Legislature(1995 - 1996)

01/31/1996 03:10 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 Number 091                                                                    
 CHAIRMAN PETE KOTT announced the first order of business would be             
 HCR 24, Relating to student loan default rates at vocational                  
 education schools.  He noted at a meeting the previous week the               
 committee members were given a proposed draft of the resolution               
 based on the work session the previous week.  Changes were                    
 incorporated into the resolution as a result of discussions.                  
 GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee             
 Alaska State Legislature, said HCR 24 is a resolution which                   
 contains nothing that was not discussed at the previous meeting.              
 It urges the Governor to request that the Alaska Postsecondary                
 Education Commission (APEC) to immediately cease implementation of            
 the 150 percent regulation.  It also urges the Governor to take               
 whatever steps are necessary to rescind this particular regulation,           
 20 AAC 15.925.  The resolution also urges the Governor to request             
 that the APEC work and consult with those individuals who are                 
 involved with the issue.                                                      
 Number 223                                                                    
 REPRESENTATIVE BEVERLY MASEK referred to the suggested amendments             
 from the previous meeting on the measure and asked if they were               
 added into the resolution.                                                    
 CHAIRMAN KOTT indicated they were.  He asked Mr. Dozier to review             
 the amendments.                                                               
 MR. DOZIER informed the committee he didn't have his notes from the           
 last meeting, but from what he could remember, the major                      
 substantive change was to add verbiage to the second resolved                 
 section which is the last paragraph of the resolution.  The words             
 added were, "and to craft a more equitable loan default                       
 regulation."  Mr. Dozier noted stylistic changes were made.  The              
 draft resolution that was circulated referred to the commissioner             
 of Postsecondary Education.  He said there isn't a commissioner.              
 It is a commission.                                                           
 CHAIRMAN KOTT referred to the second "Resolved" section and said              
 the way it was drafted and submitted by the subcommittee, it had a            
 "Further Resolved" section that said, "The Governor is respectfully           
 requested to request".  It was changed to "urged".                            
 Number 335                                                                    
 REPRESENTATIVE MASEK referred to page 1, line 17, and said she                
 believes a representative had brought up the issue about changing             
 the wording, "has no authority to conduct credit checks on                    
 potential borrower;".  She asked if this wasn't discussed at the              
 previous meeting.                                                             
 CHAIRMAN KOTT said he believes that wording wasn't changed.                   
 Number 401                                                                    
 REPRESENTATIVE KIM ELTON said he believes the only question that              
 come up was that the committee wanted to make sure that this wasn't           
 encouraging the commission to establish a credit check.  He said              
 the only concern he has about the resolution is that he is assuming           
 that this is just one element of the final solution to this                   
 problem.  He said he would like a brief understanding of what is              
 going to happen to SB 123.  Representative Elton said he is                   
 somewhat concerned that the committee doesn't just say that we've             
 dealt with the issue.  This is done.  That has done nothing to                
 raising the loan limits or anything else.                                     
 CHAIRMAN KOTT said he can't speak directly to that, but he said he            
 would like to submit that what will happen with SB 123 once HCR 24            
 is passed, is there is no reason to believe the Governor will take            
 any action.  If in fact the Governor goes along with the                      
 resolution, he would suspect that SB 123 will then be a vehicle               
 that could be used for change.  Chairman Kott said if you recall              
 from the previous session, a Free Conference Committee was                    
 appointed by the House for SB 123.  There were no appointees made             
 by the Senate President.  He said he understands they are currently           
 in that process or have already appointed members to that                     
 conference committee with free powers.  His understanding of the              
 rules, at that point, is that we have free liberty to do anything             
 to that bill, including maybe incorporating some of the problem               
 areas.  If the details could be worked out in the conference                  
 committee, a large part of the problem could be solved.                       
 Number 555                                                                    
 REPRESENTATIVE NORMAN ROKEBERG referred to the fiscal note and said           
 he finds it disturbing.  It claims there is a $445 thousand                   
 potential loss because of the resolution.  He again stated he finds           
 that somewhat disturbing because he was under the impression that             
 even the APEC was willing to suspend it if there were negotiations.           
 REPRESENTATIVE KOTT said the passage of this resolution does not              
 incur any fiscal obligation.  We don't know what the Governor will            
 or will not do, but there would be no fiscal obligation whatsoever.           
 He said he is also curious there isn't a step too many as far as              
 the fiscal impact.                                                            
 Number 665                                                                    
 DIANE BARRANS, Executive Director, Alaska Postsecondary Education             
 Commission, Department of Education; and Executive Officer, Alaska            
 Student Loan Corporation, came before the committee.  She said she            
 has some comments on HCR 24 that she would submit in writing.  Ms.            
 Barrans said she also has written comments from Eric Forrer, the              
 current chair of the commission.  Ms. Barrans stated there are                
 issues of accuracy with the statements in the resolution.  The                
 members of the committee, having entertained testimony, will                  
 probably be considered the resident experts in the House on the               
 resolution.  She said she would offer the corrective data if the              
 committee would like to incorporate it into the resolution.                   
 Specifically, she said she would like to reference page 1, lines 5            
 through 8.  It indicates some percentages reflecting default                  
 activity at particular sectors of postsecondary education in                  
 Alaska.  They are not reflective of what the commission has found             
 in studying the period of 1986 through the end of last year, which            
 showed that about 30 percent of the dollars in default were made to           
 attend for profit schools in Alaska, whereas approximately 34                 
 percent was from the loans made to the University of Alaska.  She             
 said there are several points that will be included in her                    
 testimony that the committee may want to consider.  Ms. Barrans               
 said she would like to add, to the record, that if there is any               
 criticism of the regulation that has been promulgated, the members            
 of the commission serve in very good faith.  They have listened to            
 public testimony and deliberated on the regulation at length.  They           
 did approve the implementation plan.  If there is any criticism to            
 be issued on this point, she believes it would be more                        
 appropriately directed to staff.  She said she would not want to              
 see public servants, serving without compensation, criticized on              
 that point.                                                                   
 CHAIRMAN KOTT said he thinks the accuracy of the resolution should            
 be there.  He indicated he doesn't want to suggest inaccurate                 
 information.  Chairman Kott asked Ms. Barrans to comment on the               
 numbers on page 1, lines 5 through 8.                                         
 MS. BARRANS stated that has been addressed specifically in her                
 written comments.  The period that the commission looked at, which            
 was fiscal year (FY) 87 through FY95, approximately $60 million was           
 loaned to for profit schools.  Almost $20 million of that is in               
 default.  Of the $130 million that was loaned to Alaska public                
 postsecondary schools, approximately $21.7 million of that is in              
 default.  She noted she has the associated percentages.  It doesn't           
 jive quite with what is in the resolution.  She indicated that the            
 numbers were drawn from a document which compared some of the                 
 commission's loan data base files to the data base at the                     
 Department of Labor (DOL).  The numbers have been taken somewhat              
 out of context and don't accurately portray the percentages that              
 the resolution reflects.                                                      
 CHAIRMAN KOTT asked Ms. Barrans if she had the percentages                    
 available.  MS. BARRANS said she could get the percentages to the             
 Number 974                                                                    
 REPRESENTATIVE JERRY SANDERS asked Ms. Barrans if there is a                  
 possibility of tightening the time frame up as he understands there           
 were a lot of abuses earlier in which some of them might have been            
 cleared up.  He asked if there was a chance of getting something              
 for the last three years and if that would give a better picture.             
 MS. BARRANS said it would give a better picture of the last three             
 years.  She said they attempted to create a situation where they              
 could compare apples to apples.  Since the Alaska Student Loan                
 Program default rate is cumulative for the entire period of the               
 loan, they tried, to some extent, duplicate that.  What they found            
 in looking at the data was loans made prior to 1986, had gone                 
 through two separate computer conversions and had been flattened              
 over that process.  In order to associate those borrowers with the            
 schools they attended it would require someone sitting down and               
 looking them up individually.  What they did was they took it                 
 beginning the year that the statute went into place, 1987 and 1987            
 forward.  Ms. Barrans explained the commission approved an                    
 implementation plan that could be reconsidered.  That is probably             
 getting to the meat of the issue, which is not the regulation which           
 is simply setting out what is in the numerator and the denominator            
 of the default rate calculation, but rather the time frame that the           
 calculation will be applied to.  She said the commission would                
 revisit that.  The short answer is, "Yes."                                    
 Number 1246                                                                   
 REPRESENTATIVE GENE KUBINA asked Ms. Barrans if her goal is to do             
 away with the schools receiving the funds.  MS. BARRANS said                  
 absolutely not.  There are two major issues.  One is the financial            
 strength of the loan program.  When you can point to a particular             
 sector, this is consistent with what has happened nationwide, which           
 has a much higher default rate, that raises the issue of, "Is the             
 consumer getting what they're paying for?"  If they aren't, "Who is           
 sharing in that risk?"  Currently, the student and the loan program           
 share in that risk.                                                           
 REPRESENTATIVE KUBINA referred to the work session where Gillian              
 Hays testified and said he thought it was real clear how punitive             
 that the regulation was at that time and how it doesn't give a one            
 year grace period to bring it down.  It doesn't do anything that is           
 common sense.  He said here we are spending hours during a short              
 period of legislative time.  Representative Kubina said he is real            
 disappointed.  It seems like the commission should have come to the           
 legislature with a way to solve this problem without the committee            
 having to write the resolution.  He asked if it doesn't seem that             
 the resolution, in retrospect, is not a very good way to deal with            
 this problem.                                                                 
 MS. BARRANS said she believes this whole conversation began when              
 Dr. McCormick was the executive director of the commission.  She              
 said she thinks the way he would have chosen to deal with the high            
 risk schools would be to reduce the risk through lower loan                   
 maximums.  He worked to support SB 123 that would have done just              
 that and would have made the current conversation, to some extent,            
 go away.  Ms. Barrans said the concern the commission has is that             
 the money they loan to the borrowers no longer is just the money of           
 the state of Alaska.  It belongs to the private sector, the bond              
 holders.  She said they are truly obligated to repay them, even if            
 means ceasing to make new loans.  Ms. Barrans said the input they             
 have had from their insurer, AMBACK who underwrites all but two of            
 the bond issues of the corporation, has grown increasingly                    
 concerned over the last two or three years because the commission             
 has resisted to make large loans to students where their data shows           
 that they are less likely to succeed and be able to repay their               
 loan.  Within that context, she thinks the commission and Dr.                 
 McCormick felt that some action that had an immediate benefit to              
 loan fund was called for.  That is the position that the commission           
 took when they adopted the regulation.                                        
 REPRESENTATIVE KUBINA pointed out Dr. McCormick was no longer with            
 the commission and asked how long he has been gone.  MS. BARRANS              
 said he left in August.                                                       
 REPRESENTATIVE KUBINA asked if the commission members and staff               
 have talked amongst themselves and thought if this is still the               
 best way to address that issue.  MS. BARRANS said they have had               
 that conversation on the staff level.  The commission heard                   
 testimony, in December, on this and didn't change the                         
 implementation plan at that point.  There was an open invitation by           
 the chairman at that point that is on the record soliciting input             
 from the schools asking them to advise the commission on what might           
 be reasonable cause to exempt certain students from the calculation           
 and what might be issues having to do with the appeal process for             
 a school that wished to appeal a high institutional default rate.             
 She said to date, they have received nothing in writing in response           
 to Commissioner Forrer's request.  She again noted that is on                 
 Number 1313                                                                   
 CHAIRMAN KOTT said he can appreciate the work Dr. McCormick did on            
 SB 123, but it seems like we've somewhat gone in opposite                     
 directions.  We do have an obligation to the bonding authorities.             
 Put aside percentages of students and look at just total dollars.             
 He asked if it isn't a fact that 80 percent, or better, of the                
 total dollars in default are represented by students attending                
 universities and colleges.  He asked if that doesn't come into                
 play.  Because of the liberal mechanism that we have, that                    
 essentially transfers a check to a student through the registrar's            
 office or however they do it, the person has cash in hand.                    
 Representative Kott said he remembers two years his son said, "Dad,           
 I'm gonna get a student loan because I need a new car."  Chairman             
 Kott responded to his son, "No, you're not."                                  
 MS. BARRANS said she believes that number is inflated.  It is not             
 80 percent of the loans in default.  She said in the period between           
 1986 and 1995, of the $40 some million in default, $20 million went           
 to for profit schools and $21.7 went to the public universities.              
 She said she would have to defer an absolute answer to the question           
 and get that information to him.  She said she doesn't believe it             
 is an 80/20 split.                                                            
 CHAIRMAN KOTT said he recalls an earlier discussion he had with               
 someone and it may have been that it went back to FY85 or FY86 and            
 worked forward, but it seems like if our whole intent is to reduce            
 default rates and reduce that pool of money that is in default, SB
 123 basically increases the amount available to those traditional             
 students attending universities and colleges, while at the same               
 time, it reduces the money that is available to the vocational and            
 technical students.                                                           
 MS. BARRANS said it is actually somewhat consistent with how they             
 administer loans for traditional colleges and universities.  A                
 student who signs up for a loan program for single semester does              
 not qualify for a maximum loan amount.  They qualify for a prorata            
 amount.  They can receive only $2,750 rather than $5,500.  That is            
 for a 3 1/2 month period.  So, to some extent, SB 123 approach is             
 quite consistent with what they are already doing with traditional            
 college or university students.                                               
 Number 1460                                                                   
 CHAIRMAN KOTT asked if it is also true that for profit schools can            
 also include private universities.  MS. BARRANS said it absolutely            
 can.  She noted one of the clarifications in her written testimony            
 is that this is not targeted at vocational educational                        
 institutions.  It is targeted at for profit institutions.  She said           
 when the commission releases data next month, there are some                  
 schools that are junior colleges that offer associate degrees                 
 generally, but there are some baccalaureate that are included in              
 the for profit pool.  It is just that overwhelmingly, that sector             
 is vocational education.                                                      
 Number 1506                                                                   
 JENNIFER DEITZ, Owner, Career Academy; and President, State                   
 Association of Private Career Schools, testified via teleconference           
 from Anchorage.  She said she is encouraged because she has been              
 trying to encourage the legislature and the commission to bring               
 proprietary to the table to find resolution.  Ms. Deitz referred to           
 attending a number of meetings since she was in Juneau the previous           
 week and said she sees some progress being made towards finding a             
 resolution and making a good default manager program.  She stated             
 she supports the resolution and is very interested in receiving               
 comments on her response to the technical changes to HCR 24.                  
 Number 1574                                                                   
 MILTON BIRD, President, Charter College; and Member, Alaska                   
 Postsecondary Education Commission, testified via teleconference              
 from Anchorage.  He noted Charter College is a two year degree                
 granting private institution.  Mr. Bird said he would like to                 
 share, with the committee, the sense that he detected when the                
 commission took the action addressed in the resolution.  The                  
 commission was told that they were dealing with a statute that had            
 been adopted eight years earlier.  The commission felt they had no            
 choice but to develop regulations to accommodate the statute.  Mr.            
 Bird said he didn't know how many of the commission members were              
 displeased with what they had to take action on, but he certainly             
 was.  The commission had done some very good work over the years.             
 The commission has also done some work that might be called                   
 negligent with reference to collections.  Mr. Bird said the                   
 commission has provided some excellent framework for regulating               
 institutions and protecting students.  He said the commission's               
 staff, for whatever reason, has not done a good job of collections.           
 Over the past few years, actions are being taken to improve that              
 condition.  The computer programs are being upgraded, good                    
 additional staff has been added.  Mr. Bird said he believes there             
 is a record, during the resent past, of improvement in collections.           
 Part of the problem is attributable to the inadequacy of the                  
 commission in its collection activities.  Mr. Bird said that ends             
 his testimony.                                                                
 CHAIRMAN KOTT said it is his understanding that in recent months,             
 there has been a stepped up effort to go after those students who             
 aren't paying their debt.                                                     
 Number 1700                                                                   
 SARA EDDINGS, Owner, New Concepts Beauty School, testified via                
 teleconference from Fairbanks.  Ms. Eddings said she believes that            
 the commission is certainly trying to do their best at resolving              
 this problem.  She said she believes that many of the private                 
 vocational school sectors are asking to be included in the default            
 management program and not to eliminate them, at this point in                
 time, by eliminating their process or participation in the loan               
 program.  She thanked the committee for listening to her.                     
 MR. BIRD said he would like to make one additional comment.  He               
 said the reality is that the people who don't pay loans don't have            
 the money to pay loans.  Poor people don't repay their loans.  Mr.            
 Bird said we know there are some people who can afford to repay               
 their loans at all levels and don't.  He referred to vocational               
 schools and said they serve those who come from the lower socio               
 economic sector of the society.  Many of them are (indisc.) who had           
 difficulty with education in the past.  Many of them face                     
 hardships.  They come to vocational education as a way to solve               
 their problem.  Many do, many succeed, some don't.  Some, for                 
 whatever reason, drop out before they complete programs.  It is               
 also true that students from that segment of society attend                   
 universities and many of them fail and don't pay their loans.  Mr.            
 Bird referred to those who don't repay loans, no matter if they go            
 to vocational, for profit, non for profit, universities or junior             
 colleges, the people who have difficulty, the people who drop out,            
 the people who come from lower socio economic sectors of the                  
 society do not repay loans.  Mr. Bird said he thinks the committee            
 would find that those who go the universities, who don't repay                
 loans, come from that same sector.  He stated that issue needs to             
 be addressed by the society.  The vocational schools, he believes,            
 do an excellent job.  He said he gives credit to the commission for           
 its regulatory procedures.  They do an excellent job in serving               
 many students.  Many of those institutions have high placement                
 rates for their graduates.  He thanked the committee.                         
 Number 1845                                                                   
 ANN ADASIAK ANDREW, SST Travel Schools of Alaska, was next to                 
 testify via teleconference from Anchorage.  She referred to the               
 Alaska Postsecondary Education Commission meeting held in December,           
 1995, and said she doesn't feel that organizations like hers, as              
 members of the public, were allowed adequate time for giving                  
 testimony.  As she recalls, the resolution was discussed and passed           
 by the members of the commission before several organizations had             
 the opportunity to give public comment.  Ms. Andrew said she                  
 believes that at other meetings, members of the public weren't                
 allowed to give their input before a decision was made.  She said             
 she is now looking forward to the opportunity to work with the new            
 subcommittee, continue communications and to participate in some              
 sort of solution.  Ms. Andrew said she doesn't feel that the                  
 default rate or whether or not students default is an adequate way            
 of measuring the success of a school and their quality of training.           
 There are people who graduate and have jobs, but for whatever                 
 reason, they don't feel obligated to pay back the loan.  Ms. Andrew           
 said despite programs in relation to loan counseling, entrance and            
 exiting interviews, if a student decides not to pay a loan, it is             
 very difficult to understand why a school should be penalized for             
 a students negligence.  The school has done their part in                     
 adequately training and placing individuals.  She thanked the                 
 committee for listening to her.                                               
 Number 1938                                                                   
 MITCH GRAVO, Lobbyist, came before the committee to testify.  He              
 stated he represents the private career school educators.  Mr.                
 Gravo said on behalf of the association, he has had several                   
 conversations with the new chairman of the corporation and at least           
 one meeting with the new chairman and executive director of the               
 corporation.  He noted he has also had at least one conversation              
 with the Governor.  Mr. Gravo said it is clear to him that there is           
 a new focus by the staff and commission.  This focus is that, "We             
 have a problem, we have a default rate problem.  We're gonna solve            
 that problem.  We're gonna put together a global solution and you,            
 the private school sector, have to part of that solution, but we're           
 also gonna make everyone else part of that solution.  And we're               
 gonna put a, with 123 and with the passage of this resolution, a              
 default management program together.  And we're all gonna work                
 together to solve this program.  We're not just gonna put the                 
 burden on the private school sector to solve itself."  Mr. Gravo              
 said he believes the resolution is necessary and it sends a strong            
 message.  He said he thinks it will be well received by the                   
 Governor as he is very interested in this issue.  Mr. Gravo said he           
 sees some positive progress being made in conversations he had with           
 the commission, the staff and the Administration.                             
 Number 2070                                                                   
 CHAIRMAN KOTT called Ms. Barrans to the table.  He said there was             
 a comment made by Mr. Bird where he said we ought to look at the              
 social economics of the issues.  Chairman Kott said he doesn't                
 believe Mr. Bird was advocating that we don't provide loans for               
 poor people.                                                                  
 CHAIRMAN KOTT asked Ms. Barrans if there is a study that looks at             
 the socio economic condition of students.  He said it would appear            
 to him that those who attend vocational schools would be typically            
 be those that if they did not succeed or find a job in that                   
 vocation, would probably remain in the state of Alaska.  Therefore,           
 because we're doing things with permanent fund dividends, it seems            
 it would seemingly be easier to make collections against those                
 Representative Porter arrived at 3:45 p.m.                                    
 MS. BARRANS said over the past year, they collected about $6                  
 million in permanent fund dividend garnishment.  It is a tool and             
 is one way the defaulted loan balance, short of having people begin           
 to repay their loans, is being eaten away at as far as the older              
 defaulted loans.  Of course, there are new people going into                  
 default on a daily basis.                                                     
 CHAIRMAN KOTT asked how those default rates are affected by those             
 students who end up having their permanent fund or wages garnished.           
 He also asked if those are still reflected in the percentages.                
 MS. BARRANS said as long as they're in default, which means they              
 have a payment that is 120 days or more past due, the defaulted               
 balance continues to be calculated in the program default rate.               
 CHAIRMAN KOTT said if someone is in default in June, and the                  
 permanent fund dividend check is released in October, at which                
 point the state gets their hands on their portion of it, are they             
 still part of that default percentage or since they are now paid in           
 full, they're taken out of that pool.  MS. BARRANS informed the               
 committee that any account that is either paid current, as in no              
 payments currently due, or an account that is paid in full, leaves            
 the default calculation.  It is no longer considered to be in                 
 default if it has been zeroed out or there are no payments                    
 CHAIRMAN KOTT referred to page 1, lines 5 through 8, which talks              
 about percentages and said it seems like those numbers would be               
 ever shifting.  He said he would think that on a daily basis, there           
 are students going into default and students coming out of default.           
 MS. BARRANS said that is correct.  She referred to the snapshot               
 they did in order to implement the calculation in regulation and              
 said it was done December 31, 1995.  Ms. Barrans said they issue a            
 program default rate once a year that is published in the official            
 statement of the corporation.  She said when we look at trends of             
 the default rate over years, that is generally the number they                
 take.  An official statement from three or four years ago showed a            
 program default rate of close to 27 percent.  Today, after the                
 commission has finished reviewing numbers, they expect to see a               
 program default rate that is less than 18 percent.  She said what             
 we're seeing is the effect of the commission aggressively using the           
 tools that the legislature has made available to them and increased           
 collection activities on the part of staff.                                   
 CHAIRMAN KOTT said he would suggest that the latter is probably               
 having a greater effect in increased collection activities.                   
 Number 2190                                                                   
 REPRESENTATIVE ELTON said a lot of the fixes that are being talking           
 about, whether it is revisiting the number of weeks that a school             
 has to teach before they're eligible for the program, whether it's            
 the 150 percent formula or whether it's a profile of risky students           
 that would help the lenders, he doesn't believe anything would be             
 fixed through HCR 24.  That is the fixed through the vehicle of SB
 123, for example.  Another observation is that he is glad to hear,            
 perhaps as a result of what the House Labor and Commerce Committee            
 has done, there now seems to be a dialogue where there wasn't                 
 before.  He said he thinks part of the problem was that somebody              
 had one position and somebody else had another position and they              
 were defining each other as winners and losers.  Representative               
 Elton suggested that the problem may not be the 150 percent                   
 regulation.  He believes part of the problem is the commission                
 didn't ever define how they were going to implement the regulation            
 and how it was going to affect individuals with different cases.              
 He said you could have had a new owner two years ago that had a               
 loan default rate of 10 percent that would be out of the program,             
 whereas you would have an existing school that might have a default           
 rate of 28 percent, fall under the 150 percent rate, and they'd               
 stay in the program.  That just doesn't make sense.  He said he               
 believes part of the problem is how the 150 percent rule is                   
 implemented.  Representative Kott said he would rather have the               
 proprietary schools, the for profit schools, not for profit schools           
 and the universities work with the commission on coming up with               
 something that works for everybody.  He said we need to figure out            
 how it will be done before we start moving on SB 123.                         
 CHAIRMAN KOTT said he believes Representative Elton is correct in             
 his assessment.  He said HCR 24 will provide perhaps a stay of                
 execution for those vocational schools.                                       
 Number 2293                                                                   
 REPRESENTATIVE SANDERS said he doesn't believe that there is any              
 question by any of the committee members that there are problems              
 and there needs to be some regulations to fix these problems.                 
 There has been a lot of progress made.  He said he would like to              
 encourage those kinds of improvements.  Representative Sanders said           
 he believes that the committee has found that the action by the               
 APEC was kind of discriminatory against certain schools and certain           
 students.  He said he didn't feel that was the right thing to do.             
 We're making a lot of progress and this thing is beginning to roll            
 together.  Representative Sanders said he believes HCR 24 should be           
 REPRESENTATIVE SANDERS referred to the numbers on page 1, lines 5             
 through 8, and said the way he understood this was the commission             
 has about $40 million worth of bad loans.                                     
 MS. BARRANS said the time frame they are looking at to apply the              
 regulation for the period of 1986 through the present.  She said              
 she believes the numbers in the resolution were extracted from a              
 "white paper" that the commission produced called, "Long-Term Debt            
 for Short-Term Training."  Those numbers were for a different                 
 single period and didn't reflect the entire life of the program.              
 She said if she had been aware that the committee was looking for             
 these numbers, she could have produced them.  Ms. Barrans informed            
 the committee she believes the numbers used were loans advanced and           
 not dollars in default.  She said she believes the numbers were the           
 principal loan advance and not the amount of loans currently in               
 default.  That would skew the numbers because often people don't              
 default on their entire loan.  They actually repay some portion of            
 it then default.  It is only the amount that is in default that the           
 commission is concerned with.  If a portion of the money has been             
 paid back, they don't consider the entire amount to be in default.            
 REPRESENTATIVE SANDERS said if the numbers are wrong in the                   
 resolution, he would be open to inserting the correct numbers.                
 MS. BARRANS noted there are more dollars in default from students             
 that went to the college and university sectors.  The main point is           
 that if you want to address the default problem with the loan                 
 program, it has to be across the board.  If the statute that the              
 regulation implements allowed them to apply it across the board,              
 they would be doing just that.  She said SB 123 may be a vehicle              
 that resolves the issue of discriminating against one sector of               
 schools, but it is not being applied across all sectors that                  
 participate in the program.                                                   
 Number 2459                                                                   
 REPRESENTATIVE SANDERS moved to delete the second "Whereas" clause.           
 CHAIRMAN KOTT said there is a motion to delete the wording on page            
 1, lines 5 through 8.  He said it would be a conceptual amendment,            
 Amendment 1.  He asked if there was any discussion.                           
 TAPE 96-4, SIDE B                                                             
 Number 001                                                                    
 CHAIRMAN KOTT asked if there was an objection to Representative               
 Sanders' amendment.  Hearing none, the amendment was adopted.                 
 Number 021                                                                    
 REPRESENTATIVE BRIAN PORTER informed the committee he had the                 
 opportunity to speak with Ms. Barrans on the issue.  He said, for             
 the record, he really appreciates the attitude Ms. Barrans and the            
 rest of the division has about the resolution.  Representative                
 Porter said his intent, within the resolution, is to just point out           
 that the legislature thinks there should be a timeout in the                  
 implementation of a particular regulation and to see if a few                 
 things could be done for the group of affected institutions.                  
 Namely, provide the institutions with some assistance in setting up           
 how the commission is going to be holding them accountable for                
 these rates.  Give them some assistance in dealing with the ability           
 to have an influence on their rates and some time to deal with                
 that.  He said he is wondering if the committee is spending more              
 time on this, at this point, then they need to.                               
 CHAIRMAN KOTT asked Ms. Barrans to explain the fiscal note.                   
 MS. BARRANS informed the committee the fiscal note shows a loss to            
 the corporation's financial statement in FY97 of $445,000.  This              
 number was arrived at by looking at the initial institutional                 
 default rate calculations that have been made.  They looked at                
 those that would be above the 150 percent threshold and determined            
 what level of borrowing those schools typically experience in a               
 fiscal year.  She said assuming that rescinding the regulation and            
 putting something else in place would take six to nine months,                
 during that period $3.7 million in new loans will be made to those            
 schools that are currently above the 150 percent threshold.  Based            
 on their historical default rate of that collective group, 33                 
 percent of that would go in default.  That is approximately $1.2              
 million.  General accepted accounting principles (GAAP) require               
 that the corporation reserve as actual losses about 12 percent of             
 the entire amount made which is the $3.7 million.  Ms. Barrans said           
 even though a higher number goes into default, they continue to               
 collect on those loans, but ultimately lose about 12 percent over             
 all.  The 12 percent of that amount is the $443,000, reflected in             
 the fiscal note that they would have to report on their financial             
 statement for FY97.                                                           
 MS. BARRANS said as a committee member indicated, this is just a              
 resolution.  All of the assumptions in the fiscal note are that the           
 resolution is received well by the Governor, who then directs the             
 commission to rescind the regulation.  They would then start                  
 another period of dialogue that within six to nine months would               
 replace this with another implementation plan.                                
 Number 195                                                                    
 There being no further testimony, REPRESENTATIVE KUBINA moved that            
 HCR 24, as amended, be passed out of committee with a zero fiscal             
 note.  CHAIRMAN KOTT asked if there was an objection.  Hearing                
 none, CSHCR 24(L&C) was passed out of the House Labor and Commerce            

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