Legislature(1997 - 1998)
03/13/1997 03:06 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 157 - REPEAL DENIAL OF OCC LIC FOR DEBTS Number 0012 CHAIRMAN BUNDE stated that there was not a quorum, but the meeting would begin with testimony regarding HB 157, "An Act repealing statutes that condition receipt of certain occupational licenses on compliance with student loan repayment provisions and compliance with support orders or payment schedules related to support orders." Number 0029 REPRESENTATIVE JEANNETTE JAMES, Sponsor of HB 157, referred to a proposed committee substitute which narrowed the bill to its original intent. She said it would make the bill apply only to a student loans issued on or after July 1, 1995, which is the effective date of prior legislation. This legislation authorized the student loan division to notify the Department of Commerce and Economic Development to deny renewal of an occupational business license for someone who is delinquent on their student loan. Number 0090 CHAIRMAN BUNDE announced that Representatives Green and Brice had arrived. The committee had a quorum. Number 100 REPRESENTATIVE JAMES explained the current system; if there is a delinquent student loan when the occupational business license comes up for renewal, it can be denied until the delinquency is cured in some way. This appeared to be a good way to handle these cases. She was distressed with the student loan staff who have allowed these delinquencies to become so severe. She felt that as a keeper of the money, you have a responsibility to collect that money. She believed, even when the 1995 legislation was passed to force people to pay, that they were penalizing them for their bad behavior. She did not like to make things retroactive. She believed that people, who made these loans prior to July 1, 1995, did not understand or know this was going to be a loan condition. Her legislation doesn't forgive them for not paying their debt, nor does it eliminate the opportunity for them to arrange to make payment on their liability. Number 0240 REPRESENTATIVE JAMES said the other thing that brought this to her attention was a particular case where a person was obviously delinquent, had a lot of extenuating circumstances, and did not do anything right. His options came down to making a sizable payment and/or a payment in full. This decision was appealed because he had missed the window of opportunity to allow him to respond to the request. She saw HB 157 as an opportunity to put the situation in a prospective manner instead of a retroactive manner. For those people, who received their student loan before July 1, 1995, the legislation would not apply. REPRESENTATIVE JAMES said an argument could be made that there is a lot of loan debt which will not be collected. She had little sympathy with that position because with, or without, the ability to deny an occupational license, these loans are either collectable or not. If you are aggressively managing these loan accounts, there should be other methods to collect the money, or making a negotiation for payment. She understood that revoking the occupational license is an attention getter which is why it has become so popular. It doesn't make it right. REPRESENTATIVE JAMES referred to a similar situation with revoking fishing licenses. The Internal Revenue Service (IRS) is coming in and taking fishing licenses away from people who haven't paid their income tax. Those fishermen will never be able to pay anything if you take away their work. The IRS has sold these licenses for $3,000, when it may have been worth $30,000. The IRS will probably never be able to recover the tax money. REPRESENTATIVE JAMES said anytime you are dealing with borrowers, you need to be firm. When they sign the document regarding the conditions of the loan, it should be clear to the borrower and after the conditions should be followed through until the loan is paid in full. To add another rule, which wasn't there in the first place, seems unfair. Number 0466 REPRESENTATIVE JOE GREEN made a motion to adopt the committee substitute, Lauterbach, dated March 7, 1997, for HB 157 as the working document. There being no objection, CSHB 157(HES) was before the committee. Number 0494 REPRESENTATIVE GREEN clarified that there were 61 defaulters, with 48 of them having made or are in the process of making restitution. He asked if HB 157 would only be addressing 13 defaulters. Number 0502 REPRESENTATIVE JAMES said this was possible, but added that she did not know how many student loans were out there. She thought there would be more delinquencies than 61, perhaps more loans would become delinquent. She said the student loan staff have only dealt with 61 loans in default when those people who came in for their occupational licenses. REPRESENTATIVE JAMES explained that as a bankruptcy trustee for ten years she saw people over the edge. She had sympathy for them, not because they were innocent or didn't make some problems for themselves. She felt there ought to be a way for them to get through the problem without such an aggressive stand having to be made. It is possible that in these 61 cases, where they were able to get a lump sum, it did not hurt them. Her experience is that when people are forced to make those payments, they don't have food to eat. In those severe circumstances, there needs to be a greater assistance in letting them know the conditions. She felt strongly that if this wasn't part of the original loan package, this should not be a method allowed to be used to collect the money. CHAIRMAN BUNDE announced that Representative Kemplen had joined the committee meeting. Number 0624 REPRESENTATIVE GREEN asked if those 48 people, who had gone through the process and made their payments, would come back to the legislature and complain. Number 0652 REPRESENTATIVE JAMES agreed that those people could complain, because the legislature is being retroactive again. However, those people who are in good stead with their loan probably would not like to be in default and would not likely be the ones to complain. Number 0694 CHAIRMAN BUNDE shared Representative James' frustration, but understood that this frustration was not created by members of post-secondary education. In the past Alaska, in essence, gave away money. A loan was given with the intention that it would be paid back, but if it wasn't then it was forgiven because of the past perception of the state's monetary resources. He said the loan programs are now on a self-support basis. The way the loan is going, we only have five or six years for it to last, at its present rate. Number 0753 REPRESENTATIVE JAMES said this is her problem, that borrowers expect one thing and then they are faced with another scenario. She did not have a problem with people taking out a loan on those conditions, but not to introduce a different situation after the conditions of the loan have been signed. Number 0774 CHAIRMAN BUNDE said the state is paying for past sins, not all of which we were present to commit. Number 0783 REPRESENTATIVE AL VEZEY asked if the legislature hadn't just passed this bill last year or the year before. REPRESENTATIVE JAMES said it was passed in 1994 and became effective in July of 1995. Number 0800 DIANE BARRANS, Executive Director, Postsecondary Education Commission, Department of Education, was next to testify. She explained that HB 157 was in essence a public policy call. She stated that the committee was familiar with the student loan program and the challenges faced in terms of collecting on defaulted loans. The cumulative default rate has been brought down in recent years, but it still hovers above the 18 percent rate which equates to approximately $100 million in default. The commission has been working with the legislature and the Administration over the past few years to try to assemble a variety of tools to reduce that default rate. This is one method to do this. It has been used for one year. Number 0860 MS. BARRANS referred to a fact sheet located in the committee file titled, "Alaska Commission on Postsecondary Education". In order to be impacted upon a renewal, occupational licenses are renewed on two year cycles, an individual would have to be at least six months in arrearage, actually in default. The person also would have had to have been reluctant or refused to make some sort of payment arrangement on their defaulted loans. The reason, the number of borrowers that have been impacted is low, is that the commission spent about four to six months informing defaulted borrowers and all borrowers of this new tool that the state had. A number of individuals made payment arrangements and were never caught in this new tool. There were 61 people that did get to the point of having their license denied upon renewal, 48 of those individuals did either make some payment arrangement with them or made a lump sum payment that in some way paid their past due amount. In some cases the arrearage was so great that the commission negotiated with them and took something less than the total amount in arrears as long as they agreed to a payment arrangement. Eight or nine of those people were never able to be contacted and three or four of them moved out of state so their Alaska occupational license would be of little use to them. She stated, that in terms of acting professionals who have been caught in this without some recourse, it has been a small number of people. Number 0970 CHAIRMAN BUNDE verified that of the 13 people that Representative Green mentioned, most of them would have gone out of the state. He asked what numbers, she would anticipate in the next year, would be affected by the past legislation. Number 1005 MS. BARRANS said they anticipated seeing a doubling of people affected by the past legislation. It is her understanding, from the Division of Occupational Licensing, that they try to spread the renewal cycle so that staff activity is stable throughout the two year cycle. She predicted that the commission would see as many as 120 to 130 individuals who were leveraged with this tool over a two year period. Number 1018 REPRESENTATIVE GREEN asked if she would predict that three-fourths of those would then make some sort of restitution. Number 1031 MS. BARRANS answered yes, if the current pattern held, which they assumed it would. Number 1041 SCOTT STERLING, Commissioner, Postsecondary Education Commission, said this tool is needed. If an injustice occurs in a particular case, then it can be remedied on a case by case basis. The underwriters of the bonds are the ones in control of this program. The underwriters look to the commission for the professionalism and the managerial tools to control the default rates. We are currently asking a great deal of work from the proprietary school in order to control default rates, both by program and institution. The commission must do a lot as well because the proprietary owners aren't asked to go out and make collections, this is the commission's responsibility. Number 1111 CHAIRMAN BUNDE asked if he was aware of the specific case referenced by Representative James. Number 1125 MR. STERLING said he was not aware of the facts regarding the case. The commission's procedures, while certainly not perfect, contain ample opportunities before this ultimate sanction for a person to come in and repay or make an offer. Many loans that are in default, come out of default because people come in and make a negotiated payment arrangement. Number 1199 CHAIRMAN BUNDE reiterated the policy of the committee; to hear the bill and wait until the next meeting before it is addressed again. He suggested that this particular case be discussed. MS. BARRANS said this particular individual has made a lump sum payment and the commission has agreed the release of (indisc.).
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