Legislature(1997 - 1998)
05/06/1997 04:08 PM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SCSSB 189(FIN) - EDUC.LOAN REPAYMNT\ELIG.; OCC. LIC. Number 0960 CHAIRMAN BUNDE announced the next item on the agenda was SCSSB 189(FIN), "An Act relating to eligibility for and default, collection, and repayment of student loans; relating to non-renewal of certain occupational licenses for default on a student loan; and providing for an effective date." Number 0965 SHEILA PETERSON, Legislative Assistant to Senator Wilken, explained that Senator Wilken was a member of the Senate Finance Subcommittee on Education. As a member he reviewed the Alaska Commission on Postsecondary Education which services a large number of loans, approximately $60 million to $70 million this year. The amount of loans in default is about 18 percent. The bill will make the Alaska Commission of Postsecondary Education more stable and businesslike. It provides the necessary financial tools to effectively and efficiently reduce the number of loans that are in default. Currently the average age of the loan applicant is 27- years-old, these people are in the work place and should be responsible for paying back their loans. MS. PETERSON said that Smith-Barney reviewed the commission and made several recommendations; some of which are embodied in SCSSB 189(FIN). Senator Wilken wanted the committee to realize that when Smith-Barney reviewed the commission's work they indicated that a majority of the commission's time is spent on servicing loans that are in default. It is hoped that with passage of SCSSB 189(FIN), these loans will be under control and the loan program can be available to the next generation of Alaskans. Number 1094 REPRESENTATIVE J. ALLEN KEMPLEN asked how the program of non- renewal for occupational licenses worked. Number 1104 MS. PETERSON answered that the program was patterned after the child support enforcement program. Number 1151 DIANE BARRANS, Executive Director, Postsecondary Education Commission, Department of Education, said the commission is supportive of this legislation. Commission staff were asked to identify some effective tools in other student loan programs for collection of defaulted loans. These tools are referenced in the bill before the committee. She explained that occupational licenses are renewed on about a three year cycle. The licenses, on which the commission currently intervenes, are administered by the Division of Occupational Licensing. The commission sends a notice, at least four to six months in advance of a licensee's renewal date, to let them know that there is a problem with their student loan which could interfere with the reissuance of their license. The commission then works with the borrowers to try to come into compliance with some payment arrangement if they are not in the position of fully paying the amount in arrears. This program has proven itself effective. This bill would expand this program to include teachers who are licensed by the Department of Education and some occupational licenses that are handled by the Department of Labor. Anyone licensed to practice an occupation by the state of Alaska would have to repay their Alaska student loan debt. Number 1260 REPRESENTATIVE KEMPLEN asked if the commission received many complaints about this process. Number 1264 MS. BARRANS answered that the commission did not receive many complaints, but the few complaints they received were loud. Those who decided to fight this process, rather than comply with it, felt very strongly that their student loan debt and their default status should not be something which should keep them from being licensed by the state. This program encourages borrowers to stay in good standing with their loan. Number 1297 REPRESENTATIVE KEMPLEN asked how many people were affected by this process. Number 1302 MS. BARRANS believed that, within the last year and a half that this process was used, it involved fewer than 150 individuals. Of those individuals, all but 19 have managed to come to some repayment agreement. She stated that she would send exact figures to the committee as she was relying on memory. Number 1335 CHAIRMAN BUNDE cited an example from when he served on the commission. One appeal involved a gentlemen who had suffered a head injury, had completed at least two undergraduate degrees and perhaps one or two postgraduate degrees. This person claimed an exemption from having to repay his loan because of the head injury. He expressed concern that the loan program will be gone in six to eight years if the default rate is not stopped. The commission does not take in as much money as is paid out. Number 1383 TERESA WILLIAMS, Assistant Attorney General, Fair Business Practices Section, Civil Division, Department of Law, testified next via teleconference from Anchorage. She said this bill is legally defensible, it is an excellent bill. Number 1395 CHAIRMAN BUNDE asked Ms. Barrans to give a brief comparison between the requirements to apply for and receive a student loan now and how the process would change under SCSSB 189(FIN). Number 1421 MS. BARRANS explained that the process won't noticeably change in the paperwork completed by the loan applicant. Applicants fill out forms, they are sent to the commission and the applicants are notified about whether or not they have received an award. The bill would add a credit assessment to that process. The commission feels this process would be relatively inexpensive and could be done electronically. If the commission finds that the borrower has an egregious bad credit history, the commission would offer them the opportunity to have a credit worthy co-signer on their note. MS. BARRANS added that the commission aggressively pursues defaulted borrowers, but these are unsecured loans with nothing tangible for the commission to repossess. The commission relies on tools such as the Permanent Fund Dividend garnishment which has proven to be very effective. In addition, the commission sends out written correspondence and makes phone calls. This bill would allow the commission to expand their use of the professional and occupational licensing tool and to do an administrative wage garnishment. Currently the commission can go through the full legal court process of getting a judgement against someone in order to get a garnishment of wages. As this is expensive and time consuming, collection agencies will often look at the size of the debt and make a judgmental decision of whether or not it is worth the cost. The commission would be able to do it across the board, through the administrative wage garnishment process. Number 1520 CHAIRMAN BUNDE asked about the future notification regarding the changes in the promissory note. Number 1528 MS. BARRANS answered that the commission wants to provide due notice up front whenever possible and use this as a disincentive for borrowers to fall into delinquency status. She pointed out that there is a provision in SCSSB 189(FIN) which would allow a half percent interest increase. This increase would not go into effect until the 1998-1999 school year as the commission is well into the application process for the 1997-1998 school year. The current interest rate is 8.6 percent. Number 1557 CHAIRMAN BUNDE asked if the 8.6 percent was contingent on the prime plus rate. Number 1564 MS. BARRANS answered that it is the average interest rate which the commission is paying on all of the bonds that are outstanding. Whatever the corporation is paying, the commission charges the average of that plus a 2.5 percent administrative add-on. Number 1574 CHAIRMAN BUNDE clarified that this amount did not pay for all of the administrative costs. Number 1580 REPRESENTATIVE KEMPLEN presented a scenario where someone is working in an occupation that requires a license. This person runs into a difficult time in life and they end up in arrears for six months or more. He asked how the commission would accommodate that type of situation. Number 1631 MS. BARRANS explained that there are a number of provisions to deal with those real life situations. The key is having the borrower contact the commission before they are in arrears. If someone is struggling to make payments, the commission would contact them through the due diligence process. There are unemployment deferments, medical deferments and other mechanisms in place to provide protection to someone in that situation. If that person fails to communicate with the commission, they could find themselves in a position of having lost a number of those protections found within their promissory note. If someone filed for bankruptcy, the commission ceases all repayment or collection on those accounts. Number 1685 CHAIRMAN BUNDE asked for a chronology of what the commission does when a payment is overdue. Number 1690 MS. BARRANS answered that the commission has an automated roster system with staff who focus on communicating with delinquent or defaulted borrowers. These staff focus on making phone calls and getting written correspondence out. The monthly billing statement continues to go out indicative of the growing seriousness of their arrearage. Additionally, due diligence letters are sent when the borrower is two months past due. These type of letters continue every 30 days at the same time. Telephone contact is made to the borrower. In a given month the commission will make about 6,000 phone calls to those borrowers who are delinquent and heading towards default. There is a serious attempt to avert the crisis point on the loan. CHAIRMAN BUNDE announced the presence of Senator Wilken. Number 1743 REPRESENTATIVE PORTER commented that, in his experience with law enforcement, 10 percent of people could not be rehabilitated. He noted that this same number applied to people who defaulted on their loans. He mentioned that his children all used this program and that he hoped the program was around so that his grandchildren could use it as well. Number 1798 REPRESENTATIVE DYSON made a motion to move SCSSB 189(FIN) out of committee with individual recommendations and attached fiscal notes. Hearing no objections SCSSB 189(FIN) was moved from the House Health, Education and Social Services Standing Committee.