Legislature(2021 - 2022)DAVIS 106
01/26/2022 08:00 AM House EDUCATION
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| Audio | Topic |
|---|---|
| Start | |
| HB18 | |
| HB21 | |
| HB114 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 21 | TELECONFERENCED | |
| += | HB 18 | TELECONFERENCED | |
| += | HB 114 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 114-EDUCATION & SUPPLEMENTAL LOAN PROGRAMS
8:23:22 AM
CO-CHAIR DRUMMOND announced that the final order of business
would be HOUSE BILL NO. 114, "An Act relating to the education
loan program and Alaska supplemental education loan program; and
providing for an effective date."
8:23:43 AM
SANA EFIRD, Executive Director, Alaska Commission on
Postsecondary Education (ACPE); Executive Officer, Alaska
Student Loan Corporation, Department of Education and Early
Development (DEED), presented HB 114 and answered questions on
behalf of the sponsor, House Rules by request of the governor.
She said the proposed legislation addresses requests made by
Alaska's higher education institutions and student loan
borrowers. The bill provides for three changes to the current
loan program. Currently, the Alaska Refinance Loan program is
offered only to Alaska residents. Under HB 114, this would be
extended to previous borrowers of an Alaska loan - a cosigner or
beneficiary - as well as extend eligibility for applications of
refinance loans to a graduate of high school or post-secondary
institution of Alaska. She noted that loan limits had not been
lifted in some time, while tuition has increased as much as 20
percent in the last five years. The proposed legislation would
give the Alaska Student Loan Corporation the ability to set loan
limits as appropriate, with annual and lifetime limits being
removed from statute. The third change would be to add
clarifying language that a borrower's obligation to commit to
repayment may begin immediately upon disbursement of a loan but
not later than six months following the borrower's completion or
termination of a post-secondary program.
8:28:18 AM
MS. EFIRD, in response to a question from Representative
Hopkins, clarified that the Alaska Student Loan Corporation's
loans are not from the higher education investment fund but
backed by the corporation, whose investments provide the money
for the loans. The higher education investment fund has, in the
past, provided the funding for the Alaska performance
scholarship and the education grants (indisc.). In response to
another question from Representative Hopkins regarding possible
cost to the state, she pointed out that the bill has a zero
fiscal note and would provide some sustainability and financial
revenue for the corporation by allowing the expansion of loans
by increasing the revenue coming back to the corporation. She
said, "We would not expand beyond what the loan corporation
board would consider to be financially sustainable." She added
that there are provisions for the loan corporation "to also go
out for tax exempt bonds to fund the loans," and over the past
two years the corporation has implemented some additional
Federal Insurance Contributions Act (FICA) score requirements,
for example, to ensure its borrowers can repay their debt. In
response to a follow-up question, she noted that each year, at
one of its quarterly meetings, the loan corporation reviews all
loan programs and interest rates to make adjustments where
appropriate. The goal is to provide the lowest interest rates
and best terms possible.
8:32:32 AM
REPRESENTATIVE PRAX asked whether the board adheres to fiduciary
guidelines.
MS. EFIRD answered yes. She talked about the makeup of the
board. To another question regarding the default rate on
student loans, she said she could provide that statistic to the
committee once the information has been updated. To a question
from Representative Prax regarding fiscal loss, she confirmed
that the corporation had been losing money over some past years,
because in 2010, the federal loan program was taken back by the
federal government, which resulted in a drastic downturn of the
corporate portfolio. The corporation has been working for the
last 10 years to "shore up and ensure that we have a financially
viable corporation to support our state alternative loans for
students, and we have been turning the corner on that." She
said that is part of the reason the corporation sought the
changes [proposed under HB 114] for its loan program, to help
make up the difference from what was being provided from federal
loans and to expand eligibility, especially for refinance loans,
which have seen an increase in interest. She deferred to Kerry
Thomas to state the amount of the interest rate on refinance
loans.
8:38:02 AM
KERRY THOMAS, Director, Program Operations, Alaska Commission on
Postsecondary Education (ACPE), Department of Education and
Early Development (DEED), stated that the lowest rate offered
for the refinance loan is 3.55 percent.
REPRESENTATIVE PRAX offered his understanding that currently
students can opt to pay back loans immediately but are required
to do so six months post-graduation or "stopping school." He
asked if that is correct.
MS. EFIRD responded by noting that the purpose of some of the
language in HB 114 was for clarification. She said, "Our legal
counsel has said that we could offer an immediate repayment, and
so that's why we're clarifying." She explained that current
borrowers "do not have that provision," thus must begin paying
six months after completing their program or are no longer at
least a half-time student. She further explained, "This would
allow us, for new borrowers, to offer them that immediate
repayment."
REPRESENTATIVE PRAX expressed concern about the fiscal health of
the corporation and that a program not be set up that will
result in a loss of funds. He asked about the tax exempt bonds.
MS. EFIRD said tax exempt bonds are not state obligated bonds,
so "we do not have that authority." To a follow-up question,
she confirmed there are no state general funds involved for the
loan program.
8:42:25 AM
MS. EFIRD, in response to Co-Chair Story, reviewed that under
statute, the following are on the board that oversees the loan
program: the commissioner of the Department of Revenue or
his/her designee; the commissioner of the Department of
Commerce, Community & Economic Development or his/her designee;
the commissioner of the Department of Administration or his/her
designee; and two members from the commission.
8:43:54 AM
CO-CHAIR DRUMMOND opened public testimony on HB 114.
8:44:08 AM
LEE DONNER, Senior Managing Director, Hilltop Securities,
explained that Hilltop Securities has served as the financial
advisor to the Alaska Student Loan Corporation for over 10 years
and was involved with the corporation board in evaluating the
changes proposed under HB 114. He stated that all three
proposed amendments "are positives for not only the corporation
but for potential borrowers." He said the expansion of the
eligibility criteria brings in additional borrowers without
raising the risk profile for the loan program, because the
credit-based eligibility criteria for loans is not being
modified. He predicted the borrower pool would not be increased
dramatically, and those borrowers would have to meet the same
credit underwriting criteria as existing borrowers. The result,
he explained, would be some expansion of the borrower pool and
loan volume without any credit risk. Regarding loan size, he
said Hilltop Securities serves as financial advisor to 10 or 11
state agency and 501(c)(3) student loan operations around the
country. He conveyed that the only other entity that has the
loan limits embedded in legislation is the State of Texas. The
reason is because the student loan bonds issued are general
obligations of the state. In Alaska, there are revenue bonds
backed by student loans, and there is no obligation of the
state; therefore, there is not a nexus reason to have the loan
limits embedded in the law, which would create problems in terms
of the corporation's ability to be responsive to changes in cost
of education and borrowing needs. Regarding the provision that
would permit voluntary repayment during the in-school period, he
said there have been numerous studies showing this results in
lower delinquency, lower default, and better portfolio
performance. He concluded, "We would recommend adopting all
three of these changes to the enabling legislation."
8:48:09 AM
REPRESENTATIVE PRAX expressed fascination that it could be
possible for the corporation to stay in business at such low
interest rates, which he offered his understanding are
essentially unsecured loans. He asked whether there is
collateral for the loans.
MR. DONNER answered no. He said, "These are strictly signature
loans." He said that inevitably, there are defaults. He
characterized the aforementioned 3.55 percent as "the lowest
interest rate for the highest credit quality [refinance]
borrower" - the lowest interest rate the corporation offers. He
said for in-school borrowers and those with less credit than it
takes for a 3.55 refinance rate, the rates are significantly
higher to reflect the risk - to reflect the fact that there is
no collateral and that there are signature notes. He echoed Ms.
Efird that since the suspension of the federal Family Education
Loan program, the corporation has suffered some economic losses
but has taken significant steps in recent years to make up for
those losses and "is getting increasingly close to getting back
to operating in the black."
MR. DONNER, in response to a follow-up question from
Representative Prax, noted that the corporation offers both
fixed rate and variable rate loan options. He said each year
the corporation consults with Hilltop Securities and other
sources on expectations regarding interest rate behaviors in the
marketplace. Rates have been stable in the last few years, but
now is an inflationary period. He said all this will be
considered when the corporation sets interest rates in the next
few months.
8:52:22 AM
REPRESENTATIVE HOPKINS asked whether a student could use parents
as cosigner or underwriter to help lower [interest rates] on a
loan.
8:52:51 AM
MS. EFIRD deferred to Ms. Thomas.
8:53:01 AM
MS. THOMAS confirmed that a student applicant can use anyone as
a cosigner to get a lower interest rate. She explained that the
interest rate is based on whoever has the highest FICA score,
whether it be the borrower or the co-signer.
8:54:36 AM
CO-CHAIR DRUMMOND set an amendment deadline for HB 114.
8:54:55 AM
CO-CHAIR DRUMMOND announced HB 114 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| H18 Amendment.8 Rep. Kreiss-Tomkins.pdf |
HEDC 1/26/2022 8:00:00 AM |
|
| HB 114.FN.EED.ACPE 1-7-22.pdf |
HEDC 1/26/2022 8:00:00 AM |
HB 114 |
| HB114.FN.DOR.CO 1-21-22.pdf |
HEDC 1/26/2022 8:00:00 AM |
HB 114 |
| HB 114 - Resolution to Support SB 94 & HB 114 05.13.21.pdf |
HEDC 1/26/2022 8:00:00 AM |
HB 114 SB 94 |
| HB 18 Amendment 1 HEDC.pdf |
HEDC 1/26/2022 8:00:00 AM |
HB 18 |