Legislature(2013 - 2014)BUTROVICH 205
03/06/2014 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SJR23 | |
| Confirmation Hearings | |
| SJR18 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SJR 23 | TELECONFERENCED | |
| += | SJR 18 | TELECONFERENCED | |
| *+ | SB 149 | TELECONFERENCED | |
| + | TELECONFERENCED |
SJR 23-CONST. AM: STUDENT LOAN DEBT
9:01:34 AM
CHAIR DYSON welcomed Senator Fairclough to introduce SJR 23.
9:01:42 AM
SENATOR ANNA FAIRCLOUGH, Alaska State Legislature, Juneau,
Alaska, stated that SJR 23 amends the Alaska Constitution which
is a very serious matter. She explained that SJR 23 simply
allows the Legislature to authorize a loan for post-secondary
students. She added that SJR 23 fits into a constitutional
amendment and allows for a post-secondary education bond that
would have to come to the Legislature for approval. She said
ultimately the resolution would have to go to voters and ask if
they agreed with the Legislature. She pointed out that current
state law under the Alaska Constitution allows for capital
improvement indebtedness and housing loans for veterans. She
detailed that SJR 23 would expand the legislative authority to
cover a debt for one more entity.
9:03:23 AM
SENATOR COGHILL joined the committee meeting.
SENATOR GIESSEL asked why SJR 23 is needed.
SENATOR FAIRCLOUGH answered that students across the nation are
experiencing a high debt load, something that the country's
Founding Fathers probably never considered. Debt was something
different many years ago than it is today. She said the state's
students are borrowing at a much higher rate than they can
achieve or acquire. The federal national loan program was at 7
percent and has been reduced to 3.86 percent. She said the hope
is for student to go and try to access federal loans first. She
remarked that currently because of the structure of the Alaska's
loan system, the state is financing 2014 loan debt for students
at 7.30 percent via the Alaska Supplemental Education Loan and
Family Education Loan.
She said SJR 23's purpose is to first, extend student loans at a
lower interest rate by using the full faith and credit in
Alaska's AAA credit rating. Second, over time the Legislature
could assist students by refinancing their higher interest
loans.
SENATOR WIELECHOWSKI stated that he supports Senator
Fairclough's efforts. He asserted that the Legislature needs to
drive down outrageously high loan costs for student. He pointed
that the priorities are wrong when banks can get loans for less
than 1 percent and Alaska is charging students 7 percent.
He asked how much the interest rates can be driven down. He
inquired if lowering interest rates was a better approach than
funding loans through the State's General Fund.
SENATOR FAIRCLOUGH responded that the lowest debt to students
would occur through the State's General Fund. She said using the
State's General Fund is a challenge due to volatile oil prices
and tight budgetary times. She stated that SJR 23 would offer
loans that would be a percent or percent-plus below what is
currently offered.
9:06:23 AM
DIANE BARRANS, Executive Officer, Alaska Student Loan
Corporation (ASLC), Juneau, Alaska, noted that she was also the
Executive Director of the Alaska Commission on Postsecondary
Education. She said Senator Fairclough has done an excellent job
of explaining the objective and the reasons behind SJR 23. She
noted that Senator Fairclough is correct that, depending what is
occurring in the market, general obligation bonds can be
accessed with the Alaska's AAA credit behind it to achieve at
least a percentage point reduction below what could otherwise be
achieved. She added that another benefit would be the rating
agencies and investors looking at Alaska's credit, rather than
scrutinizing education loans, revenue will be provided to pay
down bonds and the credit criteria may be widened so that more
Alaska students can qualify.
9:08:25 AM
SENATOR FAIRCLOUGH pointed out that around the time of the 2008
financial crisis, the federal government actually increased the
credit scores required to access loans. She noted that
previously, students were considered a good risk if they did not
have credit. Currently the new definition requires a student to
have a minimum credit score and students are not qualifying. She
provided an example of having to co-sign for her son in order to
obtain a student loan for college.
9:10:05 AM
SENATOR WIELECHOWSKI said college student debt has become a
national crisis. He pointed out that there is a trillion dollars
of outstanding student loan debt. He asked how much the student
loan interest rates will be reduced and how much the state will
pay in addition to what the students will be charged. He
inquired if SJR 23 is the best way to get the interest rates
down for students.
MS. BARRANS replied that a significant change to interest rates
can be made. She pointed out that market-based rates have been
at historical lows over the past several years and her intent
was not to over promise what using the state's AAA rating will
allow for the lowest possible cost of funds. She continued to
explain as follows:
If we were in the market today with AAA debt, I think
we would be in the 4.5 to 4.6 percent range. Compare
to if we were in market today with student loan backed
bonds, we would be at least a percentage and a half
higher than that. So that's kind of the differential
that you can achieve, but again it would allow us as
well to make the loans more widely available to
students. Right now, as Sen Fairclough points out in
her sponsor statement, we deny over 40 percent of
applicants who come to us now. We are failing to
really deliver the kind of program to state residents
that we should both with respect to price and
availability. To your second more broad question
regarding is this the best approach, I would suggest
that it is, not only will we not be looking at a year-
to-year situation where if we were to go to a general
fund supported program where we have to rely on what
other priorities the state is dealing with financially
and we can't make a long term commitment to borrowers,
but we are using the state's credit very efficiently
without associating a financial obligation upon the
state. The loans themselves can be structured to pay
down the bonds, avoid any potential burden on the
state general fund, but still deliver a product that
would rival any other non-federal loan in the country.
We would hopefully be second to none under this
structure.
9:13:33 AM
SENATOR WIELECHOWSKI asked if SJR 23 is essentially revenue
neutral by passing through costs with administrative fees. He
inquired if the state is losing money or will SJR 23 allow the
state to make money. He addressed delinquency rates and queried
if the state anticipates a problem.
MS. BARRANS answered that cost is rather revenue-neutral. She
explained that the business model has been to keep costs to the
borrower as low as possible while remaining in a position to
demonstrate good faith in repaying bond holders. She noted that
hundreds of millions of dollars of bonds have been issued over
the years without ever having to statutorily ask the Legislature
for funds to cover bond shortfalls. She pointed out that
borrowers have been provided with benefits in the form of
credits that are applied to loans. She explained that a student
who attends school in Alaska and is making automated payments
can receive a 0.75 percent credit. She said delinquency rates
are quite low and average in the 5 to 8 percent range. She noted
that delinquency rates increased during the recessionary period,
but rates have declined during the past two years. She set forth
that ASLC is in a very good situation to look at supporting the
next generation of student loan financing.
CHAIR DYSON invited public testimony.
9:17:07 AM
MIKE COONS, representing himself, Palmer, Alaska, said he
opposed SJR 23 and noted the nation's propensity for debt rather
than savings. He stated that lowered interest rates will
exasperate student debt.
9:20:08 AM
CHAIR DYSON announced that public testimony is closed. He asked
to confirm that if SJR 23 gets on the ballot and is approved by
voters, SJR would have to come back to the Legislature for
authorization by specific law.
SENATOR FAIRCLOUGH concurred with Mr. Coons' concern with
student debt and noted that she supported savings. She stated
that voting for SJR 23 supports loans for students who do not
have savings or parents that can help out. She pointed out that
ASLC already has the capacity to borrow, so there is nothing new
that would have to happen. She agreed with previous SJR 23
testimony that a student can carry less debt if they graduate on
time. She added that the state should help students understand
the cost of education and the debt that will have to be carried
in the future.
9:22:21 AM
SENATOR COGHILL noted that the student loan program is a tool
that allows the state to put together a way to make the best use
of its money. He added that the concept really comes down to the
cost of money.
SENATOR GIESSEL agreed with Mr. Coons and Senator Fairclough
that debt is not good. She stated that she supports SJR 23, but
noted that the resolution does not get at the problem of why
secondary-education is becoming more expensive.
CHAIR DYSON announced that the Chair will entertain a motion.
9:23:36 AM
SENATOR GIESSEL moved to report SJR 23 from committee, labeled
28-LS1394\U with individual recommendations and attached fiscal
note(s).
9:23:50 AM
CHAIR DYSON announced that seeing no objection, SJR 23 passed
out of the Senate State Affairs Standing Committee.
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