Legislature(2011 - 2012)CAPITOL 106
03/05/2012 08:00 AM House EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Nenana City School District | |
| HB256 | |
| HB272 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 272 | TELECONFERENCED | |
| += | HB 330 | TELECONFERENCED | |
| += | HB 256 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 272-STUDENT LOAN INTEREST REDUCTIONS
9:24:05 AM
CHAIR DICK announced that the final order of business would be
2d SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 272, "An Act providing
for a reduction in interest on postsecondary education loans for
residents."
REPRESENTATIVE PRUITT moved to adopt the proposed committee
substitute (CS) for 2d SSHB 272, labeled 27-LS1162\R,
Luckhaupt/Mischel, 3/2/12, as the working document.
9:24:38 AM
REPRESENTATIVE SEATON objected for the purpose of discussion.
9:24:48 AM
REPRESENTATIVE LES GARA, Alaska State Legislature, stated that
he consulted with Diane Barrans, Executive Director,
Postsecondary Education Commission and members of the committee
to identify their concerns with HB 272. The proposed committee
substitute (CS) incorporates changes to address the concerns.
He stated that the intent of HB 272 is to limit the "brain
drain" in Alaska by assisting to reduce the student loan burden.
The most current version of the bill would clarify that the
student loan reduction applies to students who attend school out
of state and return home and to students who attend school in
the state and remain here. It would clarify, pursuant to a
comment by Representative Seaton, that the interest rate
reduction would not apply until the course work was completed.
Additionally, it would clarify an issue Representative Feige
raised on the residency standard. The bill would impose the
strictest allowable under the U.S. Constitution, essentially the
permanent fund program's residency standard, so applicants must
be in Alaska for one year before they are eligible to apply for
the student loan reduction. Those items have been incorporated
in the proposed committee substitute (CS), Version R of HB 272,
as well as a recommendation by Diane Barrans to reduce the
principal rather than the interest rate. This change has been
incorporated in Version R for ease of administration and
potential staff reduction. He described the details of the
reduction, such that the interest rate would be eight percent
and the principal would be reduced by three percent.
REPRESENTATIVE P. WILSON said the school loans were in the red
at one point and she asked whether this bill would jeopardize
the current financial situation.
9:28:28 AM
DIANE BARRANS, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development (EED),
stated the approach taken in the revised bill has been handled
cautiously. The benefit to residents who qualify is only
available if the legislature appropriates the funds and removes
the process from the corporation. Thus the corporation does not
have any liability for the benefit. The bill contains a
provision to indicate that if sufficient funds are not available
to allocate the three percent reduction there will be a pro-rata
distribution. This will help ensure the consequences of the old
forgiveness program do not occur again. She described technical
changes, such that the prior forgiveness led young people to
borrow money with the assumption they only had to repay a
portion of the loan; however, conditions applied, including that
the borrower needed to complete his or her degree and live in
the state. She pointed out that many borrowers failed to meet
the requirements and were left with a much greater debt than
they anticipated.
9:30:06 AM
REPRESENTATIVE P. WILSON related her understanding that the
legislature will approve the funding each year.
MS. BARRANS answered that is correct.
9:30:56 AM
REPRESENTATIVE SEATON asked whether Ms. Barrans had a copy of
Version R.
REPRESENTATIVE GARA highlighted the main change in Version R is
that the benefit will not occur until a degree is completed by a
student, which will reduce the fiscal note.
REPRESENTATIVE SEATON directed attention to page 2, lines 2-3
and asked for clarification on how this language works in
conjunction with lines 12 and 13, which states the reduction of
the principal of the loan provided under this section is in
addition to any other available reduction of the principal.
MS. BARRANS referred to page 2, lines 2 and 3 and stated the
sponsor developed the language as an attempt to ensure that if
students qualify for loan reductions via another program - such
as a Teacher Education Loan Program - or they qualify for loan
forgiveness through another state program it disqualifies the
students from the loan reduction. In other words, the borrowers
would not be able to "double dip." She explained that lines 12-
13 permit borrowers who might qualify for other benefits to
receive benefits from programs, such as the Alaska Student Loan
Corporation's (ASLC) recurring automated payment discount of a
quarter of a percent. She highlighted that if students qualify
for another discount the applicants remain eligible for the
proposed student loan reduction.
9:34:10 AM
REPRESENTATIVE SEATON referred to the language on page 2, lines
2 and 3, "fully repaid" and related his understanding this means
a loan would need to be completely paid off to qualify for the
forgiveness.
MS. BARRANS related that is her understanding, but deferred to
the sponsor to clarify.
REPRESENTATIVE GARA answered that two discounts are possible,
including the WWAMI discount and Teacher Education Loan Program
discount, in which the loan is fully repaid if the conditions
are met. He explained that these students would not receive a
three percent discount since their loans are fully repaid. He
pointed out that minimal reductions occur when students pay
their loans online, as previously stated. He indicated the
reduction proposed in HB 272 will be in addition to those types
of discounts.
9:35:38 AM
REPRESENTATIVE SEATON referred to page 2, lines 4-5, which
pertain to when borrowers complete their degrees in a timely
manner. He asked whether a timely manner is a term of art or if
it mean it is not prolonged for 20 years.
MS. BARRANS answered that subsection (e) allows the commission
to adopt by regulation a description of timely completion. She
offered her belief the commission would likely adopt the
national standard, which is within 150 percent of the degree
length, so if a four-year degree is completed in six years it
would be considered a timely completion. If the student took
longer than that time period the student would not qualify for
the reduction. Similarly, if a student finishes a two-year
degree in three years it would be timely. She acknowledged that
she is speculating since the commission would need to decide.
9:37:31 AM
REPRESENTATIVE FEIGE suggested the intent of HB 272 is to pay
off loans for students who live in Alaska and attend school or
attend school outside and have returned to Alaska. He related a
scenario in which a pilot attends a university in the Lower 48
obtains an aviation degree. He has a student loan to repay, but
Alaska has plenty of pilots. He questioned the benefit to the
state to offer reductions on student loans for pilots and
whether the bill should be restricted to particular skills, and
if so, it would also reduce the fiscal note.
9:39:09 AM
REPRESENTATIVE GARA proceeded to a full bill presentation. He
stated that the intent of HB 272 is to assist residents who
leave for educational purposes to return to the state to ensure
Alaska has a strong work force. He acknowledged that it is too
costly to forgive everyone's student loans. He explained the
bill came about when he discovered he could get a car loan at
his credit union at a 2.5 percent interest rate. However,
students pay eight percent interest rate on their student loans,
or triple the amount of the current rate of inflation. He
suggested that when students return to Alaska they often have a
student loan, a mortgage, and start families. The impetus of
the student loan reduction is to value education. He stated
that the state has a 38-40 percent departure rate, which means
38-40 percent of students who leave Alaska for higher
educational purposes do not return to Alaska. He offered his
belief that the state would rather encourage Alaskans to come
home and fill the jobs. He stated this is good for families,
will keep the state cohesive, and will help keep Alaska's jobs
for Alaskans. As the sponsor of HB 272, he has tried to address
concerns and limit the fiscal note. He acknowledged that people
outside Alaska can fill some jobs, but the state should
encourage Alaskans to fill many jobs. The state invests
approximately $5,000 to $15,000 per student each year in grade
school alone. The investment is paid off when these students
grow up and take jobs in Alaska. He would like to avoid what
happens in the oil industry, which is that employees come to
Alaska for two weeks and leave to go home to the Lower 48;
instead, Alaskans should be working on the North Slope and
returning to their homes in Fairbanks, Stony River, or elsewhere
in the state. He related that the bill indicates anyone in
default is eliminated during loan defaults. He mentioned the
letters of support received in order to help alleviate testimony
time on the record. He emphasized that given the economy in
which wages are not rising college graduates cannot afford a
loan rate triple or quadruple the rate of inflation.
Additionally, the ASLC can restrict benefits if the proposed
reduction will bring a student loan rate to under a three
percent interest rate. Thus the bill sets a floor that the
minimum rate should be three percent unless by regulation the
ASLC determines a lower rate is justified.
9:44:02 AM
REPRESENTATIVE GARA reiterated that the student loan rate should
be in line with mortgage rates, used-car interest rates, or the
rate of inflation. He cautioned that he did not blame the ASLC
for the current rate since the legislature covers some costs.
He acknowledged the ASLC cannot pay for this benefit. He
explained that the bill is modeled after the WWAMI Program and
the Teacher Education Loan Program (TELP) and the constitution
allows the state to require a one-year residency. Further, the
bill avoids the pitfalls the ASLC faced by making students pay
the discount; however, if the ASLC has funds it could also
decide to pay a dividend to the state. The goal is to ensure
that Alaskans have jobs in the state and avoid any impediments
to move back to the state. He said, "It's good for the economy.
It's good for families to help keep them together and we think
it is a modest approach instead of going the old approach, which
was talking about loan forgiveness every year that the state
cannot afford." He concluded that the proposed CS was drafted
to meet concerns raised.
9:46:11 AM
REPRESENTATIVE SEATON withdrew objection to Version R. There
being no further objections, Version R was before the committee.
9:46:33 AM
MOIRA SMITH, Attorney, stated she would give a quick background,
identify some of the perverse economic incentives, and give her
view on the value of having Alaskans return to the state. She
provided a brief history, including that she was raised in
Juneau, attended Georgetown University, received her
undergraduate degree in 1998, and graduated from law school in
2007. She said she took out student loans for each law school
year. She reported that at this point she has one undergraduate
student loan left, which is her Alaska Student Loan. Prior to
consolidating her loans she had four separate loans with
interest rates ranging from eight to nine percent. She
consolidated her loans, which reduced the interest rate to 6.25
percent. This interest rate is still higher than all but one of
her student loans. She thought it was important to identify
loans other than her Alaska student loan to put things in
context. She indicated she currently has about $170,000 in
student loans, except for her Alaska student loan, which has a
balance of $17,000 for law school expenses. She stated that the
interest rate on her loans range from 2.75 percent to 6.55
percent. The Alaska student loan is the second highest among
all her loans and the average interest rate on her loans is 4.38
percent.
MS. SMITH continued by discussing incentives. She acknowledged
that she made the choice to attend law school, but she attended
a state school. She could have taken up residency and paid in-
state tuition - which would have saved her thousands of dollars
per year - but she chose out-of-state tuition since she wanted
to return to Alaska. Further, she also had an opportunity to
join her friends at large law firms, but she did not interview
for those jobs since the jobs were in major cities outside
Alaska. She highlighted that the first-year salaries in Alaska
are less than half of the $160,000 that San Francisco and other
major cities pay their first-year lawyers. She emphasized that
these are the very real economic incentives that can lead
Alaskans to stay away. Unfortunately, there are not any
countervailing economic incentives to return to Alaska. She
acknowledged there are other reasons to want to live in Alaska,
but just not any economic reasons. Finally, she offered her
belief that it is worthwhile to have students return to the
state. She acknowledged that Alaska absolutely benefits from
having transplants live in Alaska, but other reasons exist for
having students return home to Alaska. She acknowledged her
daughter's time with her grandparents is invaluable and would
happen less frequently if she had chosen to live in San
Francisco. She thought it was a good idea to reverse some of
the "brain drain." Additionally, she noted that many Alaskan
students have to leave the state to attain some higher degrees
and HB 272 is a way to provide an incentive to bring these
students home.
9:51:15 AM
REPRESENTATIVE FEIGE asked whether she freely made decisions.
MS. SMITH agreed her decisions were all freely made. She said
she did not want to whine. She said she repays her loans in
good faith and is not complaining about her economic burden;
instead, she is reiterating there is a means to incentivize
students to return to Alaska, even for lawyers.
REPRESENTATIVE FEIGE asked what type of law she practices.
MS. SMITH answered primarily oil and gas.
9:52:44 AM
CHAIR DICK, after first determining no one else wished to
testify, closed public testimony on HB 272.
9:52:52 AM
REPRESENTATIVE SEATON indicated that he serves as the
legislative member of the Western Interstate Commission on
Higher Education (WICHE), which includes all western states. He
reported that the level of education in Alaska has deteriorated.
Alaska previously was one of the highest-educated states in the
nation with the most number of graduates. Alaska has now fallen
way down on the list and it makes the state unattractive for
many industries. He explained that industries often consider
the level of education of residents when they are considering a
location. He offered to provide statistics to the committee.
He said the bill will help to reverse this situation. He
pointed out that a highly educated citizenry is very important
to the state. He reiterated this is data that is considered
when a company considers expanding to a new area. The purpose
of the bill should be to look at retaining and bring back highly
educated people who can contribute to our communities, whether
they are taking a particular job or not.
9:56:09 AM
REPRESENTATIVE GARA added that Alaska ranks last among college
attendance and completion. He suggested that the marginal
benefits in terms of salary may not make it worth it to remain
or return to Alaska. He said the bill may help those statistics
improve. Also, it is important to encourage students to return
home from school in the Lower 48 since the money circulates and
stays in the economy, which is good for other businesses since
it provides a ripple effect. Further, it would help make Alaska
a stronger state. He pointed out the UA spends twice as much on
a resident student than a student who pays full tuition.
Therefore, it costs the state money to send a student through
the UA system. He concluded that the bill will save money by
allowing students to attend the school of their choice and give
them a three-percent reduction on their return.
9:58:07 AM
REPRESENTATIVE FEIGE took issue with the analogy of an 8 percent
student loan versus a 2-3 percent car loan, which is not
necessarily applicable because of the difference in the risk
involved. He stated that interest rates are set commensurate
with the risk on the loan. Higher rate loans are typically
riskier for banks to offer. He explained that banks can
repossess a car, but a student taking out a college loan who
later defaults on the loan does not provide the bank with
anything to collect; thus the reason for the higher interest
rate on a student loan versus a car loan.
9:59:22 AM
REPRESENTATIVE SEATON requested a graph regarding the current
default rate and an opinion from the department regarding
whether this bill will have an effect. Additionally, he asked
whether the department views the three-percent reduction as
unprofitable for the ASLC.
REPRESENTATIVE P. WILSON referred to the six statutes cited in
the bill and asked for further information.
REPRESENTATIVE GARA agreed to provide the information to the
committee. In further response to Representative Seaton, he
answered that the ASLC does not pay for the discount from its
assets since the funds are subject to appropriation by the
legislature.
10:01:17 AM
REPRESENTATIVE P. WILSON referred to page 2, line 6, which
states that the reduction is subject to appropriation by the
legislature. She asked for clarification on the process and
whether the legislature will receive a report.
REPRESENTATIVE GARA answered that is the current process for
WWAMI, and the TELP. He explained they know how much these
programs will cost and if the estimates are wrong supplemental
funding is requested. The legislature has never chosen not to
fund those programs so the funding has been continuous. He
anticipated if HB 272 passes that the legislature will provide
funding.
10:02:50 AM
MS. BARRANS clarified how the WWAMI program is funded. The
WWAMI program is front loaded by a general fund appropriation to
support the cost of the program. All of the funds are provided
when the students begin to participate in the program so
essentially funds are not collected back from WWAMI graduates if
they practice in the state. Thus the structure is quite
different than what is being proposed in HB 272. Further, she
indicated the Teacher Education Loan Program (TELP) is a small
program. It is not supported by general funds and there are not
any appropriations associated with it. The program existed and
was disclosed in bond documents when the corporation that
originally began the program issued bonds. The TELP is funded
by the ASLC. It is such a small program with fewer than 90
students per year who qualify for the TELP. Further, the
success rate is relatively low for the number of teachers who
complete the degrees in qualifying schools. Therefore, the cost
is absorbed by the ASLC, but it is minimal. She emphasized that
HB 272 takes a very different approach and will be contingent on
legislative appropriations each year based on the number of
applicants eligible.
[HB 272, Version R, was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| CS to 2nd SS HB 272 Version T Sponsor Statement.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |
| CS for 2nd SSHB272 Version T.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |
| CS for 2nd SSHB272 Backup - Student loan rates.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |
| 2nd SS HB272-EED-ACPE-02-28-12.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |
| CS HB256 (EDC)-DOA-DAS-3-2-2012.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 256 |
| CS HB256 Version X -EED-TLS-3-2-12.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 256 |
| 2nd CS SS HB 272 Version R 03 02 12 Legal Memo.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |
| CS for 2nd SSHB272 Version R.pdf |
HEDC 3/5/2012 8:00:00 AM |
HB 272 |