Legislature(1995 - 1996)

01/17/1996 03:08 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                 
 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            
 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                    
 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                    
 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                    
 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                    
 CAROL HART                                                                    
 Elite Hospitality Center                                                      
 800 East Dimond Boulevard                                                     
 Anchorage, Alaska                                                             
 Telephone:  (907) 349-1400                                                    
 POSITION STATEMENT:  Commented on the student loan program                    
 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                    
 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                  
 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              
 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                 
 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           
 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                  
 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           
 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                       
 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              
 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              
 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            
 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                                                                   
 There being no further business to come before the House Labor and            
 Commerce Committee, CHAIRMAN KOTT adjourned the meeting at 5:20               

Document Name Date/Time Subjects