Legislature(2003 - 2004)
02/04/2004 01:32 PM Senate HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 277-STUDENT LOAN PROGRAMS
The committee took up SB 277, at the request of the governor.
MS. DIANE BARRANS, Executive Director, Alaska Commission on
Postsecondary Education ("Commission"), and Executive Officer of
the Alaska Student Loan Corporation ("Corporation") testified
that the objectives of SB 277 were five-fold. She referred to
the sectional analysis in the committee packet and said she
would provide a brief description. She outlined the objectives
as follows:
1. To broaden the scope of the Corporation's bonding
authority [indisc.] and to balance the general benefit
of the state. This change is requested to ensure, as
the ASLC has the capacity to return contributed
capital to the state, that it will have a variety of
means to do so and will be able to select the most
effective and efficient means.
2. To reconstitute the state's student grant program
to better focus on Alaska's workforce needs, and to
enhance the Commission's current outreach and early
awareness initiatives.
3. To provide the Commission with greater flexibility
in offering loan consolidation options to existing
borrowers. Current statutes limit the way in which
the Commission can offer consolidation. Certain
customers who have borrowed under the older Alaska
Student Loan program, which has been discontinued, and
its successor program, the AlaskAdvantage supplemental
education loan program, cannot consolidate across
programs.
4. To clarify the Commission's ability to
administratively issue liens in the collection of
defaulted education loans and to clearly set out the
due process available to a borrower in the event of a
dispute taken on action by the Commission.
5. To provide an exemption from the state procurement
code for certain services related to guaranteeing and
disbursing of education loans. Under the current
business structure for education loans, a lender must
be prepared to do business with the vendors and
services preferred by the institutions participating
in the program. In that case, a low bidder approach
may lead to doing business with an entity not used by
the schools being served.
1:55 p.m.
MS. BARRANS continued the sectional analysis, beginning with
Section 1, saying that this area adds authority and clarifies
the process to issue [indisc. due to paper shuffling] amending
language shown on page 2 of the bill. Section 2 allows
financing of the Education Incentive Grant Program through the
funds of the Corporation, adding it as one of the financial aid
programs that the Corporation can fund. Section 3 has
conforming language adding to the Corporation's ability to use
funds and assets to finance that program. Section 4
specifically broadens the scope of bonding authority for the
Corporation. Lines 23 - 31 allows for additional payment - to
issue bonds to finance state projects, as identified. She
explained that in Section 5 the Commission and Corporation both
feel it's more appropriate for the financial authority to set
the fees and rates associated with the programs. Section 6
makes changes to the current consolidation language in statute;
it removes the limitation of consolidating loans under the old
program and says consolidation can occur when a borrower holds
two or more education loans. Section 7 relates to the authority
for establishing a collection order. New language is on page 5,
lines 3 - 5. Section 8 contains all new language and sets out
the specific due process for those challenging the placement of
a lien through the administrative process. That new language
continues through page 7, line 9.
MS. BARRANS referenced Section 9, page 7, and explained that for
about 20 years, the old state Education Incentive Grant Program
was funded through the general fund. Those funds, partially
because of the small amount of federal dollars that could be
captured, were lined out of the budget in the late '90s, and
grant funds have not flowed to Alaskans through a state-
operating program since then. She then apologized and clarified
that Section 9 contains a conforming change to statute regarding
the trademark name of AlaskAdvantage. Ms. Barrans continued
with Section 10, noting the requirement for immediate repayment
of consolidation loans. Rather than giving a six-month grace
period that normal education loans give, between cessation of
school attendance and the start of repayment, there is no six-
month grace period. Once the loan has originated, repayment
commences within 30-45 days. Section 11 on page 7, contains
conforming changes for the new administrative collection order
authority. Section 12 reflects a trademark name change.
Section 13 is a conforming change that allows for the
consolidation of supplemental education loans. Section 14 is an
eligibility requirement. She said that currently there is a
double standard under the Alaska supplemental education loan
program. If a loan applicant's credit score is of a certain
level, he/she can receive the loan even if there was a prior
default on a debt. As long as it is cleared and the credit
score is met, he/she can receive that loan. However, if there
was a previous default on one of our loans, even if it was
repaid in full, a co-signer is required. This change attempts
to even the playing field; if the applicant meets all other
criteria, a co-signer won't be necessary. Ms. Barrans pointed
out that some changes are "clean-up" rather than substantive.
CHAIR DYSON suggested that she skip through those changes.
MS. BARRANS continued that Section 16 refers to the
AlaskAdvantage education grant program and the following several
sections provide for key changes to that program. The grant
program would be used in Alaska, and presuming there would be
more demand than available funds for those grants, it would
allow the Commission, by regulation, to create a priority system
whereby students enrolled in certain programs of study leading
to employment in critical worker-shortage areas in Alaska would
have first priority for those funds. This creates a fusion of a
needs-based Alaska-centric approach, making it a stronger and
more highly valued program in Alaska. She told members she
would skip to Section 24, page 11, and said the occupational
areas she was recommending as being of greatest priority for
grant funding were set out in lines 19 - 22. These occupational
clusters, pre-defined by the Alaska Department of Labor [and
Workforce Development] are:
· community and social service;
· education, training, and
library;
· healthcare;
· protective service.
She said the second tier criterion was whether there was a
workforce shortage and that obviously there may be a workforce
shortage in some of those occupations but not in others. As
defined on lines 25-28, the Department of Labor would determine
whether there was a current or recurring vacancy rate of 10
percent or greater, as an attempt at defining who could receive
a prioritized grant award.
SENATOR GREEN asked, "Are you sure you want these in statute?
They don't narrow you too much, or open you to, in some ways,
too broad?" She questioned whether the language "severe
shortage" would allow for the ability to respond to an emergency
or a change in circumstance. She asked, "Is this in addition or
is it just part of the defining?"
MS. BARRANS replied this had to do with the prioritization of
funds, and involved the Commission's long-term approach to
creating a mechanism to prioritize for these areas. Funds could
be made available under the grant program to any otherwise
qualified grant applicant attending an accredited program of
study in Alaska. She said the scenario suggested by Senator
Green was certainly a possibility; however, she was working from
the reality base of it being unlikely that there will ever be
sufficient funds to grant to everybody. She explained that by
focusing on the already identified long-term worker shortage
areas in the state, there would be a program that, at least for
some years, wouldn't require modification, although she wouldn't
expect the program to fully address the need for teachers, RNs,
LPNs, or nurses' aides.
SENATOR GREEN noted that the group being highlighted was a
narrow group, and suggested that at times a different group
might have a higher priority. She said she thought Ms. Barrans
would prefer to have a floating description of "shortage" and
re-stated her question regarding whether Ms. Barrans wanted to
define this in statute.
MS. BARRANS responded that this had already been discussed
within the agency and her answer to the question at this point
was yes. She said that a number of other industries in the
state could be pointed to as having shortage areas, such as
bankers, engineers or computer scientists. The identified group
focuses on a healthy infrastructure regarding public safety and
well being while weighing in economic factors. Recruiting for
high-end, high-wage jobs such as computer scientists, engineers,
or architects, is different. Candidly, she said there have been
a number of initiatives over the years and the feeling is that
professions having to do with health, safety, and education fall
into a special category - the infrastructure of a community.
She said there was only so much money to go around, and
targeting in this way makes sense.
SENATOR GREEN asked for clarification regarding the pot of money
and the program being defined in Section 24. She wondered if
shortage priority related to a very limited grant program, not
having anything to do with anything else.
MS. BARRANS replied, "No, absolutely not." She explained that
the intention was to keep the costs of other programs low,
competitive, and unilaterally available to every Alaskan.
SENATOR GREEN stated that although she doesn't often disagree
with Ms. Barrans, she wasn't sure she was in agreement with Ms.
Barrans's taking responsibility for determining "what is the
state's highest priority, and if it should be social service,
health, education, protective service." She said she wasn't
sure this was within [Ms. Barrans'] purview.
CHAIR DYSON acknowledged this was a good question, and pointed
out the demonstrable public safety need in rural Alaska and
asked if such training was outside of the availability of this
category of grants.
MS. BARRANS said no, that as long as the program of study was
required for entry into that occupation and was offered through
an accredited institution in Alaska, it would qualify. She
mentioned AVTech, University of Alaska's campuses, Ilisagvik
[College}, Alaska Pacific, and Sheldon Jackson's trooper course
in Sitka as potentially qualifying programs.
CHAIR DYSON remarked that if and when there is a gas pipeline,
there would be a desperate need for quality welders; this
language wouldn't allow the grants to be used for such an
anticipated future need.
MS. BARRANS said she believed the Commission would have the
ability, through regulation, to define a current [need] and to
factor in train-up time, if in fact DOL forecasts an anticipated
shortage in the future that's not a shortage today.
CHAIR DYSON asked, "Which one of these categories under Section
24?"
MS. BARRANS referred to page 11, line 25 and said she believes
that the Commission, through regulation, could define "current"
as meaning anticipated to occur within a six-month or twelve-
month period for example, in which case prioritization could be
considered.
SENATOR GRETCHEN GUESS asked if the priority list was on page
10, line 26 - 31:
The commission shall give an applicant eligible under
(a) of this section priority for a grant award if that
applicant is, or is about to be, enrolled in a program
of study that is preparatory for employment in a
health, human services, education, or public safety
occupation or profession for which the Department of
Labor and Workforce Development, or another workforce
data source selected as reliable by the commission,
indicates there is a severe shortage of trained
individuals in this state.
MS. BARRANS replied this was correct.
SENATOR GUESS questioned whether welders would be considered
under this part of the statute.
MS. BARRANS responded, "If it appears within one of those four
occupational clusters."
CHAIR DYSON asked about this having to be a profession.
MS. BARRANS said, "or occupation."
CHAIR DYSON said, "A welder isn't a public safety occupation and
is questionably not a profession."
MS. BARRANS said it was unlikely that "welder" falls into one of
the four occupational clusters set aside for prioritization.
2:15 p.m.
CHAIR DYSON asked if these grants would apply to a student at
AVTech.
MS. BARRANS replied absolutely.
CHAIR DYSON referred to the possibility of a student taking a
welding class [at AVTech].
MS. BARRANS explained that students could apply; prioritization
depends on what the pool of applicants looks like for that year,
how much money is available, and whether or not prioritization
is necessary. If there are no worker shortages and
prioritization is not necessary, then money is dispensed on a
needs basis.
CHAIR DYSON said if a huge project need was recognized, the four
categories would have to be satisfied before the first welder
would be taken.
MS. BARRANS replied this would depend on how regulations were
written, as this relies on the Commission to put a lot of the
bones into the structure of the program. The Commission could
allocate 'x' percentage of funds to the prioritization fields
for that year, "and make the others generally available to
applicants."
CHAIR DYSON said he understood what was said, acknowledging that
he wasn't sure it was good public policy to leave it just to the
Commission.
MS. BARRANS concluded [the sectional analysis] by referencing
Section 29, page 12, saying that this would exempt the
disbursing, and guarantee third party from the state [indisc.].
CHAIR DYSON referred to Section 4, page 3, sub-paragraph 3, line
28.
TAPE 04-4, SIDE B
CHAIR DYSON continued that this appears to say that proceeds of
the bonds can be used to finance any kind of state activity
approved by law. He asked if this was a change from current
policy.
MS. BARRANS responded that it was. She explained that the
Corporation would like to achieve the objective in the next few
years, as funds are available, to return the original
contributed capital that the state gave to start up the
Corporation between 1988 and 1992, in cash and assets - over
$360 million [indisc. due to paper shuffling]. This would allow
the Corporation to consider if it was most efficient and cost-
effective to return the capital through the issuance of bonds.
The return being made in FY 05 is based on a bonds issuing of
assets that are free and clear, allowing for the ability to
proceed because of not being pledged to any other indenture
currently outstanding for the Corporation. Even if the assets
continue to be pledged to the indenture, if the additional bonds
can be financed to give the proceeds to the state to use,
typically, as they will be in FY 05 for capital project
expenditures, the Corporation would be able to select that
option.
CHAIR DYSON commented that this was a significant change in
policy. He asked if it said, "up to the limit" of what the
state originally contributed to this fund.
MS. BARRANS said it did not. It does not set a cap. Financial
advisors have identified that about $250 to $260 million could
be returned. This will be less than the $306 [million]
originally used to capitalize the program; however, the
Corporation's annual dividends, paid to the state for the last
four years, is expected to continue in a rather flat, modest
amount. Through FY 05, the Corporation will have returned $22
million in dividends. She said the expectation is that over
time, the total return to the state will be its contributed
capital plus some earnings on the Corporation, but those will be
relatively modest.
SENATOR GUESS referred to Section 4 and asked, "What do we bond
for now?"
MS. BARRANS replied it was to finance the Corporation's
programs.
SENATOR GUESS asked about the included language, specifically
the Corporation's borrowing money or issuing of bonds.
MS. BARRANS replied, "That's how bond counsel recommended it."
SENATOR GUESS commented on the language being "as broad as I've
ever seen language" and questioned whether there was any limit
on bonding for these purposes, or what would stop someone from
bonding again after the $260 million.
MS. BARRANS replied, "The capacity to do so in a way that makes
sense is really what would be lacking." The Corporation issues
bonds at AA rating or greater, and to do that, there must be
minimum levels of cash flow, minimal levels of coverage to issue
bonds at that rating in the financial market. Once the return
of capital has been completed, there will be no capacity to do
that and the Corporation's extra, resulting from regaining
financial health, will be gone.
SENATOR GUESS asked, "What if you need the extra to keep the
health of the Corporation during the time of repayment?"
MS. BARRANS replied that something attractive about a 3-year
phased-in project is that OMB [Office of Management and Budget]
understands that each year the Corporation will run cash flows
ensuring that low-cost loans can be offered that can continue to
be reserved for the benefits on the program and will then ask,
"to what extent funds are available." She said there is always
some flex in the next two annual cycles because of wanting to do
that in real time. The Corporation felt a need to be candid
regarding its long-term objective.
SENATOR GUESS asked, "There's no more excess but there is some
flexibility?" She admitted to being worried about [the time]
when Ms. Barrans would be gone, voicing that this was pretty
broad language and the stopgaps and check systems weren't
included to ensure that bonding past capacity wouldn't happen.
She voiced concern about the potential scenario of the program
not being offered, yet there being a student loan rate increase
due to someone wanting to finance projects in the state and
deciding to use ACPE as that means.
MS. BARRANS replied that she couldn't predict the future but her
observation has been that [student loan] programs have been so
valued over the past ten years that every effort has been made
to secure the financial well being of the Corporation. She said
it was beyond her imagination that someone would close down the
programs, especially as support has been increasing. She
doesn't believe the public or any Legislature or administration
would close this down.
SENATOR GUESS recalled a time when the program wasn't as good as
it is now and stated that she didn't share Ms. Barrans'
confidence. She remarked that the language was even broader
than [AHFC's, Alaska Housing Finance Corporation's] bonding
language, and thought this was fairly irresponsible language.
She asked how much it would cost the Corporation to pay back the
bonds.
MS. BARRANS replied that year one has a $75 million revenue
piece. She said there were two fiscal notes, and a $120
thousand federal match. She said there should be $75 million in
revenue on the ASLC fiscal note for FY 05 and she would get that
[information] to the committee. The overall debt service
expected to pay in principal and interest, over 13 years, will
total about $92 million, she said.
SENATOR GUESS asked if this would impact the dividend paid to
the state.
MS. BARRANS responded that statute is currently structured to
determine the dividend at about $500 thousand less per year.
SENATOR GUESS asked if the state would get $260 million over a
three-year period.
MS. BARRANS confirmed this to be the case, from FY 05 through FY
07.
2:29 p.m.
SENATOR GUESS referenced page 11, lines 1 - 4, and asked for an
explanation of "priority."
MS. BARRANS said the Commission, through regulation, might use
this as a tool to promote positive student behavior. For
example, the Commission could prioritize funds for students who
have taken a designated college preparatory course during their
secondary school program. She said this wouldn't be the
Commission's first priority. One of her concerns as a program
administrator was the importance of having a program that could
be deemed a success. When a state has limited resources
available and chooses to invest funds in a grant program, it's
better if a grant recipient succeeds in what he/she has been
subsidized to do. It's fairly clear that if a student enrolls
in a challenging curriculum during a secondary program, he/she
is better prepared and able to succeed, once postsecondary
objectives are being pursued. Because this has a needs-based
component, in looking at Alaska's 19-year old population, fewer
than 30 percent continue to postsecondary education, and of
those in the lowest income level, less than 1 in 10 continues on
to postsecondary education. Her concern is that if educational
financial assistance is offered to someone who is not only poor
but also under-prepared, this could be putting that person in a
worse situation than he/she was in before.
SENATOR GUESS asked if the lien provision comes after all the
other liens.
MS. BARRANS replied, "First come, first served."
SENATOR GUESS mentioned that she had spoken with President
Therriault about collections, administrative hearings, and liens
that she thinks should be reviewed by Judiciary rather than
being the focus of HESS or Finance.
MS. BARRANS said, "that is existing, we have that authority" and
the due process is being clarified to improve an already
existing authority.
CHAIR DYSON stated that this committee's primary role was to
ensure that what's going on isn't to the detriment of student
loans or grants, and is hopefully an enhancement to it, while
the financial issues are better handled by Finance. He said he
shares Senator Guess's surprise. CHAIR DYSON took public
testimony.
MR. RICK WILLIAMS, Chief Enrollment Officer, University of
Alaska, Anchorage, testified via teleconference in favor of SB
277, especially Section 16. He said there is a real need in the
state to help needs-based students. He said the data on low-
income students reveals that an average of 75 percent of the
students who receive Pell Grants - which are really poverty-
level grants - from the time of application to enrollment
actually go on to class. That is, except for one small group
who are of maximum need, and that statistic is only about 50
percent. He pointed out that even with the maximum amount
given, those students are still unable to afford college. He
said he was probably referring to first-generation students
whose parents haven't been to college, people trying to get a
leg up in life. He said this grant program was a step in the
right direction, especially the targeting of workforce needs in
2009 that the state needs to develop.
MR. TED MALONE, Director of Financial Aid, University of Alaska,
Anchorage, testified via teleconference in support of SB 277,
specifically sections relating to the AlaskAdvantage education
grant program. He said Alaska was the only state in the union
without a state grant program in place. He said Alaska could
significantly enhance its ability to attract students into the
previously enumerated lower paying occupations. As students
accrue more debt, many career choices are based on one's ability
to pay off that debt. Regarding a decision between accounting,
starting at $45,000, or social work starting at $25,000, the
state's offering of an incentive could go further than the
actual dollars; a little bit of grant money could make a
substantial difference, as it could be an encouragement and
incentive for someone to pursue and persist in a service-
oriented field rather than physical labor, for example, whereby
a similar starting wage might be available without involving the
expense of going to school.
CHAIR DYSON asked if the administration had requested that Mr.
Williams or Mr. Mallone testify on this bill.
MR. WILLIAMS replied that his administration didn't know he was
testifying; he had spoken with the Commission and was excited
about this program.
CHAIR DYSON thanked them for their testimony and asked if there
was any further testimony. Hearing none, he took a brief at-
ease from 2:40 - 2:41 p.m. He announced that the bill would be
held in committee until probably early next week.
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