Legislature(1995 - 1996)

03/20/1995 09:11 AM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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               
 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             

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