Legislature(2001 - 2002)
04/17/2001 01:46 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 204
An Act relating to the Alaska Commission on
Postsecondary Education and the Alaska Student Loan
Corporation; relating to student financial aid programs
and the financing of those programs; establishing the
Alaska Advantage Loan Program and the Alaska
Supplemental Education Loan Program; increasing the
bonding authorization of the Alaska Student Loan
Corporation; providing for liens resulting from a
default under AS 14.43 or AS 14.44; relating to the
duties of the recorder regarding those liens; relating
to defaults under the Western Regional Higher Education
Compact; relating to the prohibition on discrimination
regarding programs under AS 14.43; relating to fees for
the review of certain postsecondary institutions;
making conforming amendments; and providing for an
effective date.
DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION
COMMISSION, DEPARTMENT OF EDUCATION, explained that the
Alaska Student Loan Program has achieved great success in
the past few years. The Commission on Postsecondary
Education and the Alaska Student Loan Corporation have
turned the program around, running it in the black for the
first time in history and paying a dividend back to the
State. The bill would establish the AlaskaAdvantage Loan
Program. Under the legislation, Alaska would participate in
the federal guaranteed student loan program, which brings
benefits including low interest rates for borrowers and
reduces risk to the State through federal loan guarantees.
Ms. Barrens testified that the bill would create a
supplemental loan program to provide financial assistance in
the event that the AlaskaAdvantage Loan program was
insufficient to cover education costs if the student does
not qualify for assistance under the federal guaranteed
student loan program. The bill would create a one-stop
financial aid information center and financial opportunity,
guarantee the lowest possible borrowing rates, streamline
aid delivery and reduce financial risk to the State through
the federal guarantee. The program would also offer
expanded options for borrowers with special needs in loan
repayment.
Co-Chair Mulder pointed out the renaming of the student loan
program. Ms. Barrens replied that because there would be
loans offered to none resident students, the choice was to
go with a "generic" name.
Co-Chair Mulder referenced Page 11, the increase bond
issuance by $75 million dollars. Ms. Barrens replied that
at this point, it is not anticipated that the annual bonding
will need to be increased, however, in the future if there
is a substantial jump, the Division would like to be able to
make that effort.
Co-Chair Mulder clarified that only bonds necessary to
substantiate the application would be issued. Ms. Barrans
replied that was correct.
Vice-Chair Bunde asked about the students that remain in
Alaska following graduation. Ms. Barrens explained that the
State believes that there could be efficiencies created with
the automation and connection with the institutions in
Alaska that could result in lower servicing costs of the
loans. The bill proposes to offer a preferred interest
reduction for individuals that remain in Alaska. There
currently is not a program of that kind in existence. The
financial model that underlies the program has some new
revenues coming into the corporation. In the past, the
Division lost money and those programs were not feasible.
As the Commission has moved from the "red" into the "black",
they have been reluctant to be overly aggressive of reducing
costs at the low market without some revenue stream
associated with that. The benefits of the program will
allow the Commission to afford new programs.
Vice-Chair Bunde asked the current "dead beat" rate. Ms.
Barren replied that there are not good statistics on the
average debt of the person graduating from the program. The
average debt of a borrower is around $15,000 dollars. She
added that this year, the default rate fell below 10%.
Representative Davies inquired the incentives for the
students that stay within the State and at what point would
they become eligible. He pointed out that if the incentives
were not provided to the students, the dividend to the State
would become larger.
Ms. Barrens explained that as the Commission moves forward
for the next six to nine months, they will be undertaking
financial modeling. At this time, the plan is to make it
available to anyone who borrows to attend an institution in
Alaska or for those attending outside Alaska, they would
need to return to Alaska upon graduation. Administratively,
that would be a much simpler benefit to pay out. The
rational is that if you live in Alaska or attend school in
Alaska, the costs to the program are lower and therefore
that piece of interest paid for servicing should be lower.
Ms. Barrans added that because the dividend amount is
formulated and is a certain percentage of the net income,
anything that would reduce the net income would affect the
dividend to the State. She explained that one of the things
that the bill does is clarifies the mission of the
Corporation which, must be focused on the students served
and the borrowing customers. The decisions that would
reduce net income would be a direct benefit to borrowers and
would occur through the bill. She stressed that it is
important to the corporation to have that language included
in the bill.
TAPE HFC 01 - 83, Side B
Representative Hudson inquired if there was anything that
would modify the cost of the loan. Ms. Barrens noted that
there is not currently a cap on the interest that could be
charged on a loan; rather it is tied to the interest that
could be charged on a loan. It is tied to the financing of
the program. The bill would establish a cap. Ms. Barrans
added that the residency definition was not changed, but it
does allow the loans to be made to people that come to
Alaska to go to an Alaskan institutions. That is a change.
She added that change is one that the Commissioner believes
is necessary.
Vice-Chair Bunde MOVED to report HB 204 out of Committee
with individual recommendations and with the accompanying
fiscal notes. Representative Davies OBJECTED.
Representative J. Davies pointed out that there was not a
fiscal note included that indicates the effect on the
general fund. Ms. Barrans replied that the fiscal note
included with the bill is a positive fiscal note.
Implementing the program would be creating a positive effect
on the net income of the Corporation. What is not included
are the various pieces. The Corporation will have the
flexibility within its own statute to authorize benefit
programs to the borrowers. There is nothing that states
there should be a net zero value and the Commission could
offer below market rate interest. That rate would be
variable and the rate is not known and cannot be factored
into the fiscal note.
Representative Davies stated that he had a bill
substantially similar to a portion of the proposed
legislation. He advised that bill currently was in the
House Finance Committee.
Representative Whitaker understood that the Corporation
anticipates an increased number of loans. He asked how it
could be predicted that the dividend would decrease. He
acknowledged that it would be difficult to predict the
fiscal impact. Ms. Barrans agreed that this is a dilemma
and at this point the deferred terms need to be established.
Until the volume is assessed, it is nebulous. The reason
that the cost can be estimated, the interest rate should be
15-100 basis points below the rate charged other borrowers.
That is how the fiscal impact was calculated for the
program.
A roll call vote was taken on the motion.
IN FAVOR: Bunde, Foster, Harris, Hudson, Lancaster,
Whitaker, Williams, Moses
OPPOSED: Croft, Davies
Co-Chair Mulder was not present for the vote.
The MOTION PASSED (8-2).
HB 204 was reported out of Committee with a "do pass"
recommendation and with new fiscal notes by the Alaska
Commission on Post Secondary Education and the Department of
Fish and Game.
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