Legislature(2001 - 2002)
02/06/2001 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
GENERAL SUBJECT (S):
Overview:
Alaska Commission on Postsecondary Education
Diane Barrans, Executive Director
The following overview was taken in log note format. Tapes and
handouts will be on file with the Senate Finance Committee through the
21st Legislative Session, contact 465-4935. After the 21st
Legislative session they will be available through the Legislative
Library at 465-3808.
Time Meeting Convened: 9:02 AM
Tape(s): SFC-01 # 9, Side A and Side B
PRESENT:
x Senator Donley
x Senator Kelly
x Senator Austerman
x Senator Green
x Senator Hoffman
x Senator Leman
x Senator Olsen
x Senator Ward
x Senator Wilken
ALSO PRESENT:
DIANE BARRANS, Executive Director, Alaska Commission On
Postsecondary Education
SHEILA KING, Finance Officer, Alaska Commission On Postsecondary
Education
Via Teleconference: JAMES CRIPPEN
DENNIS MILLHOUSE, Trendsetters School of Beauty
LOG Speaker DISCUSSION
0 Co-Chair Donley Introduction
14 DIANE BARRANS, Presentation will involve historical
Executive Director, briefing, financial briefing and technology
Alaska Commission briefing
On Postsecondary Power Point Presentation with accompanying
Education, and handout, "30 Years of Helping Alaskans Help
Executive Officer, Themselves: A Report to Senate Finance on
Student Loan the Alaska Commission on Postsecondary
Corporation Education and the Alaska Student Loan
Corporation" [Copy on file.]
39 Page 2 - Agency Timeline (the 70s): Alaska
student loan program in place almost 30
years now, started in 1971
(Pause on record)
59 1971-1974 administered through Department
of Education
1974, the legislature established the
Commission to administer student aid
programs.
At that time there was a community college
system and the Commission was involved in
the transfer of credits to the University
of Alaska.
74 Page 3 - Timeline (the 80s):
Upward growth pattern through the 1980s.
By 1987 student loan program was issuing
approximately $65 million per year in
general funded loans.
Over 125 institutions around the state.
Program was reaching an apex.
Generous program offered 50 percent
forgiveness for those who completed degrees
and returned to the state.
In 1987, there was a downturn in the
economy, discussion on how to continue to
offer the program without the drain on
state's general fund.
89 Alaska Student Loan Corporation(ASLC) was
created to issue bonds to fund low-cost
education loans.
State appropriations were to continue
through the year 2000 with the objective
for the need for bonding eliminated in the
year 2003.
94 1992 funding was cut off as state resources
continued to be strained.
98 1987 as result of economic pressures,
community college was absorbed into
statewide university system.
102 Page 4 - Timeline (the 90s):
1992 annual appropriations ceases and
corporation was directed to develop
strategies to ensure the fund would sustain
itself, the program would continue to be
available
1994-98 with strong bipartisan support from
the legislature and the administration,
ASLC was able to develop statutory changes
made to improve the quality of the loan
collateral and collections.
Reduction in losses and improvement in our
ability to market our bonds at a very low
cost on the market
116 By 1998 these efforts began to pay some
returns to us. We went from an annual net
loss to an annual net income.
First year, income was small, $300,000, but
clearly on track to improve in the future.
124 1999 as a result of improvements to the
portfolio, our servicing system, staffing
resources, corporation received a full
upgrade from A to AA
This allowed us to reduce the cost of bonds
and offer return to customers with lower
interest rates.
Mid 90s interest rate reached 9 percent.
Origination fees, five-percent, were put in
place to help us recoup losses from debt,
default and bankruptcy write-offs.
137 1999 we were able to return these
improvements in the form of reduced
interest rates to borrowers
140 On-going process in improving service,
efficiencies and reducing costs.
145 Page 5 - Timeline (2000/01):
ASLC with strong bipartisan support,
recommended a method to return to its
primary investor, the state, some return of
capital.
Because not yet in positive equity, not
considered a dividend, but is a return of
capital on net income.
Law allows any year with a net income of $2
million or more, to return between 10-35
percent of that income to the state.
Current fiscal year, $2.2 million.
For 2002, that will be $4 million.
ASLC also remains committed to reducing the
cost to borrowers to ensure that Alaskans'
perception is that they are able to help
themselves in the form of borrowing for
their education.
In 2000, annual default rate dropped below
ten-percent for first time.
Accumulated default above 20 percent in
early 1990s.
166 As a result of a servicing audit last year,
the ASLC board, asked the managers to
continue on current path of improving
services to Alaskans and products to
Alaskans.
179 This year will be able to reduce lending
interest rate to below eight percent for
first time in ASLC history.
Origination fee will be reduced from five
to three percent.
Borrower will annually save $1.2 million in
fees.
189 Plan to introduce legislation for reduction
of interest costs for highest rate loans.
ASLC has concerns that while progress has
been made to reduce costs for new
borrowers, others paying higher rates based
of when they took out the loan.
ASLC has set aside some income to reduce
the cost of some of highest rate loans.
Cannot do retroactively, but can do
prospectively.
Beginning in July of this year, those
borrowers will see a cost reduction.
211 Page 6 - The Future...cont.:
AlaskAdvantage Program is a redesigned AK
student loan product that expands and
improves financial assistance and service.
215 Program is a service oriented financial aid
package and delivery system operated by the
ASLC.
Combines federal subsidies on federally
guaranteed student loans with state loans.
221 Page 7 - AlaskAdvantage Borrower Benefits:
Provide parents and students with a one-
stop financial aid center.
One form application for both federal and
state loans.
225 Lowest cost of financial aid available to
Alaskans.
Increase options for students with poor
credit histories.
228 Two years ago, legislature provided ASLC
with the ability to do credit review, which
is mild.
Those with bad credit require co-signer;
those with good or no credit are cleared to
borrow.
Federal program is an entitlement program
and is available to Alaskans even if the
non-guaranteed loans were not available
because borrower could not find a co-
signer.
237 Federal model there are expanded options
for loan deferments, repayment or
cancellation due to hardship.
We have narrowed opportunities for
deferment and cancellations that would
otherwise be passed along to other
borrowers.
Federal program is underwritten by the
federal government and has more generous
provisions in terms of deferring loans,
extending payments, contingent payment
plans.
248 Ease of an on-line application renewal,
Master Promise Note (MPN).
Federal program has used MPN for several
years. While borrowers still have to
annually apply for loan, it is handled as a
line of credit
255 Page 8 - AlaskAdvantage School Benefits
Concept is how best to serve Alaska.
Would try to create benefits that accrue to
students that attend in Alaska.
By creating automated efficiencies we can
reduce lending rates to those who attend
school in Alaska.
Preferred rate for those borrowers
266 Because it is highly automated interface
between institution and lender, offers
streamlined packaging and delivering.
Currently, University of Alaska has to
coordinate federal loans with state aid,
and track the two different processes.
One file format, could properly give grant
aid, subsidy, or other loan aid, to those
who qualify.
277 Significantly reduce manual administration,
improved control and oversight.
284 Believe preferred lending rate for students
attending in Alaska would be a recruiting
and retention tool for institutions in
Alaska.
289 Long term objective
Alaska is one of only two states with no
need-based grant program.
If ASLC is able to produce income, we would
like to turn that into a fund source for a
grant program, only available to students
attending in Alaska.
Might also garner federal aid to match with
state dollars.
302 Page 9 - AlaskAdvantage Benefits for Alaska
New funding options for Workforce
Development.
Legislative proposal would give the ASLC
guiding principles to develop loan
programs.
Partnerships with employers in Alaska who
may want continued education programs for
their employees.
314 Creation of Alaska grant/scholarship fund
Incentive for students to stay in Alaska.
318 Increases federal loan forgiveness for
teachers.
Referenced current legislation, federal
programs already forgive for teachers in
certain needy areas.
Because federal loans have not been
historically the primary source in Alaska,
this program has been of little benefit.
327 Currently, approximately $24 million in
federal loans borrowed by Alaskan students.
Our loans are typically between $50-55
million each year.
But we've seen an increase in the need for
federal loans.
341 SHEILA KING, Introduction
Finance Officer,
Alaska Commission
On Postsecondary
Education
346 Co-Chair Donley Difficulty in hearing witness.
351 Ms. King Federal benefits in terms of cash flow that
the AlaskAdvantage program would bring to
state.
355 Three main cash flow benefits.
1. Federal guarantee on the loans most
substantial. Federal government underwrites
those loans on 98 cents on the dollar.
In a $10 million portfolio, our loss on a
ten-percent default rate would reduce from
one million dollars to twenty thousand
dollars.
Currently when the ASLC looses that entire
amount on a defaulted loan.
Would increase cash-flow capability.
2. Interest subsidies. There are two types
of Federal Stafford loans; one is
subsidized, like the Alaska student loans,
in that the in-school period is subsidized
for the borrowers.
Currently, the ASLC underwrites that
subsidy, which gives them a free period of
interest.
Under this the federal government will
underwrite that period of interest and pay
the corporation.
In Alaska, the unsubsidized loans make up
about 40 percent of the federal borrowing
in the state, which is about $9.5 million
portfolio.
3. Special Allowance Payment to compensate
lenders during interest rate fluctuations.
Reduces the interest rate risk.
Fed government will pay the lender for
extra piece that the lender is not
receiving on the loan.
387 Senator Hoffman Is the interest subsidy available for
students during in school to re-finance
their loans to take advantage of this
option, or just for new loans?
398 Ms. King Would not be able to refinance a state loan
with a federal loan.
This subsidy will only apply to new federal
loans that the borrowers borrow through us.
Currently all federal loans are made with
out of state lenders.
Loan consolidation feature, once student
finished with school, they can consolidate
all federal loans with one lender.
408 Senator Austerman Request written account of the information
relayed.
411 Ms. King Will supply a summary of those benefits
later.
412 Senator Green Is any part of this program already in
effect? Does it require any legislation or
approval?
416 Ms. King Can currently issue federal loans, but
those loans are currently going to out of
state lenders, so the state sees no
benefits.
Legislation would allow us to facilitate
more efficiently and offer more benefits to
the borrowers.
423 Co-Chair Donley Are you proposing legislation?
425 Ms. Barrans Yes, currently our proposal is in legal
review since will have to leave existing
program in place while implementing new
program.
Should be a new bill introduced before the
end of the month.
429 Senator Green Spent time with Medicaid representatives,
who explained the federal Medicaid and
State Medicaid and their requirements.
By hooking into federal oversight, are you
looking at our state being required to do
things that we never intended or wanted to
do?
Don't want to learn in a few years that the
federal government has imposed several
conditions and restrictions that the state
has to meet in order to receive federal
money.
Once the constituency is built there is no
turning back.
Once federal government gets involved, a
program is not the same.
443 Ms. Barrans We are sensitive to that.
We must meet certain servicing requirements
Most federal loans are issued through
private sector lenders, or non-profit
lenders and have remained fairly flexible.
We will retain state loan program through
this model.
To the extent that we can, we will align
the two programs so that if someone gets a
deferment on their federal loan, they get a
deferment on their state loan as well. If
in default on federal loan, they are in
default on state loan also.
We must consider that federal program is
more liberal to the borrower than the state
program has become.
Tried to analyze if the benefits to the
program is sufficient to pay for any
additional risk that would be taken.
Will carefully look at federal requirements
when deciding to align with state.
For administrative purposes, to package the
aid, borrower can submit one check that
would be applied to all loans, borrower can
use only one form to apply for deferment,
etc.
466 Senator Green This was primarily administered by out of
state financial institutions?
469 Ms. Barrans There is a credit union in Mat-Su offering
to their customers
470 Senator Green Will this put them out of student loan
business?
472 Ms. Barrans Institutions actually name the lender.
Ability of a local institution to be
selected as a preferred lender is slim.
478 Senator Green Local lenders are not considered though the
University of Alaska.
I went through a lot of trouble to get them
to talk to local lenders and provide them
the reference.
Concerned about bypassing them and
displacing them.
487 Co-Chair Donley
489 JAMES CRIPPEN Testified via teleconference off net from
Anchorage.
Disabled senior citizen attend classes at
the University of Alaska, Anchorage.
Applied for student loan in 90-91, but
unable to attend for medical reasons.
Asked for medical deferment.
1993 attended for one semester with a
student loan.
Then had more medical problems.
Starting in the Spring of 1994 and every
year since, been trying to get
consideration for medical determent under
the language in the statutes regarding
federal reimbursement.
Have sufficient documentation attesting to
total disability.
Was told student loan office needed just a
little more information. Next learned my
file had gone to collection agency by
mistake and Laurie would try to get it
back.
Later was told file was lost-probably
because he filled out wrong forms.
Found this odd since they were the ones who
supplied the forms.
Continued medical difficulties.
Deferment application was never approved or
disapproved.
Was told they are not required to consider
every medical application for court
reasons.
Difficulties with paperwork requirements.
Took issue to Representative Kevin Meyers,
and the governor's office.
Learned that the person involved is a
personal friend of the governor and
therefore above reproach.
587 Would like a non-biased referee to look at
this issue.
592 SFC 01 - #8, Side B 9:49 AM
Mr. Crippen Cont.
Relayed instances of other disabled
students.
Would like the university to be involved.
582 Co-Chair Donley Will work with you to come up with specific
proposals
577 DENNIS MILLHOUSE, History of company.
Trendsetters School Deal with two state agencies, the student
of Beauty loan corporation and the Department of
Community and Economic Development.
Difficult to work with both sets of
regulations.
Issue is with defaults, if too high of a
default rate, the school is put on notice
and could loose their ability to
participate.
Smaller communities don't require
certification and license for beauticians.
Therefore, no incentive for repayment of
loans.
Approached one former student and was met
with indignation that the matter was none
of his business.
Year ago opted out of student loan program
and went with other programs, Native
corporations, Workforce Development, Alaska
Family Loan, etc.
Heard that Family Educational Loan program
would be phased out, disappointed since
this is a good program.
Unfair to us, they are trying to tie us
into federal regulations
Mostly care about the paperwork.
Defeats our main purpose of education.
Would rather hire more teachers than
bookkeepers.
Current director is good, but all directors
go back to regulations.
Could apply for non-profit status since I
haven't been able to make a profit, been
regulated out of business, not
intentionally, but as a means of addressing
every situation that arises.
493 Co-Chair Donley
490 Senator Austerman Repeated request for written information
and financial statements from ASLC
488 Co-Chair Kelly Default rate down to under ten-percent.
How does that compare to other student loan
programs?
485 Ms. Barrans Still higher than other programs, other
lenders that do credit review build their
programs with a three-percent default
allowance.
We don't expect to get to that level.
477 Senator Wilken Money owed to general fund?
475 Ms. Barrans State transferred to $307 million to the
corporation, you referred to the net
deficit and we have turned that around.
Our goal is to combine a few objectives to
recuperate some of those looses and return
capital to state over time.
463 Senator Hoffman Defaults, don't we have an advantage over
other states in our ability to garnish
permanent fund dividends (pfd)?
459 Ms. Barrans Yes, but several don't qualify for pfds, or
have other garnishments such as child
support that are taken out first.
We are third on the priority list.
454 Senator Hoffman How many of those borrowers don't apply for
pfd, knowing it will be garnished?
There are other agencies that apply on
behalf of the client in order to collect.
453 Ms. Barrans Wouldn't know what that number was.
450 Senator Hoffman Because dividend is so high, it could be a
significant portion of loan.
446 Ms. Barrans I don't think it is a high number.
I know it occurs because I get letters from
some saying they are never going to apply
for their dividend.
Some are just out of our reach and we will
continue to look for ways to collect from
them.
445 Senator Hoffman It is worth finding out that number or
percentage, since the amount potentially
collected could be substantial.
This could possibly reduce the default rate
even further.
You highlighted the incentive for students
to stay in Alaska.
Can you give some examples?
438 Ms. Barrans Depending on success of program and the
amount of federal loan dollars that come
into the state.
The more federal loans we can make, the
more income.
Would like to offer preferred lending rate
to those who attend school in Alaska or
return to Alaska after their education is
completed.
431 Senator Hoffman All fields or specific fields?
429 Ms. Barrans To all fields, no strings attached.
427 Senator Olson Options for students with poor credit
history.
Those with poor credit history sometimes
have the feeling of being trapped.
422 Ms. Barrans Federal loan is an entitlement; borrowers
are still eligible with a co-signer.
418 Co-Chair Donley Recess 10:07 AM
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