05/08/1997 02:10 PM House FIN

  SENATE BILL 189                                                              
                                                                               
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       "An  Act  relating  to  eligibility  for  and  default,                 
       collection, and repayment of student loans; relating to                 
       non-renewal  of  certain   occupational  licenses   for                 
       default  on  a  student  loan;  and  providing  for  an                 
       effective date."                                                        
                                                                               
  SHEILA PETERSON, STAFF, SENATOR GARY  WILKEN, noted that the                 
  current  default rate  of the  student  loans issued  by the                 
  Alaska    Commission    of   Postsecondary    Education   is                 
  unacceptable.  SB 189 would  provide the Commission with the                 
  necessary  financial tools  to  effectively and  efficiently                 
  reduce the number of loans which are in default.                             
                                                                               
  The ultimate goal  of the legislation  would be to create  a                 
  financially  solvent Alaska student  loan program that would                 
  be available to the next generation of Alaskan postsecondary                 
  students.  SB 189 will:                                                      
                                                                               
       1.   Improve  the  credit  rating  of  the  Alaska                      
            Student Loan Program;                                              
                                                                               
       2.   Lower the loan program default rate;                               
                                                                               
       3.   Improve the  return rate on  funds loaned  to                      
            borrowers; and                                                     
                                                                               
       4.   Increase  the  recovery  rate   on  defaulted                      
            loans.                                                             
                                                                               
  Ms. Peterson continued, the program  is experiencing a large                 
  (20%-25%) increase in loan  demand.  Passage of SB  189 will                 
  be a step in the right direction.                                            
                                                                               
  DIANE BARRANS,  EXECUTIVE  DIRECTOR,  ALASKA  COMMISSION  ON                 
  POSTSECONDARY  EDUCATION,  DEPARTMENT  OF EDUCATION,  stated                 
  that the Commission  has endorsed the  elements of the  bill                 
  which  are   basically  additional   collection  tools   for                 
  defaulted borrowers.  She  pointed out that there will  be a                 
  provision  for a  1/2%  increase  to  the interest  rate  on                 
  student  loans.    It would  not  change  the  rate for  the                 
  upcoming year as  those promissory  notes have already  been                 
  granted.    In the  1998-1999  academic year  interest would                 
  increase to 9%.   The determining  base for the interest  is                 
  the rate paid for outstanding bonds.                                         
                                                                               
  Ms. Barrans provided  a sectional  analysis of the  proposed                 
  legislation.    The  first substantive  change  would  be to                 
  Section   #5   which  identifies   the   increase   from  an                 
  administrative  add-on.   Section  #6  would  authorize  the                 
  credit  assessment  on  borrowers.   In  the  event  that  a                 
  borrower is shown to have a bad debt, Section #7 would allow                 
                                                                               
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  for a credit worthy co-signer to apply for the loan.                         
                                                                               
  Section  #8 would allow  for the Commissioner  to provide an                 
  administrative wage garnishment.  Currently, that action can                 
  happen only through a court judgement.  She advised that the                 
  Alaska  Statutes  "hold harmless"  a  certain portion  of an                 
  individuals pay check  and that no  exception from that  law                 
  was being requested.                                                         
                                                                               
  Representative  Kohring questioned  if the  bill provided  a                 
  provision  which would  grant  withholding authority  of  an                 
  occupational license when in default.  Ms. Barrans commented                 
  that the  Division currently has that authority.   She added                 
  that they do  not try to revoke the  license during a period                 
  of licensure,  but rather, wait  until the license  comes up                 
  for renewal.  If the person in default is in compliance with                 
  some type of  pay arrangement, they  are then able to  renew                 
  their  licensure.   She pointed  out  that this  was modeled                 
  after  similar  legislation  passed  by  the  Child  Support                 
  Enforcement Agency (CSEA).                                                   
                                                                               
  Representative  Martin  recommended  adding the  requirement                 
  that collateral be guaranteed  by the parents.  Ms.  Barrans                 
  explained that would still  be an unsecured note.   A credit                 
  assessment will be  the first step  in that direction.   She                 
  noted the concern  for those families  who were not able  to                 
  put up collateral and would be  unable to fund their child's                 
  education.   Ms.  Barrans explained  that about  60%  of the                 
  defaulters live in  Alaska and one tool  used is garnishment                 
  of the permanent fund.                                                       
                                                                               
  Representative Foster MOVED to report CS SB 189 (FIN) out of                 
  Committee  with  individual  recommendations  and  with  the                 
  accompanying fiscal notes.  There being NO OBJECTION, it was                 
  so ordered.                                                                  
                                                                               
  CS  SB 189  (FIN) was reported  out of Committee  with a "no                 
  recommendation" and with  fiscal notes by the  Department of                 
  Education  dated  4/30/97,  the  Department  of  Labor dated                 
  4/30/97, the  Alaska Postsecondary  Education dated  4/30/97                 
  and  zero fiscal  notes  by the  Department  of Labor  dated                 
  4/30/97, the Department of Administration  dated 4/30/97 and                 
  the Department  of Commerce  and Economic Development  dated                 
  4/30/97.