Legislature(2021 - 2022)BUTROVICH 205
04/19/2021 09:00 AM Senate EDUCATION
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| Audio | Topic |
|---|---|
| Start | |
| SB94 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 94 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 94-EDUCATION & SUPPLEMENTAL LOAN PROGRAMS
9:17:38 AM
CHAIR HOLLAND announced the consideration of SENATE BILL NO. 94
"An Act relating to the education loan program and Alaska
supplemental education loan program; and providing for an
effective date."
[SB 94 was introduced on 3/5/21.]
9:18:19 AM
SANA EFIRD, MA, Executive Director, Alaska Commission on
Postsecondary Education (ACPE), Executive Officer, Alaska
Student Loan Corporation (ASLC), Juneau, Alaska, reviewed slide
2, which identified three things the bill would address for
student loan borrowers. Slide 2 read:
• Expands Eligibility for Alaska Refinance Loans
- Currently eligible:
- Alaska residents only Proposed: previous borrower,
cosigner, or beneficiary of an Alaska loan
- Proposed: Alaska high schools and postsecondary
institutions graduates
• Removes loan limits from statute for in-school loans
• Adds clarifying language that ACPE can offer future
student loan borrowers a loan program with immediate
repayment
9:19:40 AM
MS. EFIRD said refinance loans are important because Alaska
these loans allow Alaska residents to consolidate multiple
Alaska education loans, including loans from other lenders into
one low-interest Alaska student loan. This refinance loan was
approved by the legislature about four years ago but is eligible
only to current Alaska residents. The Alaska Student Loan
Corporation (ASLC) would like to expand the refinance loan
program to include Alaska student loan borrowers who may no
longer live in the state. Further, ASLC would like to expand
loan eligibility to those students who graduated from an Alaska
high school or postsecondary institution to provide a connection
to Alaska although they are no longer Alaska residents.
9:21:01 AM
MS. EFIRD stated that the bill would also remove loan limits
from statute. She explained that ASLC student loan borrowers and
postsecondary institutions in Alaska have indicated that these
limits are becoming barriers to students. These students cannot
obtain funding from private lenders due to strict underwriting
criteria. Some students and their families who can obtain
funding from private lenders must pay a higher interest rate
than ASLC loans. Some borrowers apply for multiple loans because
ASLC's current loans do not cover the gap from the loan amount
and the actual cost to attend the institution.
9:22:03 AM
MS. EFIRD relayed that the Department of Law said the statutes
are unclear as to whether ASLC has the authority to offer
immediate repayment loans. SB 94 will clarify that ASLC has the
authority to offer such a program. Immediate repayment programs
are proven to have lower default rates compared to programs with
deferred repayment options. This means these refinance loans
will result in fewer loan losses and reduce borrower interest
rates.
9:22:44 AM
MS. EFIRD summarized that SB 94 is in response to requests from
students and Alaska's higher education community, including
current student loan borrowers repaying their loans. It will
enhance Alaska student loan borrowers' ability to meet their
financial aid needs. Changes will allow for responsible
increases to annual loan limits and originations and amend
repayment programs to assist borrowers in keeping overall loan
costs down. In addition, it will expand eligibility for the
refinance program and be responsive to students' and higher
educational institutions' needs. These changes are also being
requested to increase the financial strength of ASLC by
increasing originations and decreasing the corporation's
portfolio runoff.
9:24:39 AM
LEE DONNER, Regional Managing Director, Hilltop Securities,
Clifton, Texas, said he has served as a financial advisor to
ASLC since 2007. He referred members to a memo to Sana Efird,
Executive Director, Alaska Student Loan Corporation dated April
6, 2021, which he submitted to the committee. He highlighted
three key provisions of SB 94. First, the bill would expand the
pool of borrowers eligible to apply for and receive a
consolidation or "refinance" loan from ASLC but still limit the
pool to borrowers who meet the standard "nexus" definition
utilized in the federal tax code.
He explained that most student loan programs run by state
agencies or non-profits require the borrower to have a nexus to
the state, such that the borrower is or was a resident at the
time the loan was made. That has been part of the ASLC's
eligibility criteria for some time. SB 94 would add another
standard nexus, which is that the borrower is no longer required
to be a resident but that the student graduated or attended an
educational institution in the state. He offered his view that
this is considered standard practice. He suggested that this
would affect a small contingent of borrowers. He pointed out
that this program applies to the refinance program but not to
students in school. These borrowers have likely completed their
education and are now working. He characterized these loans as
high-quality loans as compared to in-school status loans. This
should reduce the runoff in the student loan pool that has
occurred since 2010.
9:28:21 AM
MR. DONNER said the second component moves the determination of
maximum loan size from the legislature to ASLC. He stated that
this is fairly typical for student loan issuers. The loan
eligibility criteria and loan size are usually set by the
issuer. However, Texas still sets its loan limits legislatively
for various reasons and its coordinating board issues general
obligation (GO) bonds.
MR. DONNER said ASLC has a long history to justify allowing it
to set limits to be more responsive to fluctuations in education
costs, he said. Currently, borrowers must go to multiple sources
for loans to meet the total cost of their education. He offered
his view that this did not pose a negative credit quality
limitation. Some borrowers will seek loans from private bank
lenders who typically limit loans to 1-2 percent of credit-
quality borrowers at high rates.
9:30:33 AM
MR. DONNER stated that the last change would provide an
immediate repayment option. Multiple studies have demonstrated
that borrowers who enter repayment status immediately during the
in-school period, even if it is only to pay the interest on the
loan, have lower delinquency and default rates than those who
fully defer payments until some period after they are no longer
enrolled on at least a half-time basis. This process keeps
borrowers in closer contact with the lender.
9:31:33 AM
SENATOR BEGICH commented that Ms. Efird addressed all his
questions and he was satisfied with the bill. He directed
attention to the immediate repayment provision which is
something he has supported for decades because some people have
the means to do so. He voiced support for SB 94.
9:33:10 AM
SENATOR HUGHES stated support for increasing the pool to offer
better rates on student loans. She asked for an explanation of
the mechanics of the immediate repayment option, and whether
there was anything to incentivize students to do so since it
would reduce the interest.
MS. EFIRD responded that SB 94 will decrease the amount of the
loan at the time the student actually graduates so it would
reduce the amount to be repaid. Since students would pay the
interest while in school, it will benefit the borrower.
9:34:37 AM
SENATOR HUGHES pointed out that this also requires a higher
standard for consolidation loans than the in-school loans for
Alaskans.
9:35:28 AM
MS. EFIRD agreed; she explained that the in-school loans require
a lower FICO score and consolidation loans require a higher FICO
score.
9:35:44 AM
CHAIR HOLLAND remarked that he was initially concerned but his
questions were answered.
9:36:35 AM
At ease
9:36:42 AM
CHAIR HOLLAND held SB 94 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ACPE - Resolution to Support SB 94 & HB114 04.08.21.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 - Hilltop Securities SB 94 HB 114 memo.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 - U.S. News Article - Reasons to Pay Student Loan Interest.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 - 2019 Cohort Default Rates Report.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 - ACPE Loan Volume Overview.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 04.12.2021 (S) EDC Hearing Follow-Up.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |
| SB 94 4.19.21 (S) EDC Presentation.pdf |
SEDC 4/19/2021 9:00:00 AM |
SB 94 |