03/10/2014 08:00 AM Senate EDUCATION

              SJR 23-CONST. AM: STUDENT LOAN DEBT                                                                           
                                                                                                                                
8:03:09 AM                                                                                                                    
CHAIR STEVENS  announced that the  first order of  business would                                                               
be SJR 23.                                                                                                                      
                                                                                                                                
SENATOR  ANNA  FAIRCLOUGH,   Alaska  State  Legislature,  Juneau,                                                               
Alaska, sponsor  of SJR  23. She explained  that SJR  23 provides                                                               
Alaska's students the  lowest possible debt, should  they have to                                                               
acquire  debt.  The  Constitutional  Amendment  would  be  placed                                                               
before voters  in the November  general election, and  should the                                                               
voters  agree with  a constitutional  amendment that  would allow                                                               
the  best possible  debt to  be purchased  for students  in Post-                                                               
Secondary Education, the first loan  would not be available until                                                               
about 2017.                                                                                                                     
                                                                                                                                
8:04:30 AM                                                                                                                    
CHAIR STEVENS  asked why there  is a  41 percent denial  rate for                                                               
student  loan applicants.  He asked  if this  bill would  help to                                                               
remedy that problem by lowering the cost of loans.                                                                              
                                                                                                                                
SENATOR   FAIRCLOUGH  explained   that  in   2008,  the   federal                                                               
government  changed the  definition of  credit. Students  without                                                               
credit before  2008 were considered  to have good credit  and the                                                               
government would take a risk in  allowing the student to take out                                                               
a student loan. After that  date, student loans began to increase                                                               
in delinquency and if a student  had zero debt, it was considered                                                               
bad debt.   In short, SJR 23 would allow  the Alaska Student Loan                                                               
Corporation  to  lower  that threshold  slightly  and  anticipate                                                               
positive repayment rates.                                                                                                       
                                                                                                                                
SENATOR  GARDNER  asked  if  it  would have  any  impact  on  the                                                               
interest rate.                                                                                                                  
                                                                                                                                
SENATOR FAIRCLOUGH  said yes. She  said they have been  told that                                                               
the delta is  somewhere above 1 percent. If one  could pledge the                                                               
full faith and  credit of the state of Alaska,  there would be an                                                               
AAA bond rating,  whereas the current loans carry  a higher rate.                                                               
She deferred to Ms. Barrans to answer.                                                                                          
                                                                                                                                
SENATOR  GARDNER  asked  if  the  student  loans  would  have  an                                                               
interest rate of 1 percent or higher.                                                                                           
                                                                                                                                
SENATOR  FAIRCLOUGH  clarified  that  the students  would  see  a                                                               
decrease of  at least 1 percent  or higher in their  loan rate if                                                               
general obligation bonds could be issued.                                                                                       
                                                                                                                                
She  noted  a person  who  testified  in  opposition to  SJR  23,                                                               
claiming that the  bill encourages student loan  debt. She stated                                                               
that this  bill does not  encourage student loan debt.  It allows                                                               
the  state  to offer  debt  at  a  lower  interest rate  than  it                                                               
currently  can  under  the current  scenario.  The  Alaska  State                                                               
Constitution only allows  the state to issue debt for  a bond for                                                               
capital projects  or bonds  for veteran homes.  This is  a policy                                                               
decision that is permissible, but would  have to come back to the                                                               
legislature every time a bond is issued.                                                                                        
                                                                                                                                
CHAIR STEVENS commented  on the amount and cost  of student debt.                                                               
He recalled  an article about  a young couple who  graduated from                                                               
the  University of  Washington  Medical School  and  owed half  a                                                               
million  dollars  between  them  in  student  debt.  He  said  he                                                               
appreciates the sponsor's efforts to help solve this issue.                                                                     
                                                                                                                                
8:08:22 AM                                                                                                                    
DIANE   BARRANS,  Executive   Director,   Alaska  Commission   on                                                               
Postsecondary  Education, Juneau,  Alaska, presented  information                                                               
on SJR 23. She expressed  appreciation for the sponsor's interest                                                               
in supporting a long-term solution  to offer Alaska residents the                                                               
lowest  possible cost  of an  education  loan in  a fashion  that                                                               
would not require  any financial output by the state  in terms of                                                               
general fund support.                                                                                                           
                                                                                                                                
CHAIR  STEVENS  appreciated efforts  to  change  the culture.  He                                                               
recalled problems with  students not repaying loans  in the past.                                                               
He  inquired  if the  bill  would  have  any negative  impact  on                                                               
student repayment of loans.                                                                                                     
                                                                                                                                
MS. BARRANS said, to the  contrary, she believes that by reducing                                                               
the financing cost to students they  would be better able to meet                                                               
their obligations.                                                                                                              
                                                                                                                                
SENATOR GARDNER  asked what the  current interest rate  on state-                                                               
funded student loans is.                                                                                                        
                                                                                                                                
MS. BARRANS  said 7.3 percent  is the  base rate. She  added that                                                               
the  Alaska   Student  Loan  Corporation  annually   reviews  its                                                               
capacity  to  offer discounts  or  credits  - borrower  benefits.                                                               
Currently, the corporation  does offer a half  percent benefit to                                                               
individuals  attending  school in  Alaska  and  for borrowers  in                                                               
repayment,  a  quarter  percent   discount  for  those  who  take                                                               
advantage of on line electronic  repayment options. It allows the                                                               
corporation  to reduce  the  total cost  by  three-quarters of  a                                                               
percent against the 7.3 percent.                                                                                                
                                                                                                                                
SENATOR GARDNER  asked if SJR  23 passes, then the  interest rate                                                               
would be 6.3 percent or less.                                                                                                   
                                                                                                                                
MS. BARRANS replied  that it would depend on the  market. At this                                                               
point  in time,  it  would be  at least  a  1 percent  reduction,                                                               
possibly as  much as 1.25 percent  due to being able  to leverage                                                               
the state's outstanding credit.                                                                                                 
                                                                                                                                
8:11:53 AM                                                                                                                    
CHAIR STEVENS said  because it is a  constitutional amendment, it                                                               
will  be on  the November  general  election, not  on the  August                                                               
primary, which is pretty crowded.                                                                                               
                                                                                                                                
MIKE COONS,  representing himself,  Palmer, Alaska,  testified in                                                               
opposition to  SJR 23. He wished  to add information to  a recent                                                               
testimony. He  said he spoke  of the major  flaws in the  bill at                                                               
that time.                                                                                                                      
                                                                                                                                
CHAIR STEVENS  stated that this is  a new committee that  has not                                                               
heard previous comments.                                                                                                        
                                                                                                                                
MR. COONS  maintained that  the U.S.  is a  debtor nation,  not a                                                               
saving nation  and low  interest rates  encourage students  to go                                                               
into debt.  He listed other  ways for  students to get  a college                                                               
education debt  free. He stated  his belief that  less government                                                               
is better.                                                                                                                      
                                                                                                                                
CHAIR  STEVENS  closed  public  testimony  and  held  SJR  23  in                                                               
committee.