02/24/2015 03:30 PM Senate EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| SJR2 | |
| Presentation: Alaska Performance Scholarship Program and Alaska Education Grant Program | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | SJR 2 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE EDUCATION STANDING COMMITTEE
February 24, 2015
3:30 p.m.
MEMBERS PRESENT
Senator Mike Dunleavy, Chair
Senator Charlie Huggins, Vice Chair
Senator Cathy Giessel
Senator Gary Stevens
Senator Berta Gardner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 2
Proposing an amendment to the Constitution of the State of
Alaska relating to contracting state debt for postsecondary
student loans.
- HEARD AND HELD
PRESENTATION: ALASKA PERFORMANCE SCHOLARSHIP PROGRAM AND ALASKA
EDUCATION GRANT PROGRAM
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SJR 2
SHORT TITLE: CONST. AM: G.O. BONDS FOR STUDENT LOANS
SPONSOR(s): SENATOR(s) MACKINNON
01/21/15 (S) PREFILE RELEASED 1/9/15
01/21/15 (S) READ THE FIRST TIME - REFERRALS
01/21/15 (S) STA, EDC, FIN
02/10/15 (S) STA AT 9:00 AM BUTROVICH 205
02/10/15 (S) Moved SJR 2 Out of Committee
02/10/15 (S) MINUTE(STA)
02/11/15 (S) STA RPT 3DP 2NR
02/11/15 (S) DP: COGHILL, MCGUIRE, WIELECHOWSKI
02/11/15 (S) NR: STOLTZE, HUGGINS
02/24/15 (S) EDC AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
SENATOR ANNA MACKINNON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SJR 2.
DIANE BARRANS, Executive Director
Post-Secondary Education Commission
Department of Education and Early Development (DEED)
Juneau, Alaska
POSITION STATEMENT: Presented information on SJR 2, the Alaska
Performance Scholarship Program and the Alaska Education Grant
Program.
ACTION NARRATIVE
3:30:12 PM
CHAIR MIKE DUNLEAVY called the Senate Education Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Huggins, Giessel, Gardner, and Chair
Dunleavy. Senator Stevens arrived shortly thereafter.
SJR 2-CONST. AM: G.O. BONDS FOR STUDENT LOANS
3:30:40 PM
CHAIR DUNLEAVY announced the consideration of SJR 2.
3:31:12 PM
SENATOR ANNA MACKINNON, Alaska State Legislature, sponsor of SJR
2, said the constitutional amendment proposes to try to reduce
student loan debt, or at least the interest rate a student would
pay. She stated that, "Our forefathers could not have
anticipated the debt required to get an education in today's
world, let alone, America." Alaskan disproportionately carries a
much higher interest rate than the federal rate. Currently, the
state's interest rate is 6.7 percent and the federal rate is
4.66 percent.
She understood that should SJR 2 go forward, the state would ask
voters in the 2016 general election to approve a change in the
state constitution that would allow debts and the full faith and
credit of the state of Alaska to be used to back that debt for
student loans. Currently, under Article IX, Section 8, of the
Alaska Constitution the only allowable use of the full faith and
credit of the state for is capital improvements and housing
loans for veterans. She concluded that SJR 2 would be a third
amendment to that section and would allow student loan debt
backed by revenue that students pay.
SENATOR GARDNER requested to know how the state sets interest
rates and how much flexibility it has in doing so.
3:33:39 PM
DIANE BARRANS, Executive Director, Post-Secondary Education
Commission, Department of Education and Early Development
(DEED), answered Senator Gardner's question about interest rate.
She explained that the Alaska Student Loan Corporation (ASLC)
Board sets the interest rates annually. The essential components
are factored in; the cost of funds, the cost of providing and
serving the program, as well as the cost of losses.
SENATOR GARDNER asked if the state or agency makes money based
on the current loan rate and what the current net balance is.
MS. BARRANS explained that it is not the goal of the corporation
to make money, but to have a sustainable structure. A look back
over 20 years would show a great variation of net income from
less than $1 million in a given year to as high as $12 million.
The way net income is distributed has also varied over the
years. In 2001 the state statute was amended to permit the
corporation to pay a dividend or return of contributed capital
to the state. Since then, the corporation has returned over $31
million to the state. Since the downturn in the market, the
board has not elected to return a dividend to the state.
3:37:01 PM
SENATOR GIESSEL recalled during the time of her own student loan
and the tendency of students to not repay their loans. She asked
what the default rate of Alaska students is.
MS. BARRANS agreed that the default rates used to be high. Back
in the 80's and early 90's, the default rate was in excess of 27
percent. The current default rate is less than 6.5 percent.
CHAIR DUNLEAVY asked why that is.
SENATOR MACKINNON added that the Student Loan Corporation is
third in line to garnish a student's PFD, which increases the
corporation's ability to recoup payments.
MS. BARRANS replied that there are a number of factors that
enable collection of payments and one of the most effective is
the ability to garnish the PFD. Over the years more than $12
million has been collected on defaulted loans.
She said in late 80's and early 90's there were over 140 for-
profit institutions that delivered training programs, many of
which were not valuable investments. There was also a mindset
where students expected to only have to repay 50 percent of the
loan. The loan was not treated like a legitimate debt. In the
mid-90's, the corporation adopted levels of underwriting
standards. It began with a credit-ready standard and then, after
the market collapse in 2007-8, the credit criteria was increased
to having positive credit or a cosigner with positive credit.
3:40:29 PM
CHAIR DUNLEAVY asked what the current interest rate is.
MS. BARRANS reiterated that it is 6.7 percent.
CHAIR DUNLEAVY asked what interest rate the bill targets.
SENATOR MACKINNON explained that the delta is between 1 percent
and 1.3 percent gain, but is variable depending on the bond
market. It provides a better rating so the corporation can
borrow at a lower interest rate.
CHAIR DUNLEAVY asked how the rate would be set.
MS. BARRANS said the process would not be different, but the
cost factors to the board would be lower. The cost of funds
would be between 1 percent and 1.3 percent lower, resulting in
directly benefitting borrowers.
CHAIR DUNLEAVY recalled the history of the loan fund.
MS. BARRANS corrected that in 1987 about $260 million in loan
assets was turned over to the corporation for capitalization. In
1994 small infusions of cash brought the total contribution from
the state to $306 million.
CHAIR DUNLEAVY asked how much is in the account now.
MS. BARRANS replied that about $460 million is currently in the
portfolio.
She observed, in addition to the annual dividend payments the
corporation made between 2001 and 2008, in 2004 and 2005 loan
assets were used to issue approximately $150 million in capital
project bonds which were used to finance various projects. The
total return on the "state's investment" is over $192 million
from ASLC.
3:44:07 PM
SENATOR HUGGINS asked what Trendsetters is.
MS. BARRANS said they train in haircutting.
SENATOR HUGGINS asked what AEG means.
MS. BARRANS explained that the Alaska Education Grant is a
needs-based grant program.
SENATOR HUGGINS said he was glad to see a long list of
institutions for whom loans are available. He concluded that
students have choices when it comes to scholarships.
MS. BARRANS agreed. The loan is portable for out-of-state
education; the scholarship and grant are not.
SENATOR HUGGINS said UAA has the largest number of recipients.
He asked if a student could use the scholarship during a
semester abroad.
MS. BARRANS explained if the semester is a formal exchange
program, it qualifies.
3:46:42 PM
SENATOR GARDNER asked if loans and grants go to individual
students, not the institution.
MS. BARRANS clarified that the funds are dispersed through the
institution to the student.
SENATOR GARDNER said the student pays back the funds, not the
institution.
MS. BARRANS said correct.
SENATOR GARDNER concluded that programs abroad not affiliated
with a college do not qualify for the funds.
CHAIR DUNLEAVY noted Western Interstate Commission for Higher
Education (WICHE) and Western Undergraduate Exchange (WUE)
programs are available to Alaskans.
MS. BARRANS agreed. She said also under WICHE are the
Professional Student Exchange Program and the Graduate Regional
Exchange Program. A student could not use the scholarship or
grant funds for these programs.
CHAIR DUNLEAVY noted a zero fiscal note on the resolution this
year, whereas there was one last year for $1,500 for publishing
ballots and publications. He asked if those expenses would be
absorbed by the Division of Elections.
3:48:45 PM
SENATOR MACKINNON understood they would. All costs are rolled
into a bond proposition which the students will pay for at a
later date.
SENATOR HUGGINS requested examples of scenarios whereby the
state would lose money with this initiative.
MS. BARRANS explained if it is structured correctly there should
be no cost to the general fund. The bonds would be structured
similar to those from 1988 through 2008 and would adequately
cover debt service. She noted ASLC carries a moral obligation if
it cannot pay its own bond to request the legislature for
funding to cover the debt service. She concluded that the
legislation does not present a material risk.
SENATOR HUGGINS pointed out that the Scholars Program is missing
from the chart.
MS. BARRANS said the UAS Scholars Program is funded and
administered by the university.
SENATOR HUGGINS asked if a student could get a supplemental
student loan if the Scholars Program money is not adequate.
MS. BARRANS said yes. She explained that the supplemental loan
is available to cover a student's unmet costs.
3:51:54 PM
SENATOR GARDNER said the state has contributed $306 million over
time.
MS. BARRANS explained that a small portion was cash and the rest
was outstanding loans made when the state funded the program
from the general fund. The portfolio was turned over to the
corporation and it used the income to pledge against the bonds
it began to issue in 1988.
SENATOR GARDNER summarized that the state invested about $306
million and now the value of the portfolio is about $460
million.
MS. BARRANS said you can't equate the original portfolio and the
current one. The state has funded, overall, about $1.6 billion
in student loans since the program was established in 1968. The
outstanding portfolio is just the outstanding portfolio of
loans. In order to look at the full value of the corporation,
you would have to look at the corporation's investments, as
well. The corporation has several million dollars of
investments.
SENATOR GARDNER she said, "If we considered loans to students -
Alaskans - to be an investments, what other kinds of investments
does the trust make?" She stressed that the effort is to fund
student education.
MS. BARRANS offered to provide information about ASLC's
investment portfolio. She said they are typically conservative,
low-return investments.
SENATOR GARDNER said she is trying to understand whether the
state is profiting by charging high interest rates and if it
should lower rates and profit less.
3:55:12 PM
MS. BARRANS explained that the corporation has created a set of
borrow benefits that are annually reviewed. These are an
opportunity to lower the cost to students by creating credits.
For example, in the current 6.7 percent interest rate there is
an "Alaska presence" discount credit of .5 percent. The
corporation has also approved a .25 discount for on-line
automatic payment which drops the interest rate below 6 percent.
She said the corporation's goal is to ensure that it remains in
the black, covers operational costs, and is a sustainable
enterprise, not do more. When the legislation was enacted in
2001 to create the capacity to do a return to the state, it was
clear that payments could be made to the state only when they
would not put the corporation's core mission at risk. Low
borrower rates were driven by market circumstances. She
concluded that in terms of the interest rate environment, timing
is everything.
3:58:27 PM
SENATOR MACKINNON pointed out that the resolution requires voter
approval and then it would return to policy makers to scrutinize
any kind of investment in an additional bond before it was put
out to voters a second time in the 2018 election. The first time
a loan would be available would be in 2019. She said it is a
forward thinking tool that is not available now for refinancing
high interest rate loans. She disclosed she is a cosigner on one
of her son's student loans, but would not benefit by this
legislation.
4:00:16 PM
CHAIR DUNLEAVY announced the arrival of Senator Stevens.
SENATOR MACKINNON requested a public testimony notice.
CHAIR DUNLEAVY opened public testimony. Seeing none, he closed
public testimony.
CHAIR DUNLEAVY held SJR 2 in committee.
4:01:59 PM
At ease
^PRESENTATION: Alaska Performance Scholarship Program and Alaska
Education Grant Program
PRESENTATION: Alaska Performance Scholarship Program and Alaska
Education Grant Program
4:03:34 PM
CHAIR DUNLEAVY announced the presentation of the Alaska
Performance Scholarship (APS) Program and the Alaska Education
Grant (AEG) Program.
DIANE BARRANS, Executive Director, Post-Secondary Education
Commission, Department of Education and Early Development,
shared APS highlights from the 2015 Outcomes Report. She noted
APS was considered an invitation to excellence to Alaska
students and schools. The merit-based scholarship provides an
opportunity for eligible students to annually receive up to
$4,755 based on the level of award for which they qualify.
She pointed out that the APS program is increasing statewide.
The program was designed out of concern that the best and
brightest in Alaska were going to the Lower 48 for their post-
secondary education and remaining there. The number of students
using the award has been fairly stable, but there has been a
large increase in use by Level 1 students. The effects of the
rigor of the program have resulted in much less need for
remediation the first year in college. Of those that do
participate in the program, 17 percent require a remedial
course, whereas, of those not in the program, 50 percent require
remediation.
4:07:43 PM
She related that students in APS are taking more credits, a
requirement of the program. The rate of those remaining in the
program is 75 percent; of non-eligible students only about 40
percent have remained in college. She concluded that the data
indicates that APS is having a positive effect.
CHAIR DUNLEAVY asked at what amount the fund is capitalized.
MS. BARRANS said she receives that information from the
Department of Revenue and it was in excess of $444 million, up
from $400 million in 2011.
CHAIR DUNLEAVY asked if a Level 1 recipient would have to have a
GPA of 3.5 and an SAT score of 1680, and if they did not have a
score of 1680 if they would fall into Level 2.
MS. BARRANS said it depends on the score. It is possible that a
student had a 3.5 GPA, but not a high enough SAT to qualify for
APS at all.
CHAIR DUNLEAVY asked if a student has poor grades, but a high
SAT score could they receive the APS.
MS. BARRANS said they would not. They must have taken the core
curriculum, have a GPA of 3.5, and a high test score.
CHAIR DUNLEAVY asked if private school students are eligible.
MS. BARRANS said they may be if they can document and satisfy
the three criteria using a process developed by DEED. There is
not a large population of private school students qualifying for
the APS.
CHAIR DUNLEAVY asked if a home school student could qualify.
MS. BARRANS said yes, through the same process.
CHAIR DUNLEAVY asked if a student who completed school three
years ago and did not apply for the APS would be eligible to
apply.
MS. BARRANS said no. There is a six-year window during which a
student who qualified for an APS would have had to use it.
CHAIR DUNLEAVY asked if military service is an exception.
MS. BARRANS said the State School Board can create an exception.
She gave an example of a nursing program where a student could
not get the courses needed within the time period.
4:12:37 PM
CHAIR DUNLEAVY asked if $10,247,314 was awarded last year for
the APS.
MS. BARRANS said yes. It is a moving target and assumes fall and
spring enrollment.
CHAIR DUNLEAVY asked if an individual could get three
scholarships - UAS Scholars, APS, and AEG.
MS. BARRANS said yes. A high performing, low income student
could qualify. She said there is some overlap between the UA
Scholars group and APS, but fairly minimal overlap between the
grant recipient pool and the APS.
CHAIR DUNLEAVY asked if UA Scholars consist of the top 10
percent of their class.
MS. BARRANS could not say.
CHAIR DUNLEAVY suggested that a student could be in the top 10
percent of their graduating class but not be eligible for the
APS if their SAT or ACT did not meet the qualification.
MS. BARRANS said yes.
4:14:55 PM
MS. BARRANS turned to the Alaska Education Grant, a needs-based
program. It differs from the APS in that it is available to all
students that are enrolled in a qualifying program in Alaska and
is not limited to students who graduated after a certain point
in time.
MS. BARRANS related that the pool of eligible students is based
on student enrolled in Alaska institutions and who completes the
Free Application for Federal Student Aid (FAFSA) and has a high
need. Last year just under 6,000 students applied for the grant;
less than 2,900 were funded. That is a function of availability
of funds. Grant numbers are a moving target through the academic
year.
4:16:58 PM
CHAIR DUNLEAVY listed the sources of funding for APS, UAS
Scholars, and AEG.
MS. BARRANS said AEG is funded through the same fund source as
APS - the Higher Education Investment Fund.
CHAIR DUNLEAVY asked if the capitalization of the $440 million
was for both AEG and APS.
MS. BARRANS said the original capital investment was $400
million and the balance in June of 2014 was about $440 million.
CHAIR DUNLEAVY asked if that included both programs.
MS. BARRANS said yes.
She said the percentage of applicants AEG is able to fund is
just under 50 percent. Recipients in the current year come from
45 of the 54 districts.
4:19:01 PM
SENATOR GARDNER asked how many AEG recipients complete their
course of study.
MS. BARRANS said the corporation does not have that data at this
time, but it could be made available by the proposed statewide
longitudinal data system.
SENATOR GARDNER noted the data system is called ANSWERS. She
asked if 50 percent of eligible students are funded.
MS. BARRANS said yes.
SENATOR GARDNER asked if some students qualify, but do not
receive funds.
MS. BARRANS said yes. She spoke of when the legislature created
the Higher Education Investment Fund to support both programs,
it used a formula that suggested how the total would be expended
in one year: 2/3 would go to PSA, 1/3 to AEG.
SENATOR GARDNER asked if it is a first come/first served process
where some students get the full amount, or if everyone's award
is reduced according to what's available.
MS. BARRANS explained that it is not a pro-rata award. It is
awarded by greatest-to-least needs. Based on legislation passed
in 2014, the corporation is changing the sorting process to look
at continuing student having a higher priority for a grant in
order to incent persistence. It will still be needs based.
4:22:22 PM
CHAIR DUNLEAVY asked what would happen if there was a default of
the student loan program. He wondered if the corporation would
draw on general funds without the legislature having to
appropriate them.
MS. BARRANS she asked if the scenario assumes there is a general
obligation bond.
CHAIR DUNLEAVY said yes.
MS. BARRANS offered to find out from the Department of Revenue.
She believed that any debt service to the state is paid through
a form of an appropriation.
4:24:16 PM
There being nothing further to come before the committee, Chair
Dunleavy adjourned the Senate Education Standing Committee at
4:24 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR 2 Constitutional Am G.O. Bonds for Loans.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| SJR 2 Fiscal Note.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| SJR 2 Sponsor Statement.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| SJR 2 Sectional Analysis.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| SJR 2 UA Letter of Support.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| SJR 2 Juneau Chamber Letter of Support.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| APS and AEG Awards.pdf |
SEDC 2/24/2015 3:30:00 PM |
|
| APS Stats at a Glance.pdf |
SEDC 2/24/2015 3:30:00 PM |