Legislature(1995 - 1996)
01/17/1996 03:08 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE January 17, 1996 3:08 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Norman Rokeberg, Vice Chairman Representative Kim Elton Representative Jerry Sanders Representative Beverly Masek Representative Brian Porter Representative Gene Kubina MEMBERS ABSENT All members present COMMITTEE CALENDAR WORK SESSION: Status of Alaska's private trade and technical schools. WITNESS REGISTER GEORGE DOZIER, Committee Aide House Labor and Commerce Committee Alaska State Legislature Capitol Building, Room 432 Juneau, Alaska 99811 POSITION STATEMENT: Clarified information regarding student loans. JENNIFER DETZ, Owner Career Academy; President, State Association of Private Career Schools 1415 East Tudor road Anchorage, Alaska 99501 Telephone: (907) 563-7575 POSITION STATEMENT: Commented on student loan regulations. MITCH GRAVO, Lobbyist 170 Botanical Circle Anchorage, Alaska 99515 Telephone: (907) 244-2406 POSITION STATEMENT: Commented on student loan regulations. GILLIAN HAYS, Executive Assistant Postsecondary Education Commission Department of Education 3030 Vintage Boulevard Juneau, Alaska 99801-7109 Telephone: (907) 465-6740 POSITION STATEMENT: Responded to questions regarding student loan regulations. TARIKA LEA 101 College Road Fairbanks, Alaska 99701 Telephone: (907) 452-2555 POSITION STATEMENT: Commented on the student loan program. SARA EDDINGS New Concepts 3677 College Road, Number 4 Fairbanks, Alaska 99709 Telephone: (907) 452-4684 POSITION STATEMENT: Commented on the student loan program regulations. DONALD SCHEAFFER, Director Financial Aid University of Alaska - Fairbanks P.O. Box 756360 Fairbanks Alaska 99775 Telephone: (907) 474-7256 POSITION STATEMENT: Commented on the student loan program regulations. DONALD M. LOCKMAN Testing Institute of Alaska 2114 Railroad Avenue Anchorage, Alaska 99501 Telephone: (907) 276-3440 POSITION STATEMENT: Commented on the student loan program regulations. DENNIS MILLHOUSE Trend Setters School of Beauty 407 East Northern Lights Boulevard Anchorage, Alaska 99503 Telephone: (907) 274-7150 POSITION STATEMENT: Commented on the student loan program regulations. CAROL HART Elite Hospitality Center 800 East Dimond Boulevard Anchorage, Alaska Telephone: (907) 349-1400 POSITION STATEMENT: Commented on the student loan program regulations. ANN ADASIAK ANDREW SST Travel Schools of Alaska 2221 East Northern Lights Boulevard Anchorage, Alaska Telephone: (907) 272-8585 POSITION STATEMENT: Commented on the student loan program regulations. PREVIOUS ACTION No previous action to record ACTION NARRATIVE TAPE 96-1, SIDE A Number 001 The House Labor and Commerce Standing Committee was called to order by CHAIRMAN PETE KOTT at 3:08 p.m. Members present at the call to order were Representatives Elton, Sanders, Rokeberg and Kott. Number 077 CHAIRMAN KOTT announced the purpose of the meeting was to conduct a work session concerning private trade and technical schools in Alaska given the importance to the state of Alaska of a skilled and trained work force. He then reviewed some housekeeping matters regarding the rules of the committee. He announced what the normal scheduled meeting times are for committee meetings and reviewed the time frames for which information must be submitted to the committee in order to hear legislation. Number 363 CHAIRMAN KOTT again stated the meeting is a work session to address the importance, the impact or the relevance of potential regulations that have been put out by the Postsecondary Education Commission that may affect how loans are granted to trade schools and nontraditional schools in the state of Alaska as well as nontraditional schools outside the state. CHAIRMAN KOTT began by showing the committee a chart entitled, "Vocational Schools." The chart showed the approximate numbers of loans, by percentage, that are made to Alaska students. He said vocational students have about 15 percent of those loans and the traditional schools have about 85 percent of the loans. Chairman Kott referred to a chart entitled, "Actual Dollars," and said it shows the total dollars that are provided to vocational students for student loans amounts to about 12 percent of the total amount. About 88 percent goes to the other category, traditional schools. Chairman Kott referred to another chart relating to defaults and said there are 19 schools with approximately 14,675 recipients. The average default, based on the number of recipients, is just short of $1,700. Chairman Kott explained Alaska state funded schools, universities and colleges is about 54.2 percent. He pointed out there is about 24 percent or $11 million in default money that is out of state. He referred to Alaska private vocational schools and said the figure is almost 22 percent in default. Chairman Kott noted a measure relating to this was introduced in the form of SB 123 and there was a lot of numbers flung around from one side or the other. Number 667 REPRESENTATIVE NORMAN ROKEBERG referred to the figure 54.2 percent and asked if that is equaling the $25 million. He asked if the $25 million figure is the amount of loans or is it the amount in default. GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee Alaska State Legislature, explained $25 million represents the amount of dollars in default. He noted the percentage is the percentage of all the dollars in default. REPRESENTATIVE ROKEBERG asked Mr. Dozier if he is saying there is $50 million and half are default. MR. DOZIER informed Representative Rokeberg it is attributable to Alaska state funded schools, universities and colleges. REPRESENTATIVE ROKEBERG referred to the gross amount of recipients and asked if those are the recipients in schools. He also asked if those are all the loans that have been made during 1989 to 1993. MR. DOZIER said it is his understanding that the chart is a composite of all defaults. CHAIRMAN KOTT noted it is not for any particular calendar year. It is currently what is in default. REPRESENTATIVE BRIAN PORTER arrived at 3:20 p.m. JENNIFER DETZ, Owner, Career Academy; President, State Association of Private Career Schools, informed the committee the Association of Private Career Schools came to Juneau for the Alaska Student Loan Corporation's meeting the previous day in hoping to open a dialog to find some resolution and solutions to the problem before the committee. The private vocational schools in the state of Alaska want to be part of the solution to make trade and technical education available to all Alaskans at whatever level or whatever choice. Ms. Detz said there are lots of people who have been a part of the problem. She noted her organization has a list of recommendations that should be considered. Ms. Detz explained she will be meeting with Mark Begich, as well as the commissioner of Department of Revenue and others to begin developing the process of which schools will be measured on default rates and how schools can be part of the solution. She said they deal with students in small numbers at a time. They know where students are, they want to help find them and encourage them to be good borrowers. Ms. Detz said some of the major concerns are that all schools, profit, nonprofit, academic, vocational, public or private are held accountable for the same number - the same situation. Whatever the default numbers are, all schools need to have some part in trying to resolve the problem. MS. DETZ said she doesn't believe that there should be a minimum rate. Regardless of the number of students or the number of dollars, a school should have some part in finding resolution for defaults. Part of this problem is not only dealing with the regulations that have been passed and are before them for implementation, but the problem starts with the statute. She said the 1987 statute was intended to address default. In 1987, it was not envisioned that the Alaska Student Loan Program would be today what it was in 1987. There are more borrowers and institutions in state, out of state and internationally. She said the definition of the default rate needs to be readdressed. Ms. Detz stated all schools should have some method of default management, loan management, loan counseling. In more traditional vocational schools versus traditional education, they meet with students. There is a process of loan counseling and management for students. There is also a process of ensuring that students are good candidates to go to school. Ms. Detz noted it has been her experience that students who are in default feel more comfortable about contacting her than they do a regulatory body. She pointed out that the default rate is a floating number and moves from year to year. As we pay attention to defaults, the rates will drop. The federal loan defaults have been dropping over the years because we've paid attention to them. Servicing agreements have changed. Students are contacted in a different way. MS. DETZ said if the default rate is 11 percent this year and the rate drops to 5 percent next year, then her school is automatically out. Her school was a good school 24 hours ago, but when the calendar turned over and the rates are again calculated, her school is no longer a good school. She has 30 days to come back to state and say she is working on this. The definition of "default" needs to evaluated. Ms. Detz said she believes a comprehensive loan management plan can be developed. It is important to continue to develop a loan servicing plan for the Alaska Student Loan Program. Ms. Detz said within the last several weeks, two new nationwide collecting servicing companies have been employed to help service the Alaska student loan portfolio. At the same time, the commission wants to hold schools accountable, retroactively, for what has happened since 1969 or the beginning of the Alaska Student Loan Program. She said her school hasn't had an opportunity to have any access to any delinquent or defaulting borrower information. The information hasn't been available because of programming problems. There is no way for schools to redeem themselves under the current regulation. Someone should define what acceptable rates and standards are. Number 1391 CHAIRMAN KOTT said it is his understanding that the 1987 statute and the regulations that accompany the statute are currently in effect and have been in effect since November, 1995. MS. DETZ said the statute that passed in 1987 sat for seven years. During the last legislative session, regulations were promulgated and signed into law November 30. The intent was to publish the default numbers effective December 31, and allow schools 30 days to respond back to the commission. She referred to the regulations being in place and said there will be another series of meetings to discuss process. She said if the regulations don't change and there isn't any legislative relief through a new statute or a change in statute, they won't be able to deal with the regulations. Ms. Detz questioned how the process will work. Number 1543 MITCH GRAVO, Lobbyist, said he represents the private school folks. He explained there are three different issues occurring simultaneously that have to do with the Student Loan Corporation. He said everyone is aware of SB 123 which was the topic of discussion at the end of last session. That is one issue. Mr. Gravo said another issue is a regulation that was promulgated in November, 1995, pursuant to a statute that was passed by the legislature in 1987. Basically, the statute is a qualification for participating in the Student Loan Program for "for profit schools only." If your default rate is 1.5 times greater than the average, you can't participate. Mr. Gravo said the third issue that deals with the Student Loan Corporation is the Governor's executive order and the legislation that he has introduced that would implement the executive order. He pointed out all the issues are interrelated but they're all separate also. The issue that is of immediate concern to the private school folks is the promulgation and the implementation of the 150 percent regulation which affects only them. He said he believes once the statistics come out, most of them will be precluded from participating in the Student Loan Program. CHAIRMAN KOTT referred to when a determination is made as to which schools receive $100,000, plus, in student loans and are over the 1.5, and asked how many schools will suffer. MR. GRAVO said he doesn't really know yet. MS. DETZ said they really don't have a clue. She referred to the report regarding the short-term debt on long-term service that the legislators received, those numbers are based on the number of borrowers and not the total dollars in default. She noted she thinks the numbers on the charts are very high. Ms. Detz said she doesn't have a clue as to how many of her students are delinquent or are in default. There are approximately 42 schools in the state of Alaska who are authorized to receive students using the Alaska Student Program. She said she doesn't know how many will be eliminated from the program. Ms. Detz said the education and training that these schools provide is education for labor and trades in Alaska. REPRESENTATIVE KIM ELTON said he is assuming that if the regulation of 150 percent was promulgated in November, it was promulgated under the auspices of the Postsecondary Education Commission. He asked Mr. Gravo if he knows if there is going to be review of that regulation by the new entity. MR. GRAVO informed the committee that the chairman indicated the previous day that they want to work with two commissioners, somebody from the University of Alaska and somebody from private schools to review the regulation and the other issues that have arisen since November. Mr. Gravo said he got the impression that it was their intention to take a serious look at how this will be implemented and how it will unfold given the impact that it might have on the private schools. He said he doesn't believe anyone wants to take swift action that might be counter productive to legislation or discussions that may occur during session. REPRESENTATIVE ELTON asked if they use words like "suspend implementation," or do they say they're just going to review. MS. DETZ explained they are concerned about the process of implementing the regulation. MR. GRAVO said a request has been made to the commission urging them to consider suspending implementation at least until May 8. He said this is going to be an issue for the legislature. The commission said they would consider the request. Mr. Gravo said it is the commission's opinion that they were directed by the legislature to promulgate the regulation in November. If the legislature were to express that wasn't their intention or that it is alright with the legislature if they suspend implementation until May 8, that would give them some ammunition to not immediately go forward. Number 1800 CHAIRMAN KOTT asked Gillian Hays to come before the committee. He informed her he has a letter dated January 15, signed by her executive director on the commission's letterhead. He referred to the third paragraph which said, "Last session the Alaska Legislature specifically directed the commission to enforce this law which was passed in 1987." Chairman Kott said this paragraph disturbs him. He asked Ms. Hays where that specific direction came from. GILLIAN HAYS, Executive Assistant, Postsecondary Education, Commission, Department of Education, said the first conference committee issued a letter of intent. That letter of intent doesn't go into effect until the bill is passed. Joe McCormick, the previous executive director, felt that was a strong enough message from the legislature that the commission prepared draft regulations on how to calculate the default rate. They went through the regulatory process to get those regulations into effect. CHAIRMAN KOTT said he thinks the stronger message was that SB 123 had passed and, therefore, the letter of intent was null and void. He asked Ms. Hays if she knows if there will be some type of action that will correct this misinformation. MS. HAYS said she has delivered a letter to Sharon in Senator Miller's office explaining that Dr. McCormick had felt that this was a strong enough message. The commissioners were very concerned at that time of going back to the bond market and perhaps not getting insurance for the loans. They decided to go ahead and act. Number 1999 REPRESENTATIVE ELTON asked what the regulatory process is. He said he thought regulations were based on statute and never based on letters of intent. CHAIRMAN KOTT said he believes Representative Elton is correct. The regulations that have been promulgated are based on the 1987 statute. There is somewhat of a time lag in enforcement, he stated. Number 2025 REPRESENTATIVE GENE KUBINA said the statute is on the books and that is the law of the land. CHAIRMAN KOTT said he would agree with that assessment. Since the statute was passed in 1987, things have changed dramatically within the student loan application process. As to whether or not the regulations promulgated in November are still appropriate, that is why the committee is addressing the issue. Number 2055 REPRESENTATIVE ROKEBERG referred to regulations in the committee folders and asked if those are the regulations in question, 20 AAC 15.925. CHAIRMAN KOTT said that is correct. REPRESENTATIVE JERRY SANDERS said if the bill, being an eight year old bill, is applicable today, would 30 days be enough time for the schools to answer. He asked of eight years could be adjusted in 30 days. CHAIRMAN KOTT asked if the 1.5 figure is cumulative. MS. HAYS responded that is correct. She referred to the 30 day time period and said it is a period of time for which the institutions can review the information that the commission gives them and verify that, "Yes, Joe Smith went to my school." It is not a period of time that they are to collect or find the defaulters or to provide the commission with addresses. It is simply to verify the information the commission has in their system with the records of the students that went to that school. CHAIRMAN KOTT said they are just going to verify names of individuals who attended the school and nothing more. He said they are not arguing that a person, for whatever reason that falls within various categories, is not within that default category such as if a person was deceased while attending the school. They would not be included as part of the overall default rate. Number 2188 MS. HAYS said the schools could let the commission know if a borrower that attended their school has deceased. The school could also inform whether the borrowers on the list really attended their school. Ms. Hays explained after 30 days, the school would submit their information to the commission. The commission will review the information for accuracy. She informed the committee that there is the appeal process for when the school doesn't agree with the commission's determination that the school is ineligible to receive Alaska student loan recipients. Ms. Hays informed the committee that on December 31, 1995, they took a snapshot of all the loans. The commission's Information Support Services (ISS) Section is currently entering the calculations in order to separate the student with the code with the amount, so each institution will have their individual institutional default rate. MS. HAYS said once the determination has been made, the schools review the information, send it back to the commission, the commission reviews and makes whatever changes are necessary in the programming to coordinate the schools records with the commission's records. She noted on a quarterly basis, the commission can print another list for the schools, but according to the statutes, the commission is to take the snapshot annually. Ms. Hays said as she understands, the schools will have a year to implement their default management plan. Number 2275 REPRESENTATIVE PORTER asked if the commission will work with the schools before they are deemed ineligible. MS. HAYS said having not done this before, she understands that is not the case. She said they hope to have some way to cease the distribution of funds to an institution by April or May. She noted that is not set out in concrete. REPRESENTATIVE PORTER said it seems to him that the legislature's intent was that the regulations be done in a normal period of time after the statute. Currently, if the loans exceed $100,000 and the loan default rate is 150 percent, it is grossly skewed by the time of when the statute was written and when the commission is finally getting around to starting the process. Representative Porter said he thinks the legislature would be concerned if quite arbitrarily, regulations are written that didn't take that lapse into account. There would be no ability on the other end to make some adjustments. MS. HAYS explained the calculations the commission has undertaken do not include any loans made prior to 1986. REPRESENTATIVE PORTER asked if that was determined arbitrarily. Ms. Hays said information on their computer system, prior to that time, was not coded in a manner that they could separate the different institutions and they determined it would be a very labor intensive process to figure how much money went to what school. Representative Porter asked if 1986 was the first year they went on record. Ms. Hays said it was loan year 1987. Representative Porter said if the regulations would have been timely, the commission would have had one and a half years of data. Now they have eight or nine years worth of data. Ms. Hays said she doesn't think that there is any question that the process is hard to understand and to know what is right and what isn't. The program default rate is cumulative and does include all the loans prior to 1986. She said having the numerator, denominator and how that all works out, it is to the advantage of the institutions now to have the cumulative rate and the program rate. TAPE 96-1, SIDE B Number 001 MS. HAYS referred to the number in the statute and said it is based on all other loan programs that go to the bond market for bonding. The bond market is familiar with that number. REPRESENTATIVE PORTER said he thinks he could make a case that the commission is actually causing more grief than benefit by figuring things the way they are. Number 047 CHAIRMAN KOTT asked to what extent, if any, can the Postsecondary Education Commission examine the credit worthiness of an applicant. MS. HAYS said they currently don't have the authority to do that. Chairman Kott asked what the current requirements are for obtaining a student loan. Ms. Hays said you have to be physically present in the state for at least 12 months prior to an application, go to an institution that is authorized by the state and other written conditions the committee members had before them. Chairman Kott asked if there is a mechanism to verify residency. Ms. Hays said they have a residency questionnaire that is sent to questionable applicants asking for proof such as rental records, voter registration, etc. Chairman Kott asked if there is something on the applications that would tip them off if an applicant did not meet the 12 month residency requirement. Ms. Hays said there isn't unless they committed fraud. Number 111 REPRESENTATIVE SANDERS asked Ms. Hays how they would know if somebody committed fraud. MS. HAYS said there has been instances where they have found students that have applied under several different names. Those names were forwarded to the Department of Law to pursue repayment of those loans. The commission would be tipped off if a borrower didn't read the application and had only been in the state for 11 months. She noted that those people, after 12 months, may submit a revised application. Number 160 CHAIRMAN KOTT asked Ms. Hays if her opinion is that if there were some kind of statutory authority that gave the commission the opportunity to do a credit check or check on an individual's credit worthiness, would that assist the overall program default rate. MS. HAYS indicated she didn't know enough information to answer the question. She said if the commission were to assume that no credit is good credit, a lot of the borrowers wouldn't have credit as they have just come out of high school. CHAIRMAN KOTT said there may not be a track record for establishing credit, but most 18-year olds would have some kind of work history where a credit or reference check could be done. He pointed out that his 18-year old son applied for a visa card and received one. He listed a savings and loan bank where he had an account. Chairman Kott said students have to meet some requirements but we're not actually checking to see whether they do. Number 254 REPRESENTATIVE KUBINA referred to people who default on their loans and said he assumes a vast majority of them have moved out of state. MS. HAYS said she thinks it is about 50/50. Representative Kubina referred to the effort that is gone through to collect the money and said their permanent fund dividends (PFD) could be taken. Ms. Hays indicated that is currently the case. Representative Kubina asked how many people the commission gets to pay their loans back. Ms. Hays informed the committee last year they put a claim on 8,000 PFDs. She noted she didn't have the exact numbers with her. Ms. Hays said she believes the commission actually collected from 6,500. If people are behind in child support or IRS payments, those other agencies get the PFDs first. Representative Kubina said if the PFDs are taken, do the schools then get credit for that and the school, in essence, is not really in default as much because the commission has collected some. Ms. Hays said she isn't real sure of the answer. If the borrower is still in-house and the commission collects, it goes towards the school. If the borrowers have been turned over to a collection agency, a portion of it does. She noted she doesn't know exactly how the calculation works. REPRESENTATIVE KUBINA asked if the commission reaches a point where a student's name is turned over to a collection agency. MS. HAYS said they do reach that point. She said they have a required due diligence process that must be met. Legally, the commission has to make a certain amount of calls and contacts with truth and lending letters, etc. If it starts costing the commission more to track a non performing loan then it does to transfer them, they transfer them. REPRESENTATIVE KUBINA asked if there is an analysis as to what kind of people the students are. For example, he has heard doctors and lawyers are a terrible risk for student loans even though they are probably receiving some of the highest salaries. He asked if there has been an analysis of this. MS. HAYS said the committee members have some information before them where there is a chart that separates default rate by field of study or by major. She said the report shows that the length of study is the issue where you ask the questions, "Do they have enough education in order to get a job where they would make enough money to repay their loan?" You also ask, "Did they get enough education to understand the need to repay a loan." She said she doesn't know if they have done a study on each field. Number 408 CHAIRMAN KOTT said he recalls reading an article in December that was quoting Diane Barrans that they are beefing up the collection process of loans in default. The impression he got is they are now vigorously trying to collect. He was left with the impression that prior to that perhaps there wasn't such a vigorous attempt to collect those monies. Chairman Kott said it seems like one full- time person is being added and two other part-time people in the office are now involved. There are also two outside collection agencies that have been hired. He said he applauds the commission for those attempts. MS. HAYS informed the committee two years ago, they had requests for proposals (RFP) for new collection agencies. When Dr. McCormick came on board, he was very concerned that the collection agency the commission currently had contracts with weren't nationally known. There weren't large branches in the Lower 48 where the borrowers, who are no longer living in Alaska, could easily be contacted. Ms. Hays noted in 1988, the commission received authority to hire 22 new staff members and 12 of those staff members went to due diligence or precollections. She said the commission has hired people who have actual student loan experience. They are trying to beef up the professional expertise within their own agency. CHAIRMAN KOTT asked if the commission currently uses instate collection agencies such as Alaska Credit Association (ACA) and Collect Alaska Network Management Adjust Bureau. MS. HAYS said there was one other agency but she couldn't remember the name. She noted their first account was with Patterson/Van Able in 1982. Ms. Hays noted they haven't sent any accounts to Patterson/Van Able in about ten years. Number 560 REPRESENTATIVE KUBINA asked if there is any punishment to the borrowers if they default. MS. HAYS stated any borrower in the Alaska Student Loan Program would lose any benefits they may have. For instance, if a student has an old loan with the forgiveness provision, they will lose access to the forgiveness provision, they'll no longer be eligible to take out any other kinds of deferments such as medical or military. Once an account is transferred to a collection agency, the collection agency can take legal action against them. They place liens, attach checking accounts, etc. REPRESENTATIVE KUBINA asked if student's names are printed in the paper. MS. HAYS said they aren't allowed to print their names as they are a state agency. She noted collection agencies are allowed to print the names and have. CHAIRMAN KOTT asked if licenses are withdrawn for those who are in a licensed profession. MS. HAYS stated HB 506 gave the commission the authority to deny renewal of occupational licenses. She noted they don't want to take away the borrowers ability to earn a living. The commission wants the student to know they have the ability to earn a living and they need to pay back their loan Representatives Porter, Kubina and Masek arrived. Number 655 REPRESENTATIVE SANDERS said he recalls something that he read in the Anchorage newspaper where there was no enforcement on the default rate. He asked Ms. Hays if she knows when things might have changed. MS. HAYS said she didn't know. She did say that Patterson/Van Able was hired in 1983 or 1984, in order to help collect. REPRESENTATIVE SANDERS asked if the repayment rates have gotten better since there is more enforcement. MS. HAYS indicated they have. Representative Sanders asked if you looked back two years, would you get the same picture as if you looked back ten years. Ms. Hays said it is a better picture and that is their goal. REPRESENTATIVE SANDERS asked if the year 1987 is a locked in done deal or could it be adjusted to the last three or four years. MS. HAYS said their legal council looked at that question. She said it doesn't say anywhere in the statute that they should start at a certain time. It says, "The loan program." REPRESENTATIVE SANDERS said if this has been improving even slightly as the years go by, is there a possibility that it would cure itself in another two or three years or will it never cure itself. MS. HAYS referred to a meeting the commission had the previous day where their bond counsel and financial advisor were in attendance. She also noted their bond underwriter was also in attendance and he drew a very descriptive chart. Ms. Hays said there is no way to recoup just fixing the default. SB 123 has many other provisions in it that will help stop the drain on the loan fund. One being recoup provision is charging interest during deferments, increasing the origination fee, etc., but just letting the program go as it is with internal corrections is not going to stop the drain. Number 937 REPRESENTATIVE PORTER said there seems to be some flexibility or adjustments being made on how they are making (indisc.). He asked what formula the bond market uses when looking at the commission's data and saying whether they are going to good rating, (indisc.) or bad rating. MS. HAYS informed the committee that in their official statement each year, it is all written out as to how they calculate default, forgiveness, etc. Number 999 REPRESENTATIVE ROKEBERG asked if a replacement has been appointed for Dr. McCormick. MS. HAYS said Ms. Diane Barrans has been appointed and her office is in Juneau. She pointed out Ms. Barrans has worked with the agency for over 14 years. REPRESENTATIVE ROKEBERG referred 20 AAC 15.925 and asked if that was the totality of the regulations that were published on November 30. MS. HAYS answered in affirmative. Representative Rokeberg asked Ms. Hays if she is familiar with the regulations. Ms. Hays again responded in the affirmative. REPRESENTATIVE ROKEBERG asked Ms. Hays to describe the difference between a program default rate and an institutional default rate. MS. HAYS said a program default rate is defined as all of the student loans. Institutional is you separate out how much money a student borrowed to go to an institution. That amount is taken by all institutions. The program is all institutions, all students (indisc.). Representative Rokeberg asked how they worked the math to get to 150 percent. He asked what the relationship is. Ms. Hays said the relationship is you have a total program rate, for instance 19 percent. The Alaska Student Loan Program's default rate is 19 percent. The institutional default rate is calculated the same way only by looking at how much money has gone to that institution. The program rate is multiplied by 1.5 times. She noted she likes round numbers. So you have the 20 percent and half of that is 10. So 30 percent is a 150 percent of the program default rate. She referred to the institution and said you are calculating how much money went to an institution and match the two. Ms. Hays noted some of the earlier loans weren't interest accruing. She pointed out for forgiveness, medical write offs, death and disability are all taken out of the equation. REPRESENTATIVE ROKEBERG asked if "Program default rate" is defined in statute. MS. HAYS said she believes there is a definition that explains what "program" means. She said she would check on that. Number 1409 REPRESENTATIVE ELTON said what happens if he went to flight school and management changed in 1992, when the flight school's default rate was 60 percent until then. The new management comes in. They could lose their school even though the regulations weren't implemented until 1996. He said he would like to make a general comment. SB 123 was a vehicle to address some of the bond market imperatives and some of the other program imperatives. Representative Elton said his concern is that one of the things that isn't being discussed that was in SB 123 was the ability for university students to get a higher loan amount. He said he hopes we don't get so bogged down in some of the details that we forgo the opportunity to do what we probably should do in allowing a higher loan amount this year. Representative Elton said he has the sense that some of the concerns that the private schools, postsecondary education and bond markets have are going to keep us tied in knots. REPRESENTATIVE KUBINA referred to a 40 percent default rate and said that is over a period of years. MS. HAYS pointed out the snapshot is taken every year. Representative Kubina referred to 1995-1996 and said lets say they are over the 30 percent. From 1995 to 1996 they come in at 28 percent, but only brings their overall average to 32 percent or 35 percent. Would they still then not be eligible? Ms. Hays indicated that is true. Representative Kubina said you'd think in the regulation it doesn't seem like the law would have (indisc.) to that if in one year you come down within the realm of under the 150 percent, you have, therefore, done it. You need to stay at that 150 percent. It seem like that is common sense. The fact is that school - that year is there and they should be fine. If in the next year they go up to 32 percent or 34 percent, then they have not done it. He said some incentive should be put on schools, both private and public. REPRESENTATIVE PORTER asked Ms. Hays if the commission feels they have the authority to write a regulation that would allow flexibility. MS. HAYS indicated she didn't know as there is a new body of commissioners. Representative Porter said if a company has changed hands, it seems grossly unfair to lay the last 10 years bad record on people who didn't know how to manage their business. Ms. Hays noted that information would be available if they wished to obtain it. She said the commission has financial statements that are required by institutions each year. The new owner would look at that statement. CHAIRMAN KOTT thanked Ms. Hays for her testimony. Number 1932 TARIKA LEA, testifying via teleconference from Fairbanks, said she operates a small school with 10 to 20 students a year. She said one-third of them take student loans. Ms. Lea said she feels this really affects the direction of the future of Alaska. A loan is not a handout and her school does everything in their power to teach students how to be responsible. She pointed out that the student loans have been very helpful, particularly for the women. She said about 80 percent of her students are women and she finds most of them have children, no husbands or credit. This is their first big chance to be independent and to find dignity in their lives. She said the commission has worked very diligently with her to make it very clear that the students are responsible. She said her students sign extra papers saying, "I understand, I am responsible, this is a loan," etc. Ms. Lea emphasized the tremendous value that the vocational schools provide for Alaska. Ms. Lea said she would forward a letter to the committee members discussing her views. She said the student loan program and education is one of the greatest services offered. Number 2317 SARA EDDINGS, New Concepts, said since her acquisition of the school in 1994, she has implemented a pilot program she uses for her federal funds for tracking for management of default, etc. She said she has some guidelines for Alaska student loans. Ms. Eddings stated there isn't much she can do about what happened with New Concepts prior to her purchase. She said she would try if she had the information to work with. Ms. Eddings referred to the commission hiring more experts to help collect from defaulters and said none of these people have ever contacted her trying to locate a student. TAPE 96-2, SIDE A Number 001 Ms. Eddings referred to regulations and said it doesn't say what the commission should use for that time frame in literally cutting off the school for participating. She thanked the committee for listening to her comments. DONALD SCHEAFFER, Director, Financial Aid, University of Alaska - Fairbanks, testified via teleconference. He said he is not testifying as a University of Alaska person but more as a financial aid person. He said on the national level, we have been concerned about the default rates and even though this particular issue in Alaska doesn't affect University of Alaska students or the university, it does affect the higher education in Alaska. One concern is the possible negative impact that we see across the state on higher education. He said he feels we're in this all together and we should be pulling together in support of higher education. Realistically we need to develop a system of default management or default reduction. The Alaska loan program is where the student, in the privacy of their own home, can fill out the application and walk into the university's office and ask to pick up their check. Mr. Scheaffer said the university doesn't know who they are, where they came from and they have no way of certifying that loan before the person gets it. There are no real mechanisms to do any insurance counseling or make the students aware of their rights or responsibilities. Mr. Scheaffer said his only concern is that the issue, as it is currently going forward, may cause some disruption that may negatively impact all higher education throughout the state. He thanked the committee for listening to him. Number 110 REPRESENTATIVE KUBINA said he would like to note that he doesn't find a definition in the statutes or in the regulations of what a default rate is or anything defining exactly how it is determined. He said he thinks the department has the latitude to write the regulation in a far more reasonable and workable manner so that it encourages schools to bring their loan rates down and not throw them out of the program. REPRESENTATIVE ROKEBERG said he knows that there was a report that shows statistics of the default rates of the private schools. MS. HAYS said it is borrower based and not dollar based. Representative Rokeberg requested a copy of the statistics. Number 162 REPRESENTATIVE ROKEBERG referred to the commission doing the snapshots and asked if they are crunching the numbers. MS. HAYS said that is correct. She noted they are also waiting for the proprietor school owners to submit their suggestions on what kind of situations they have where borrowers should be eliminated from the equation. Ms. Hays stated at the November 30, and December 1, commission meeting, an institutional (indisc.) meeting they were invited to submit suggestions. REPRESENTATIVE ROKEBERG asked what the appeals process is. MS. HAYS said it is just a regular administrative appeals procedures. Having not implemented this regulation before, this will all be new ground as far as having an institution appeal. She said she imagines it will be similar to any appeals process that they afford a borrower. If a borrower wishes to go to an institution and is denied, they would write a request to the executive director, the executive director has staff review their appeal, and if it an appealable item then it goes to the commission. Ms. Hays noted if a borrower is appealing for default of an account, the status does not become static during the appeal process. They still have to make payments while the appeal process is going on. Number 296 DONALD M. LOCKMAN, Testing Institute of Alaska, was next to testify. He noted the Testing Institute of Alaska is a welding school in Anchorage. Mr. Lockman referred to the charts and said the numbers probably came from a letter he written and those numbers were generated from a memorandum that was submitted by the Postsecondary Education Commission at a meeting in December. He said the terminology is long-term debt for short-term services or disservice. He said there are six pages in the document that delineates each one of the schools. The document states the percentage in default is per recipient and not per dollar. They are high on vocational schools as far as the recipient is concerned. Not having any other figures to work with, he took the percentage of default into the number of recipients to get the number of recipients that would be in default in that percentage. He then multiplied that times the average amount borrowed. Mr. Lockman said that is probably not going to be a true picture but it should give some relevancy of percentages of dollars. He then said he divided up the schools in state funded Alaskan schools that remain with (indisc.), private vocational schools and all of those outside of Alaska. That is how he came up with the numbers on the chart. MR. LOCKMAN referred to Representative Sanders comment about an article he read in the Anchorage newspaper and said the average overall percentage is 19.3 percent. He said he imagines that is a percentage based on recipients and not dollars. That means 28.95 percent would be the cutoff for the 150 percent of that 19.3 percentage. When you take that percentage and apply it to the schools percentage that is listed, of the 21 private schools 13 would no longer be eligible. The 150 percent rule applies only to the private schools, it doesn't apply to any of the outside schools or the state schools. If you did apply it, there would be 6 of the 19 schools in the state that are university oriented that would no long be eligible and 16 other schools outside of the state that would also be ineligible. Mr. Lockman referred to the last commission meeting and said there was a motion to allow the private schools to give the state some criteria as to judge the ineligibility of a defaulted person to that school. He noted he hasn't received anything from the Postsecondary Education Commission asking for that information and said he isn't even sure if it was passed. Number 522 REPRESENTATIVE KUBINA said it is interesting why only private schools are listed in that part of the law. He said he guesses he understands why they didn't say "Alaska private schools," although he thinks it would have been good to do so. MR. LOCKMAN said in his school, they probably deal with higher risk students than some of the other schools. He said some of their students include incarcerated people and street people. Some of the students, after they've been in training for awhile, tell him that they have no intention of paying the loan back. Mr. Lockman said there has to be some kind of a mechanism that would take those people out of the default category. Mr. Lockman stated there is nothing they can do about this situation once they've entered into the training program. He pointed out that there was one street person who attended for two years. The Testing Institute of Alaska contacted the Postsecondary Education Commission and told them this person was a street person living at Brother Francis' shelter and that they were going to send that person's check back to Postsecondary. Postsecondary said they couldn't. Mr. Lockman said he told the student that he didn't think he wanted him in the program. The student told him that he was going file a lawsuit. There should be something to take those people out of the equation. REPRESENTATIVE ROKEBERG questioned Mr. Lockman's concern regarding people who are incarcerated. MR. LOCKMAN said he thinks that a person who is incarcerated needs to get out of that realm of his/her life and get on to being a productive person. Chances are he doesn't have a skill level or maybe he does and just wants to be a criminal. If he doesn't have a skill level, welding is a skill that most of these types of people can work with. They work with their hands rather than their mind. They need to have training and be productive citizens, but to give them a student loan with nothing being secured and the mindset of a criminal, chances of him paying back the money is slim. Number 860 DENNIS MILLHOUSE, Trend Setters School of Beauty, said his school has been operating in the Anchorage area for 24 years. He explained they work with the Department of Commerce and Economic Development for licensing and then they have another layer of government, the Postsecondary Education Commission. Years ago, the school helped the commission track people. He noted it could be done through the Department of Commerce and Economic Development because any person who leaves the state has to get a license and they need reciprocity. He said they had a good working relationship with the people at the Postsecondary Education Commission but, over the last couple of years, things got real ugly. They changed their attitudes. He said it so easy to get a student loan and there is no requirements. Mr. Millhouse said by regulation, if a student attends 30 hours a week, they have to release the loans. In some cases, they release the loan, the student takes off. That loan now becomes the school's problem when it goes into defaults. He said the school is a pathway to student's goals. Alaska has some of the best schools. He suggested calling the permanent fund people as they will really know if people are residents. Mr. Millhouse explained if a student doesn't attend the school, they have to refund the money. With the regulations, they have to carry the students half way through the course which is five months. If a student defaults on room and board, the school is still tagged with the expense. He said they are just asking for fairness. If a student goes into default and then pays his/her payments and gets out of default, the commission keeps them in the default column until they are totally out of the program. Since Mr. McCormick has been around, everything has changed - misinformation, etc. Number 1173 CAROL HART, Elite Hospitality Center, said in making some of her management decisions and putting together her business plans to purchase her school and move forward, she contacted the student loan office on several occasions trying to find out different rates, defaults, loan information, etc. She said she has letters in her files that state there are no statistics or means for them to provide the information to her. Ms. Hart said she new they must have some kind of information and she needed some tools to make some management decisions. In 1991, she called Sherri Jager, and her suggestion was to tag on with one of the schools that was already in place, which she did do. Now she receives information that from the time the school opened, she is responsible for those default rates and she had requested that information. Her school is governed differently than other schools. They can't hand an individual their check, it has to go into a trust fund. If a person enrolls, the money is put into a trust fund handled by their administration staff. She said she has a letter signed by Mr. McCormick saying they can't get the default rates as they have no means of getting it. She said she has some major concerns regarding the issue. Number 1414 ANN ADASIAK ANDREW, SST Travel Schools of Alaska, referred to SB 123 and short-term programs versus long-term programs and said she would like to explain the argument that for a university student to be considered a full-time student for a semester at a university, they have to be enrolled for 12 credit hours at a university. That stretches over the course of about 15 weeks. Ms. Andrew said 12 contact hours a week for 15 weeks is 180 contact hours. The minimum length of any one of their programs is six weeks at 30 hours a week which is 180 contact hours. That is the minimum for any one of their programs. Other programs, such as Mark Johnson's with the Truck Driving School, is 210 hours. To receive a four year degree, there are 130 required credits. Ms. Andrew said she wanted to explained that to committee in terms of loan amounts for a short-term program versus a long-term program. Ms. Andrew said her second point is about previous schools, fly-by-night institutions, that have come in and hammered a sign on the door of their house, "SKOOL." They then sign people up for loans, leave town and rip off people. There were a number of institutions like that. The institutions that remain in Alaska have survived that. There are now a number of regulations in place and we have made progress to control that. Ms. Andrew said she doesn't think there are bad schools in Alaska anymore. The schools that did survive that period have absorbed those students at no cost to the students or the state. They absorbed them, they graduated from their programs, they got placement assistance. Ms. Andrew said suppose one of those students chose to default on their loan because the school they signed up for left town. She asked if one of those students graduated from her institution, would that institution be tagged with the default rate of that student. MS. ANDREW said her last point is that she was surprised at knowing the commission has allowed the schools input on how they are supposed to eliminate students from attending their programs or getting loans. She said she attended a commission meeting last spring where Mr. McCormick was in attendance. She implored the commission to help the schools set guidelines on how to determine whether or not a student gets a loan. She noted the school has no legal rights. The schools can set certain entrance requirements, but they don't want to be caught in a legal bind. Ms. Andrew thanked the committee. Number 1635 CHAIRMAN KOTT said there has been a lot of information on this matter. He said it is his intent to appoint a subcommittee to address the issues the committee has heard such as collection procedures and dealing with the lack of information. He said he would perhaps like the subcommittee to look into the possibility of putting together a House resolution and forwarding it to the Governor. It should urge the Governor to direct regulations to be held in abeyance until a time certain date to be determined by the subcommittee. He then appointed Representatives Masek, Kubina and Sanders to the subcommittee. Number 1813 ADJOURNMENT There being no further business to come before the House Labor and Commerce Committee, CHAIRMAN KOTT adjourned the meeting at 5:20 p.m.