Legislature(1997 - 1998)

05/06/1997 04:08 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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            
 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.               

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