repay the loan. He noted that the Department of Corrections has an amendment to offer for Section 17 to which the ACPSE does not object. Number 180 Mr. McCormick highlighted the technical amendments that support the objective of the overall improvement of the program and its administration. Those amendments can be found in Sections 8, 15, 20, 24, and 27. He commented on the recent legislative audit which reported that the Alaska Student Loan fund could lose upward of $60 million by the year 2011. Those findings simply confirm what the council has known for some years; the Alaska Student Loan fund is not an actuarily sound loan fund. The findings of the report also point out that the State of Alaska would have in equity approximately $200 to $220 million in cash; that money is to be returned to the state treasury. He emphasized that the most important point to remember would be that the program by the year 2011 would have provided more than $900 million in student loans to 184,000 borrowers in Alaska. The legislative audit would seem to support SB 123. In conclusion, Mr. McCormick pointed out that the goal of the commission is to ensure that the Alaska Student Loan program is present and financially viable for the future. Number 112 SENATOR LEMAN expressed concern with the language that requires the state to pay the interest under Section 5. This would obligate the state rather than the fund. JOE MCCORMICK explained that Section 5 is reworded upon the advice of the Department of Law; the existing statute already requires that the state pay this interest during specified periods subject to appropriations. This is not an addition, the language has merely been reworded. SENATOR SALO commented that SB 123 is a good bill in that the changes make the program more actuarily sound. However, she did not want the program to become a profit making program at the expense of the students. She indicated that the best part of this program is the number of students that can access the program. She stated that in general she was supportive of the legislation. SENATOR ELLIS inquired as to the section changing the priority order of student loans and child support. JOE MCCORMICK stated that at present there is no priority on wage garnishments, it is a first come first serve basis. Child support has taken a priority in the past years and the commission would like to follow that and the remaining debt collectors would remain on the first come first serve basis. SENATOR ELLIS expressed concern in attempting to reach actuary soundness for the program with the collection of interest during deferment periods. What would the scenario be with regard to the effect of this on students? JOE MCCORMICK explained that bonds are issued and the holders receive interest on those bonds, every year that you pay interest to the bondholders for which you do not collect interest money is lost. More money is lost when a student is allowed to have an interest free loan during their time in school than during deferment periods. Mr. McCormick noted that was due to the fact that typically a deferment period would not be as long as the time a student attends school. TAPE 95-18, SIDE A Number 005 Mr. McCormick noted that the commission shared these concerns in developing the legislation. The commission chose not to charge interest during the period when a student attends school. The legislative audit report recommends that interest be charged when the student attends school. Mr. McCormick stated that under the circumstances he would agree with the legislative audit recommendation; interest should be charged for all the periods in which the commission pays interest. SENATOR SALO asked what the corrections amendment would achieve. JERRY SHRINER, Special Assistant to the Commissioner of Corrections, specified that the Department of Corrections' concern lies in the possibility that specifically removing any possibility for incarcerated persons to obtain a loan may result in court cases for the state or the department. The state and the department are required to provide incarcerated persons with various opportunities for rehabilitation. He noted that less than 10 incarcerated persons had applied for student loans of which none have been granted. Removing the possibility for application may allow the person to enter into court contesting that the state is acting in bad faith with regards to the Cleary settlement. SENATOR SALO asked if incarcerated persons pay tuition and for what would they need a loan. JERRY SHRINER stated that there are some inmates who will graduate from a college and either pay for the tuition themselves or have a pell grant. Mr. Shriner was not aware of any who used the Alaska Student Loan program. Number 071 CHAIRMAN GREEN said that inmates are not kept from education even without SB 123. JERRY SHRINER explained that even without this, the inmates would have the opportunity to pursue an education. Mr. Shriner clarified that Mike Stark and the Attorney General's Office were concerned that SB 123 would provide an opportunity for an inmate to go to court and charge that the state is acting in bad faith with respect to the Cleary settlement. Mr. Shriner suggested that the language be modified according to the amendment or remove Section 17 entirely. SENATOR SALO felt that there must be inmates who would owe money to the Alaska Student Loan corporation; what would happen to their payment schedules during incarceration? JOE MCCORMICK stated that the loan would be shown as in default and it would continue to accrue interest. The interest rate is 10 percent for defaulted loans. SENATOR SALO stated that such a scenario seemed more problematic than granting more loans to current inmates. She suggested reviewing that problem. JOE MCCORMICK informed the committee that the provision was present because there had been requests from incarcerated students to receive Alaska Student Loans. The Department of Law advised the commission that there was nothing in existing statutes to allow the denial of the loan. He explained that the provision is present in order to establish firm ground if an inmate is denied an Alaska Student Loan. Number 148 CHAIRMAN GREEN noted that there were other amendments that had been recommended by the department. SENATOR LEMAN moved a memo from the Commission on Postsecondary Education which would advance changes in Section 15 and 19, Amendment 1. Without objection, Amendment 1 was adopted. SENATOR LEMAN moved that CS SB 123(HES) be moved out of committee with individual recommendations. Hearing no objection, it was so ordered.