04/25/1995 09:25 AM Senate FIN

                                                                               
       SENATE BILL NO. 123                                                     
       "An Act relating  to student loan  programs, interstate                 
  compacts  for postsecondary  education, and fees  for review                 
  of   postsecondary education institutions; and providing for                 
  an   effective date."                                                        
                                                                               
  Co-chair Frank WITHDREW  amendment #1.   No objection  being                 
  heard amendment #1  was WITHDRAWN.  Senator  Zharoff offered                 
  amendment #2 which deals the full and part-time students.                    
                                                                               
  Joe  McCormick,  Executive  Director for  the  Commission on                 
  Postsecondary Education stated his support for amendment #2.                 
  He  said it provides  a graduation, downward,  of the annual                 
  amounts eligible depending on the length of the program.  It                 
  tracks very  closely the same loan  eligibility requirements                 
  that are currently available in the student aids programs.                   
                                                                               
  Senator Zharoff  MOVED to adopt amendment #2.  Senator Sharp                 
  OBJECTED.  Senator  Sharp MOVED  amendment #3 which  reduces                 
  the proposed total amount available for a student loan to an                 
  individual student over  the career course of  his education                 
  from $79.0 to  $60.0.  The $60.0 his still higher than under                 
                                                                               
                                                                               
  federal law.                                                                 
                                                                               
  Mr.  McCormick was supportive  of the amendment.   He stated                 
  that the current maximum is $5500 for an undergraduate,  and                 
  $6500 for a  graduate student.   Depending on the number  of                 
  years involved in the undergraduate  or graduate study would                 
  determine the aggregate.  Four years of study at $5500 would                 
  equal  $22,000.   Three  years of  graduate  study at  $6500                 
  equals $19,000.  This  amounts to a 26% increase  overall in                 
  the allowable amount to be borrowed.                                         
                                                                               
  There was no objection  to the amendment.  Amendment  #2 and                 
                                                                               
  Senator Rieger expressed  his concerns  with regards to  the                 
  origination fee at  5%.  He  offered an amendment to  reduce                 
  the rate from  5% to 3%.   Mr. McCormick stated that  the 5%                 
  rate was established as a rate  that customarily was paid in                 
  student loan programs,  and their rate  went up to 8%.   The                 
  rate  has ranged over time  from 3%- 8%.   Therefore, 5% was                 
  chosen as a  mid-point rate.   The average  student loan  is                 
  $4700.  Co-chair Frank stated that his desire is to have the                 
  student loan  program  be  fully  self-supporting.  Co-chair                 
  Halford agreed  with the program  needing to be  fully self-                 
  supporting  and  could  not  support  the  amendment.    Mr.                 
  McCormick stated that  the reason  the student loan  program                 
  has not been paying for itself combines many factors.  There                 
  were  many  years  that  contained a  forgiveness  provision                 
  within the  law, which did  not replenish the  loan capital.                 
  The  loans   were  forgiven,   but  the   capital  was   not                 
  replenished.  The  forgiveness is  part of the  loss.   When                 
  students die, become  totally disabled,  and default on  the                 
  loans, there is no billing of  the general fund to replenish                 
  the capital.  It is truly a loss and the capital of the fund                 
  does go down.  The other factor involved is that there is no                 
  interest  on  the  loan  during  the  time  the  student  is                 
  initially  in school.  Under  this provision the student may                 
  be  charged  $240  origination  fee, but  he  will  have  an                 
  interest free loan over  the next 12 months which  works out                 
  to  be a $400  savings to the student.   When the commission                 
  feels that politically they can come to the legislature with                 
  the proposal, they will come back and ask for interest to be                 
  charged  during  the in-school  period.   This  represents a                 
  period of time  for which the  state is paying bond  holders                 
  interest  on those  bonds for  which  interest is  not being                 
  charged  on  the loan.    That  is  a  loosing  proposition.                 
  Amendment by Senator Rieger FAILED.                                          
  Senator  Zharoff inquired as  to the effective  date for the                 
  students  borrowing  in the  year  of 1995.    Mr. McCormick                 
  responded  that   current  loan  limits  apply  to  students                 
  applying for, and  receiving, loans  through June 30,  1995.                 
  Students applying for  loans to be  disbursed on, or  after,                 
  July 1, 1995 would enjoy the  benefits of the increased loan                 
  limits.  Tuition  increase with the University of  Alaska is                 
                                                                               
                                                                               
  July  1,  1995.   He recommended  the  increase in  the loan                 
  program to coincide with that date.                                          
                                                                               
  Senator  Rieger  offered  a  conceptual  amendment  making a                 
  change in the title to include Western Interstate Commission                 
  on  Higher  Education.    No   objection  being  heard,  the                 
  conceptual amendment was ADOPTED.                                            
                                                                               
  End     Tape #42, Side 1                                                     
                                                                               
  Begin   Tape #42, Side 2                                                     
                                                                               
  Senator Phillips MOVED  to adopt CSSB 123  with accompanying                 
  fiscal  notes  and  with individual  recommendations.     No                 
  objections being heard,  CSSB 123 (FIN) was  REPORTED OUT of                 
  committee with a "do pass" from Co-chairs Halford and Frank,                 
  along with Senators Phillips and Sharp.  Senators Rieger and                 
  Zharoff signed "no  recommendation".  Two zero  fiscal notes                 
  from  Dept   of  Education  (Student  Loans)   and  (Program                 
  Administration).