Legislature(1993 - 1994)
04/08/1994 08:38 AM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 506
"An Act relating to student loans; to sanctions for
defaulting on a student loan, including denial of a
state occupational license or disbursement of state
money; and providing for an effective date."
REPRESENTATIVE CON BUNDE spoke in support of HB 506. He
emphasized that the legislation will make the student loan
program more viable from a business stand point. He observe
that professional and occupational licenses would not be
renewed for people that are in default on their student
loans. The interest rate would be variable. If an
individual's loan has been written off due to medical or
other reasons, they would be ineligible for a period of five
years. He maintained that Family education loans would be
more readily available. He observed that the legislation
contains a provision to hold state warrants to individuals
in default of their student loan and doing business with the
state, until their loan is resolved.
Representative Bunde provided members with a proposed
committee substitute, work draft 8-LS1752\D, dated 3/25/94
(copy on file). He explained that the proposed committee
substitute addresses the WAMI program medical school
arrangement with the state of Washington. He observed that
the proposed committee substitute would change the program
from a direct grant to a loan with a forgiveness of one
fifth of the loan for each year the individual practices
medicine in the state of Alaska.
DIANE BARRANS, DIRECTOR, STUDENT FINANCIAL AID PROGRAM,
DEPARTMENT OF EDUCATION stressed that the legislation will
send a message to borrowers and bondholders that the
Commission considers the student loan debt to be a serious
obligation. She asserted that the Alaska Student Loan
Program should be made as consumer friendly as possible.
Ms. Barrans did not think the Commission would oppose the
proposed committee substitute.
ERIC FORRER, MEMBER, POSTSECONDARY EDUCATION COMMISSION
spoke in support of the legislation. He noted that the
state of Alaska has invested approximately $500.0 million
dollars in the Student Loan Program. He asserted that the
Program must be self perpetuating. He spoke in support of
rigorous management.
Representative Grussendorf discussed loan repayment. Mr.
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Forrer observed that repayments go into the General Fund.
The Commission needs legislative authority to spend
receipts.
Representative Martin expressed concern that individuals
would be deprived of the ability to repay their loan if
their license renewal is denied.
Mr. Forrer noted that individuals in default can negotiate
with the Commission to be in good standing. The loan does
not have to be repaid in it's entirety for the individual to
be in good standing. He reiterated that the fund must be
managed rigorously to ensure that it continues.
Representative Parnell expressed concern with language
specifying default. He asked how the Commission would
administer defaults.
Representative Brown asked the long term fiscal soundness of
the Fund. She noted that in FY 93, $7.6 million dollars
were forgiven and $8.4 million dollars were lost through
written off loans. She asked if loan repayments are
returning to the program.
Ms. Barrans noted that repayments are returned to the
Revolving Loan Fund. Legislative authority is needed for
expenditure of operational costs. New loans are made from
repayments and sales of bond.
Representative Brown expressed concern with section 2 which
changes the way interest is calculated.
(Tape Change, HFC 94-113, Side 2)
In response to a questions by Representative Brown, Ms.
Barrans stressed that oversight will come from the Board and
the Commission and the Legislative Budget and Audit
Committee to assure that the administrative cost is
efficient. The amount forgiven each year is the amount of
statutory obligation on loans made prior to 1987. Write
offs are the sum total of death and disability, bankruptcy
and major medical. She observed that loan forgiveness has
peaked. Write offs will remain constant. She explained
that a 1 percent guarantee fee will be added to students'
loans to cover write off costs. The fee is a one time fee,
added at the time of origination.
Representative Therriault noted that response time from the
Commission to student's inquires can be lengthy. A student
may be in default before they can resolve disputes with the
Commission in regards to payments or other matters.
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Co-Chair MacLean asked if section 10 which allows the state
to withhold payments on warrants would withstand litigation.
NANCY BEAR-USERA, COMMISSIONER, DEPARTMENT OF ADMINISTRATION
spoke in support of aggressive management. She noted that
repayments on the loan go to pay off the bonds issued for
new loans. She expressed concern with the relative autonomy
of the Commission and Corporation Board.
Commissioner Usera noted that the Department is concerned
with the provision to withhold payments on warrants. She
suggested it would be difficult to administer. She
anticipated that the state would be assessed penalties on
payments withheld. She noted that the authority to attach
payments already exists. She observed that the cost of one
lawsuit regarding withheld vender payments could cancel out
receipts from collected payments.
Representative Brown questioned if the Department of
Administration would be authorized under federal law to use
social security numbers in order to track licensees in
default.
In response to a question by Representative Martin, Ms.
Barrans stated that the Commission will give borrowers
plenty of warning that the provisions to deny renewals may
affect them.
In response to a question by Representative Parnell, Ms.
Barrans explained that the individual's history with the
loan program would determine when their license renewal
would be approved.
In response to a question by Representative Martin, Ms.
Barrans noted that $8.0 million dollars were garnished
through permanent fund dividend checks. She stressed that
there is a approximately $500.0 million dollars in student
debt owed the state of Alaska. She emphasized that the
portion written off is a small portion of the debt.
Commissioner Usera noted that the Department of
Administration's fiscal note for $57.0 thousand dollars
would be zero if sections requiring the holding of vender
warrants are removed.
Ms. Barrans discussed the revised fiscal note.
Representative Bunde requested that the proposed committee
substitute be held. He explained that he would like to have
the WAMI program addressed in separate legislation.
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Representative Brown provided members with AMENDMENT 1 (copy
on file). She explained that the amendment would delete the
floating interest rate. She suggested that the provision
would allow an open ended charging of administrative
expenses of the Commission.
Representative Hanley echoed Representative Brown's concern.
He suggested that a percentage of administrative costs be
included to equal the amount paid on bonds issued plus a
maximum of 2 percent.
Commissioner Usera noted that financial institutions
commonly charge a 2 percent spread on the cost of money
versus the return on money to pay for administrative
overhead.
Amendment 1 was held for revision to include suggestions
that administrative costs be tied to a percentage of the
amount paid on bonds.
Representative Brown provided members with AMENDMENT 2 (copy
on file). She explained that the amendment would require
that the borrower receive adequate notice that the
Commission is proceeding to notify the Department of
Commerce and Economic Development that the loan is in
default. The borrower would have 60 days to take action to
bring the loan current or make other arrangements.
Representative Parnell noted that another term is being
added to the contract between the Postsecondary Education
Commission and the student. Ms. Barrans stated that the
Commission could comply with Amendment 2 through an
attachment to the 120 day letter. She stressed that the
Commission intends to notify the borrower of the statute
changes in multiple ways.
Representative Brown MOVED to ADOPT AMENDMENT 2. There
being NO OBJECTION, it was so ordered.
Representative Brown provided members with AMENDMENT 3 (copy
on file). She noted that the amendment would add to page 2,
line 17, "if the borrower has an occupational license issued
under AS 08. the license may not be renewed under AS
08.02.025." Representative Brown MOVED to ADOPT AMENDMENT
3. There being NO OBJECTION, it was so ordered.
Representative Brown provided members with AMENDMENT 4 (copy
on file). She explained that Amendment 4 would delete
sections requiring the Department of Administration to
withhold vender payments (sections 3 (c) and 9 and 10).
Representative Brown MOVED to ADOPT AMENDMENT 4. There
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being NO OBJECTION, it was so ordered.
Representative Martin MOVED to delete section 1. He
asserted that the provision to deny renewal of licensing
discriminates against individuals with state licenses. He
pointed out that other individuals could continue to be
employed even if they are in default of their student loans.
Representative Hanley emphasized that the Department of
Commerce and Economic Development will give individuals in
default a grace period to bring their loan into good faith.
A roll call vote was taken on the motion to delete section
1.
IN FAVOR: Martin, Foster
OPPOSED: Brown, Grussendorf, Hoffman, Parnell, Therriault,
Larson, MacLean
Representative Navarre was not present for the vote.
The MOTION FAILED (2-8).
Representative Davidson referred to the Family Education
Loan Program. He questioned if borrowers, who are residents
of the state, should be able to apply for students, who are
not residents of the state.
Ms. Barrans noted that the resident borrower would be
allowed to apply for their children residing outside of the
state. Representative Davidson clarified his intention as
the sponsor of the Family Education Loan Program. He
stated that his intention was that a family would co-sign a
loan. Co-Chair MacLean noted that "Alaskan resident" could
be added to "family member" on line 30, page 5. Co-Chair
Larson spoke against the change. He stressed that the
resident is obtaining benefits from the loan.
HB 506 was HELD in Committee for further discussion.
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