Legislature(2001 - 2002)
03/15/2001 03:05 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 54-STUDENT LOAN FORGIVENESS CHAIR DYSON announced that the committee would hear HOUSE BILL NO. 54, "An Act relating to reimbursement of student loans; and providing for an effective date." [Before the committee was CSHB 54(EDU).] Number 1011 REPRESENTATIVE JOHN DAVIES, Alaska State Legislature, came forth as sponsor of HB 54. He stated that HB 54 is an attempt to encourage students who have taken advantage of the student loan program by either remaining in the state or returning to the state to work. He said, "The broader goal is to look at what seems to be a brain drain that we have in our state, and a situation where our student loan program unintentionally encourages that situation to continue." This bill originally started off as a forgiveness approach; however, in looking at the fiscal note attached to that, he began to rethink the idea. He remarked that it seemed possible to restructure the fiscal impact and still have a substantial amount of the beneficial aspects of the bill. REPRESENTATIVE DAVIES explained that [CSHB 54(EDU)] has now taken an interest rate reduction approach. After graduation, if a student either returns to the state or stays in the state and is employed, he or she would be credited between a .5 percent and a 1 percent interest rate reduction on his or her loan. He clarified that this would be in effect as long as the student stayed in the state. Number 1210 CHAIR DYSON asked Representative Davies whether it is not that it will cost the state any money but that the state will make a little less off the loans. REPRESENTATIVE DAVIES replied that it could be looked at in a variety of ways. He stated that the Student Loan Corporation has done a good job of managing the program with twin objectives. One is to put the loan program on a more sound fiscal structure so that it is like a bank. There would be more screening of the student loans in the first place to make the expectation clear that the loans are to be paid off on time. He stated that this has resulted in a significant reduction in the default rates. At the same time, by managing the portfolio wisely, [the Student Loan Corporation] has been able to bring down the interest rate a little. He remarked that one thing that he is trying to do is to have [the Student Loan Corporation] bring down the interest rate a little more rapidly for those who stay in the state. He explained that this does cost money and the lower rates have to be subsidized in some way. The bottom line for that to happen is that under the current fiscal year the Student Loan Corporation is expected to pay a dividend to the state in the amount of about $4 million. REPRESENTATIVE DAVIES expressed that his fundamental concern is that the children stay here. One of the advantages of that is that families tend to stay closer together; if this happens; there are all sorts of benefits - socially and fiscally. Number 1362 REPRESENTATIVE COGHILL referred to Section 3 concerning the interest rate being determined by the [Postsecondary Education] Commission and asked if Representative Davies has anticipated any kind of a scale on the rate reduction. REPRESENTATIVE DAVIES replied that he asked that the calculation to be done based on either a .5 percent or a 1 percent [reduction]. He explained that if the typical loan were 8 percent, the reduction of 1 percent would make it a 7 percent loan. REPRESENTATIVE COGHILL asked if this is given the discretion based on bonds. REPRESENTATIVE DAVIES answered that there wouldn't be any differential amount. He said that he doesn't want to ask the Student Loan Corporation to do something that is fiscally difficult to accomplish. CHAIR DYSON informed Representative Davies that the committee is trying to get all of the loan-forgiveness-incentive bills together at one time in [the House Finance Committee]. REPRESENTATIVE DAVIES remarked that the other two [loan forgiveness bills] are focused on forgiveness [for loans for teachers] and that [HB 54] is the only one that applies to all the student loan programs. Number 1520 DARRELL HARGRAVES, Executive Director, Alaska Council of School Administrators, came forth to testify on HB 54. He stated that when the oil revenues first were a big item in this state, many people thought that the highest and best use of some of that oil revenue was to educate the population. He remarked that HB 54 will be an encouragement and inducement to get some of that population that's leaving back into the state. He stated that it is his opinion that that is a much bigger problem than what he is hearing discussed. Half a dozen college students that he knows are suffering severe anxiety about whether they can come back to Alaska and get the kind of jobs that they are seeing "out there." Nationwide, legislators and governors, according to material that he has read, are in a rush to try to encourage people to come into their school districts to be teachers and administrators and are offering "exotic" rewards. MR. HARGRAVES referred to two handouts about the shortage of teachers and superintendents in Alaska and stated that perhaps the same thing could be said about other areas. For example, he mentioned that he had talked to some small contractors around the Matanuska-Susitna Valley that are asking questions such as: "Where are the kids that used to graduate who could come on site with a nail apron and a tool belt and start helping us do house framing?" He remarked: "It looks to me like we're getting short of everything but legislators." He concluded that anything the [committee] could do to look at the shortage of qualified eligible teachers and school administrators would be highly commendable. Number 1883 DIANE BARRANS, Executive Director, Postsecondary Education Commission, Department of Education and Early Development, came forth to answer questions on HB 54. She remarked that the objectives of this legislation are consistent with those of the [Postsecondary Education Commission] and the Student Loan Corporation. She said she thinks that in addition to the incentives for returning or remaining and working in Alaska is the incentive to complete the credential for which the loan was borrowed. REPRESENTATIVE COGHILL asked how this is going to affect the shift from year to year concerning when a loan is given with an expected contract. MS. BARRANS answered that it really won't. She explained that the way the bill is structured this would not necessarily be written into the contract with the borrowers. In the new program [the Postsecondary Education Commission] would receive the fund, from either the general fund or potentially a portion of the dividend that would be returned to the corporation and would pay the cost of this reduction. As funds are made available to the corporation, [the Postsecondary Education Commission] would make that reduction available to the qualifying pool of borrowers. REPRESENTATIVE COGHILL asked, given the amount of students who may take advantage of this, whether there could be a case in which [the Postsecondary Education Commission] might not be able to fulfill this obligation. MS. BARRANS replied that there really isn't, with the way the bill is constructed. She remarked that Representative Davies was concerned about not putting the [Student Loan] Corporation at risk of having a reduction in rating or any other problem in impairing the ability to issue new bonds. She stated that if there was no funding available, the benefit would not be paid to borrowers. Number 1800 CHAIR DYSON asked whether the student loan is not subsidized by general fund dollars. MS. BARRANS said that is correct. CHAIR DYSON asked whether the student loan just makes a dividend or contribution to the general fund based on some formula. MS. BARRANS said that is correct as well. Number 1827 JOSEPH HARDENBROOK, Student, University of Alaska Fairbanks, came forth to testify in support of HB 54. He stated that in 1998 George Washington University awarded an honorary degree to Bill Cosby, who spoke at the commencement exercises, offering the following ending remarks: "Congratulations. Now get out there and pay back your student loans." Mr. Hardenbrook said the student part of the audience was very quiet, while the parents were laughing and applauding. He stated: You talked about the sticker shock that you experienced the first time you saw HB 54 ... There's quite a few students who experience similar sticker shock when they get their degree and then receive their little planning book from Sally Mae telling them exactly how much they're going to owe every month for the next 20 or so years. MR. HARDENBROOK remarked that he knows students who are graduating $30,000 in debt. He shared that two students, one who is graduating $20,000 in debt and one who is graduating $30,000 in debt, got married and greeted the world as "Mr. and Mrs. Peterson, with $50,000 in debt hanging over their heads." He said this bill is not going to solve all of those "sticker shocks," but it is a step in the right direction, it will help Alaska students to "stick around", and it will help a little bit with financial planning and making life career choices. Number 2009 CHAIR DYSON asked if there is a way for the committee to tinker with the fiscal note to make it clearer. REPRESENTATIVE DAVIES responded that there are a number of different ways to think about how the bill works. He stated that he did change the mechanism of the bill after the request of the Student Loan Corporation to avoid a situation that would impact the bond rating. He explained that that's why the amount of the subsidy is going to be paid out of the general fund. He remarked that if the [Student] Loan Corporation sends $4 million to the general fund and [the state] sends $1 million back, then it's the equivalent of the [Student Loan] Corporation sending $3 million. He stated that he thinks, for reasons relating to the bond ratings, it is better to be structured this way. CHAIR DYSON asked if it would be clearer if the Fund Source [of the fiscal note] was on the 1005 line with a minus, showing less program receipts. REPRESENTATIVE DAVIES explained that the reason why it wasn't done that way was to make clear to the bondholders that the funds are going to be there. He stated that the full expectation is that the Student Loan Corporation dividend will be larger than the GF (general fund) subsidy required; therefore, in net it would work the way [Chair Dyson] is thinking. REPRESENTATIVE COGHILL asked if there was any discussion about retroactivity. REPRESENTATIVE DAVIES answered yes, but that this bill is not retroactive. Number 2090 REPRESENTATIVE WILSON made a motion to move [CSHB 54(EDU)] from committee with individual recommendations and attached fiscal notes. There being no objection, CSHB 54(EDU) moved from the House Health, Education and Social Services Standing Committee.
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