Legislature(2013 - 2014)SENATE FINANCE 532
03/31/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SJR21 | |
| SJR23 | |
| SB104 | |
| SB140 | |
| HB199 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SJR 21 | TELECONFERENCED | |
| + | SJR 23 | TELECONFERENCED | |
| += | SB 104 | TELECONFERENCED | |
| += | SB 140 | TELECONFERENCED | |
| += | HB 199 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE JOINT RESOLUTION NO. 23
Proposing an amendment to the Constitution of the
State of Alaska relating to contracting state debt for
postsecondary student loans.
9:32:44 AM
Vice-Chair Fairclough related that SJR 23 would add to the
constitution the authorization to issue the full faith and
credit for student postsecondary loans. She related that
Alaska's forefathers could not have contemplated the debt
load or the cost of postsecondary education that currently
existed in the United States. She reported that currently,
the Alaska State Constitution only allowed for the full
faith and credit of the state for capital improvements or
housing loans for veterans. She stated that if the
resolution was passed by a two-thirds majority by both the
House and the Senate, the Alaska Student Loan Corporation
would be able to utilize the best possible financing to
benefit students who accessed loan services from the State
of Alaska. She pointed out that regarding process, if the
resolution passed in the current session and was put on the
2014 ballot, a loan could not be issued until the student
loan corporation made that recommendation and brought it
back to the legislature; if the legislature approved the
resolution at this time, it would be advanced to the people
of Alaska again on. She believed that the issue needed to
be put before voters during the general election of 2014
because waiting until the next legislative session would
disadvantage students even further. She stated that the
current student loan rate for students who accessed loans
in Alaska was 7.3 percent and noted that the federal rate
on loans was 3.86 percent. She thought that if the full
faith and credit of the State of Alaska could be used and
the loans were still repaid, students who took loans
through the state could save 1 percent or greater in the
bond market.
9:35:29 AM
Co-Chair Meyer OPENED public testimony.
9:36:15 AM
ROBERT DOTSON, SELF, CORDOVA (via teleconference), spoke in
support of the resolution. He wondered why the State of
Alaska found it necessary to have a 7.3 percent interest
rate on student loans when a less than .5 percent interest
passbook saving could be issued at a bank. He thought that
the high interest rate made it difficult to pay off student
loans. He stressed that Alaska's young people were unable
to buy a home, rent an apartment, or buy a vehicle while
also paying student loans.
Co-Chair Meyer CLOSED public testimony.
9:38:38 AM
Co-Chair Meyer noted that a letter of support from the
Alaska Student Loan Corporation was located in member
files.
DIANE BARRANS, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON
POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT, EXECUTIVE OFFICER, ALASKA STUDENT LOAN
CORPORATION, replied in the affirmative. She said that the
corporation had been working with its financial advisor
over the last year in order to identify way in which the
rates that Alaska residents paid on the loans could be
reduced, as well as possible ways to make the loan more
accessible to Alaska students.
9:39:51 AM
Co-Chair Meyer requested an explanation of why the state's
interest on student loans was 7.3 percent.
Ms. Barrans replied that since the establishment of the
Alaska Student Corporation in 1987, the way the loans had
been financed was that debt was issued in the financial
markets that was backed by the assets of the loans. She
reported that the markets had taken a substantial turn for
the worse regarding the pricing of the state's loans as
well as the underwriting criteria that was expected to be
applied to the loans. She related in the current bond
market, the cost of the funds alone for the state using
bonds was around the high 4 percent low 5 percent, without
consideration of the cost of servicing the loans. She
stated that the underwriting criteria had been changed in
2009 because the rating agencies and bond buyers were
exhibiting increased scrutiny of the underlying assets. She
said that borrowers currently had to establish good credit
or have a co-signer with established good credit.
9:41:45 AM
Co-Chair Meyer inquired whether the default rate among
students had contributed to the high interest rate.
Ms. Barrans replied that the default rate was not a factor
in the cost of funds. She explained that the bond was asset
backed and that the rates had risen in recent years. She
furthered that the default rate came into consideration
when the state was structuring the bond deals themselves.
She said that when examining the amount of assets to the
bonds that were issued, the higher the fault rate in a
portfolio would require an increase in the amount of
collateral necessary.
9:43:00 AM
Co-Chair Meyer inquired what type of collateral was needed
and whether the parents were required to co-sign.
Ms. Barrans replied that if the applicant did not meet the
credit test, a co-signer would be necessary.
9:43:21 AM
Co-Chair Meyer queried what the default rate was for
student loans.
Ms. Barrans replied that the last published annual rate was
6.4 percent; the rate had been lower in the past but had
risen due to the economic climate on a national level.
9:43:52 AM
Co-Chair Meyer asked how Alaska's rate compared on the
national level.
Ms. Barrans responded that the rate was average. She said
that rates varied as to whether or not a co-signer was
required; many alternative education loan providers
required a co-signer.
9:44:32 AM
Co-Chair Meyer understood that the corporation was required
to make money off the loan program and then give a dividend
back to the state. He thought that instead of giving a
dividend to the state the rates for students could be
reduced.
Ms. Barrans replied that in 2001-2002 there had been an
expectation that corporations return funds to the state for
other uses. She said that the corporation's statutes were
amended to indicate that any year that there was net income
a dividend would be provided back to the state.
9:47:02 AM
Co-Chair Meyer inquired whether the program would be
available for out-of-state students.
Ms. Barrans replied in the affirmative.
Co-Chair Meyer surmised that the loans could be used a
recruiting tool for the university.
Ms. Barrans agreed.
9:48:05 AM
Co-Chair Meyer wondered if the program could result in
additional risk to the state.
Ms. Barrans responded that the objective would be to
structure the loans and bond issues in a way that would
mitigate the risk to the state. Ultimately, the bonds were
general obligation bonds, but the Texas model, used in the
development of the proposal, was based on general
obligation debt and had never resulted in the State of
Texas making repayments.
9:49:37 AM
Co-Chair Meyer inquired //. Ms. Barrans replied that the
commission promoted the federal loans if the rate was
better///.
Co-Chair Meyer realled that some were income based and
inquired//. Ms. Barrans responded that//.
9:50:39 AM
Co-Chair Meyer inquired if Department of Education and
Early Development required//. Ms. Barrans responded that
that it was not a requirement, but that///.//.
9:50:58 AM
Co-Chair Meyer queried the amount that the student could
receive from the state versus the amount they could receive
from the federal government.
Ms. Barrans said that the commission promoted use of the
federal loans, provided it was a better deal for the
student. She furthered that the commission urged students
to view the loans from the state as supplemental loan used
to fill any gap in tuition payment. She explained that the
annual maximum for an undergraduate student was $8500 per
year.
Co-Chair Meyer understood that the loans on the federal
level were based on income but that the state's loans were
not.
Ms. Barrans responded that the state loans were not income
based. She said that the federal subsidy available to
borrowers was income based. She stated that the federal
loan was an entitlement, anyone could borrow it and certain
benefits were available based on family income.
Co-Chair Meyer asked if the Free Application for Federal
Student Aid (FAFSA) was required for the state loan.
Ms. Barrans relayed that if the FAFSA was required by the
school the student would need to complete it; however, it
was not a requirement of the student loan program.
Co-Chair Meyer asked the University of Alaska required the
FAFSA.
Ms. Barrans said that they either required or strongly
encouraged the FAFSA. She suggested that the online form
had become easier to fill out and that completing the
application would help students access all the aid
available to them.
9:51:49 AM
Senator Olson wonders why a student would take out a loan
at 7.3 percent interest when they could receive a loan from
another institution at a lesser rate.
Ms. Barrans thought that if a student could pay for their
education using only the lower rate federal loans then they
should do so.
9:52:41 AM
Senator Olson highlighted the default rate of 6.4 percent.
He wondered how the state would continue to manage the
default rate during unstable economic climates.
Ms. Barrans replied that the bond deals were structured
with overcollateralization; one of the factors the state
considered was what was expected not to be collected on the
loans, either from default or permanent disability. She
asserted that it would not be expected that the state
would, in any way, subsidize the program.
9:53:31 AM
Senator Olson assumed that there would be no dividend paid
to the state as a result of the program.
Ms. Barrans responded that it had never been the
corporation's objective to be able to pay a dividend to the
state.
9:54:22 AM
Senator Hoffman wondered if there would be opposition to
changing the constitution to include the loans.
Ms. Barrans replied that one of the benefits was that there
did not seem to be any opposition other than people not
wanting to alter the state constitution.
9:55:27 AM
Co-Chair Meyer inquired if the loans could be limited only
to students enrolled in schools within the state.
Ms. Barrans replied that it would be a policy call. She
thought a reduction in loan volume could be an unexpected
consequence. She said that the number of students already
receiving loans was small. She added that when trying to
scale a program to achieve efficiencies in terms of cost of
servicing, the smaller the program is the more expensive is
for those participating. If the size of the borrowing
population can be expanded then the cost is spread over a
greater number of individuals thereby reducing the cost for
all.
9:56:52 AM
Co-Chair Meyer asked the denial rate percentage
Ms. Barrans responded that it was approximately 40 percent.
9:57:14 AM
Vice-Chair Fairclough noted that allowing the percentage
rates to drop would allow for the possibility for the
commission to reduce the required credit score.
Ms. Barrans replied that the credit criteria could probably
be moderated. She stated that one of the advantages to
having a general obligation back bond was that rating
agencies looked to the credit of the state that was backing
the bond. She did not think that the credit criteria could
be eliminated, but it could be moderated to be more readily
available to students.
9:58:43 AM
Vice-Chair Fairclough believed that the resolution would
benefit the people of Alaska and the state's student loan
program.
9:59:42 AM
Co-Chair Kelly MOVED to REPORT SJR 23 out of committee with
individual recommendations and the accompanying fiscal
notes. There being NO OBJECTION, it was so ordered.
SJR 23 was REPORTED out of committee with a "do pass"
recommendation and with a new fiscal impact note from the
Office of the Governor and a new fiscal impact note from
the Legislature.
10:00:05 AM
AT EASE
10:03:08 AM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2014 03 08_UA support of SJR23 and SB195.pdf |
SFIN 3/31/2014 9:00:00 AM |
SB 195 |
| Fiscal Note SJR23-LEG-SESS-03-07-14.pdf |
SFIN 3/31/2014 9:00:00 AM |
SJR 23 |
| SJR 23 Fiscal Note.pdf |
SFIN 3/31/2014 9:00:00 AM |
SJR 23 |
| SJR 23 Sectional Analysis.pdf |
SFIN 3/31/2014 9:00:00 AM |
SJR 23 |
| SJR 23 Sponsor Statement.pdf |
SFIN 3/31/2014 9:00:00 AM |
SJR 23 |
| SJR23supportLttrBarrans.pdf |
SFIN 3/31/2014 9:00:00 AM |
SJR 23 |
| SJR21 Kawerak Testimony.msg |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |
| SJR21 Testimony in Support HJR 33 Larry Wood.doc |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |
| SJR21 opposition - Otte.msg |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |
| SJR21 support - Jones.msg |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |
| SJR21 support - Torrison.msg |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |
| SJR21 support - Zobel.msg |
SFIN 3/31/2014 9:00:00 AM |
SJR 21 |