Legislature(2013 - 2014)CAPITOL 106
04/07/2014 08:00 AM House EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| HR9 | |
| SB195 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 195 | TELECONFERENCED | |
| += | HR 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 195-POSTSECONDARY EDUCATION LOANS/GRANTS
9:11:35 AM
CHAIR GATTIS announced that the final order of business would be
CS FOR SENATE BILL NO. 195(FIN), "An Act relating to the
membership and authority of the Alaska Commission on
Postsecondary Education; relating to the Alaska Student Loan
Corporation; relating to teacher education loans; relating to
interest on and consolidation of postsecondary education loans;
relating to Alaska supplemental education loans; relating to
AlaskAdvantage grants; relating to the Alaska family education
loan program; relating to postsecondary educational
institutions; and providing for an effective date."
KRISTEN PRATT, Staff, Senator Anna Fairclough, Alaska State
Legislature, on behalf of the sponsor, stated that the sponsor
has been working with Alaska Commission on Postsecondary
Education and the Alaska Student Loan Corporation (ASLC) to
reduce the burden of student debt for Alaskans. This bill would
broaden commission membership. It would allow the ASLC to offer
below market loan terms. It would also increase loan limits,
which haven't been increased since 1995. Further, it would
change post-enrollment deferment period to up to six months and
amend the general definitions for "on-time" enrollment status.
CHAIR GATTIS viewed this as a "clean-up" bill to update
statutes.
9:13:23 AM
REPRESENTATIVE DRUMMOND asked for further clarification deferred
payment for up to six months.
MS. PRATT explained that currently students have a grace period
and must make student loan payments six months after graduation
or terminate their enrollment. This bill would change that to
"up to six months" to provide borrowers more flexibility.
9:14:21 AM
DIANE BARRANS, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development (EED),
stated she also serves as the Executive Officer for the Alaska
Student Loan Corporation (ASLC). She concurred with the staff's
explanation and directed attention to proposed Sec. 27 on page
13 of SB 195. This language would change the standard deferment
period to up to six months to allow borrowers an opportunity to
make payments sooner since interest is accruing.
9:15:27 AM
REPRESENTATIVE LEDOUX asked whether borrowers could begin
repayment of their student loans without this statutory change.
MS. BARRANS agreed; however, she said it rarely happens. This
section provides the commission an opportunity to advise
students to begin repayment in a timely manner and avoid
interest. She clarified that the language doesn't set up a
mandatory repayment prior to the six-month deferment.
9:16:14 AM
CHAIR GATTIS related her understanding that it relates to the
mindset for repayment.
MS. BARRANS clarified that the commission would begin
communications with the borrower sooner.
9:17:02 AM
REPRESENTATIVE LEDOUX suggested that if the commission felt it
was important to communicate the benefits on beginning repayment
earlier to just do so.
MS. BARRANS acknowledged the commission could certainly do so.
CHAIR GATTIS suggested it is human nature for people to make
their payments when the payments are due and not before then.
9:17:42 AM
REPRESENTATIVE SADDLER pointed out some college graduates may
not understand the importance of making payments earlier to
reduce the overall cost of their loans. He asked for further
clarification on the commissions' dunning notices.
MS. BARRANS explained that under the bill the commission would
contact students when their graduation date occurs, and set up
payments if the students wanted to begin making them.
REPRESENTATIVE SADDLER encouraged the commission to let students
know they can make payments earlier and the benefits of doing
so.
9:18:27 AM
REPRESENTATIVE DRUMMOND asked about the authority to offer
consolidation to state residents.
MS. BARRANS answered that the ASLC has the ability to
consolidate loans, but the loans that the corporation can
currently consolidate are ones that originated with the
[corporation]. The proposed language would allow borrowers who
are state residents to consolidate loans made by other education
lenders. She elaborated that if it is beneficial to the
borrowers and they want to consolidate their student loans with
a single lender, the corporation could consolidate them.
9:19:25 AM
REPRESENTATIVE DRUMMOND asked for further clarification that
this would apply to previously made loans by the ASLC or others;
however, the borrowers would need to be state residents.
MS. BARRANS agreed that is correct.
REPRESENTATIVE DRUMMOND recapped that no matter where the
students obtained their education, the students would need to
return to Alaska and be residents in order to qualify for the
consolidation aspect.
9:20:07 AM
REPRESENTATIVE LEDOUX recalled that the student loans were once
taken out at a lower rate than a commercial source. She asked
whether this bill will allow the rate to be obtained at a lower
rate once more.
MS. BARRANS answered that the markets control the rate for
student loans. Thus, the way the ASLC finances student loans is
to issue debt in the financial market. The market materially
changed after the collapse in 2008 of the asset-backed market,
but it is slowly coming back. In response to a question, she
clarified that asset-backed debt represents bonds backed by
revenue from the loans financed from the bond proceeds. The
ASLC goes to the market, issues bonds, and the bonds are
structures so the interest on the loans repays the bond interest
and principal, similar to a mortgage-backed bond.
REPRESENTATIVE LEDOUX suggested that the only advantage of the
Alaska Student Loan Program is that an 18-year-old without
credit history can obtain financial aid, but it won't be at a
better rate.
MS. BARRANS explained that typically financial institutions take
a risk-based pricing and review the applicant's credit and set
the interest rate. The ASLC has a single interest rate and
criteria and applicants who meet the criteria or whose co-
signers meet the criteria receive the rate.
REPRESENTATIVE LEDOUX asked how a parent's poor credit rating
affects the student loan.
MS. BARRANS answered that either the student or a co-signer must
meet the minimum credit standard or the student is declined.
REPRESENTATIVE LEDOUX questioned the relevance of having the
student loan program.
MS. BARRANS answered that the student loan program is based on
the students' best interest but the ASLC does not operate to
make a profit. She explained that the loans are serviced in
Alaska and the corporation offers deferments and repayment
options with the corporation that are typically not offered via
other financial institutions. For example, students who are
unemployed for up to a year can obtain a deferment or if a long-
term disability exists some additional considerations are
available. She agreed the state doesn't fund or guarantee the
loans and the revenue generated pays for loan servicing.
9:26:06 AM
REPRESENTATIVE SEATON referred to proposed Sec. 41, page 16
lines 24-31, of SB 195 and asked whether this is the new
standard for credit hours for an "on-time student." He recalled
the prior standard was 12 credit hours and this lists 15 or more
semester hours each semester. He indicated some students may
take 18 credits one semester and 12 or 14 in another semester
due to class schedules.
MS. BARRANS answered no; that the "on-time student" definition
creates an additional enrollment level. It does not remove the
half-time student status or the regular full-time student status
of 12 credits. In each of these situations a student may
qualify for a grant or loan and it will simply affect the amount
of loan a student can borrow for that particular semester. She
said it wouldn't surprise her to see a student qualify for an
on-time loan amount for one semester and a full-time loan for
the next semester. This language would simply associate the
intensity of the student's enrollment with the amount of the
loan for that period.
9:28:19 AM
REPRESENTATIVE SADDLER referred to page 1, line 13 and page 2,
line 23 of SB 195, which references private, nonprofit
institutions of higher learning. He asked how many colleges in
Alaska currently meet that standard besides Alaska Pacific
University and Wayland Baptist University.
MS. BARRANS answered by listing the colleges as Alaska Bible
College, Embry-Riddle Aeronautical University, and Alaska
Christian College. In further response to a question, she
agreed those are in addition to Alaska Pacific University and
Wayland Baptist University.
9:29:24 AM
REPRESENTATIVE SADDLER referred to proposed Sec. 5 on pages 5
[lines 11-12 and 17-18] and asked for further clarification on
what is achieved by the change related to the obligation of the
corporation is not a debt of the state.
MS. BARRANS answered that the bond council advises that this is
a correction to place language where it more appropriately
should be placed in paragraph (6) instead of paragraph (5).
REPRESENTATIVE SADDLER asked whether bonds that the
[corporation] issues are not a debt of the state.
MS. BARRANS answered that is correct.
REPRESENTATIVE SADDLER recalled a letter of support for SB 195
and also one for SJR 23. He asked whether there was any linkage
between SB 195 and SJR 23, which proposes an amendment to the
Constitution of the State of Alaska relating to contracting
state debt for postsecondary student loans.
MS. BARRANS answered that it has to do with the capacity to do
certain things that the bill suggests. For example, SB 195
would suggest that the [Alaska Commission on Postsecondary
Education and ASLC] can provide enhanced rates to borrowers if
the [corporation] has the capacity to do so. The resolution,
SJR 23, would create that capacity; however, there are many
things in this bill that are unrelated to the resolution.
REPRESENTATIVE SADDLER understood that SB 195 would allow the
commission to take advantage of increased capacity. He asked
for further clarification on which section provides the
permission.
MS. BARRANS directed attention to page 9, lines 2-5, to proposed
Sec. 11, of SB 195. She pointed out that this language already
exists. The Alaska Student Loan Corporation currently has the
capacity to do this, but this bill would move it to a more
general provision. She explained that the language currently
exists but it only applies to the Alaska Supplemental Education
Loan. Proposed Sec. 11 would move it to general powers so it
can apply to any of the loans the corporation makes, including
the Alaska supplemental Education Loan or the Family Education
Loan.
9:32:12 AM
REPRESENTATIVE LEDOUX asked whether the intent is to provide
loans at a lower interest rate than currently available at
commercial institutions.
MS. BARRANS answered that the objective of the corporation to
make the cost of student loans as low as possible. The capacity
for lower financing costs varies depending on the interest
earnings and corporate revenues. To the extent that the
corporation has financial capacity to do so, the ASLC reviews
borrower benefits. These are benefits that are applied as
direct credits to student accounts when available. She
explained how some benefits and reductions can occur, which
could not be realized through a commercial facility. For
example, one benefit the ASLC offers is a .0025 percent discount
for borrowers who use an automated on-line payment.
Additionally, the corporation offers an additional .005 percent
reduction for borrowers who live in the state. Thus, the
corporation reduces interest rates by .0075 percent, which
brings down the interest rate to an effective interest rate of
6.55 percent. However, the corporation can't set interest rates
in a speculative way since that would commit the corporation to
reduced income on the loans over the ten to fifteen year span of
time for repayment. She reported that the borrow benefits
amounts to about $1 million per year.
9:34:18 AM
REPRESENTATIVE LEDOUX indicated surprise that even with the
credits the interest rate is at 6.5 percent which is higher than
some commercial facilities.
MS. BARRANS disagreed, estimating that the rates would be in
excess of 10 or 11 percent for loans issued under these
standards. She related that many lenders are issuing variable
rate debts that for very high-grade borrowers are lower than
ASLC's rates, but for borrowers with less outstanding credits
are in excess of 10 or 11 percent.
REPRESENTATIVE REINBOLD stated support for the Alaska Student
Loan Program (ASLP). She credited the ASLP for bringing people
back to Alaska.
9:35:46 AM
CHAIR GATTIS, after first determining no one else wished to
testify, closed public testimony on SB 195.
9:36:04 AM
REPRESENTATIVE REINBOLD moved to report SB 195 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, CSSB 195(FIN) was reported
from the House Education Standing Committee.
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