Legislature(2021 - 2022)BUTROVICH 205

03/05/2021 09:00 AM EDUCATION

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**Streamed live on AKL.tv**
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Heard & Held
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         SB  94-EDUCATION & SUPPLEMENTAL LOAN PROGRAMS                                                                      
9:03:12 AM                                                                                                                    
CHAIR HOLLAND announced the consideration of SENATE BILL NO. 94                                                                 
"An  Act  relating  to  the education  loan  program  and  Alaska                                                               
supplemental  education  loan  program;   and  providing  for  an                                                               
effective date." He stated his  intent to have the administration                                                               
introduce the bill  and then hold it in committee.  He asked Sana                                                               
Efird to introduce the bill.                                                                                                    
9:03:40 AM                                                                                                                    
SANA   EFIRD,   Executive    Director,   Alaska   Commission   on                                                               
Postsecondary   Education  (ACPE),   Executive  Officer,   Alaska                                                               
Student  Loan  Corporation  (ASLC),   Juneau,  Alaska,  began  by                                                               
presenting  the missions  of Alaska  Commission on  Postsecondary                                                               
Education  (ACPE)and Alaska  Student Loan  Corporation (ASLC)  on                                                               
slide 2:                                                                                                                        
     The Alaska Commission on Postsecondary Education supports                                                                  
     Alaskans' access to and success in postsecondary education                                                                 
     and career training after high school.                                                                                     
     The  Alaska   Student  Loan   Corporation  operates   as  an                                                               
     enterprise  agency  of  the State  of  Alaska,  funding  and                                                               
     facilitating  the  Alaska  Student   Loan  Program  and  the                                                               
     related  work  of  the Alaska  Commission  on  Postsecondary                                                               
MS.  EFIRD  said that  SB  94  addresses requests  from  Alaska's                                                               
higher  education   community  and  student  loan   borrowers  by                                                               
expanding  eligibility for  the  Alaska  refinance loan  program,                                                               
removing  current  loan  limits   from  statute,  and  clarifying                                                               
language to offer a loan  program with immediate repayment to new                                                               
borrowers.  As   tuition  rates  and  overall   costs  to  attend                                                               
postsecondary education  have risen nationally and  in Alaska and                                                               
with  the  growing  need  to  establish  a  well-trained  Alaskan                                                               
workforce to  fuel the  state's economy, it  is now  crucial more                                                               
than  ever  that  Alaska's  students  have  access  to  low  cost                                                               
education  funding  that  meets  their full  financial  needs  to                                                               
achieve career training and/or college credentials.                                                                             
MS. EFIRD said that federal  loans no longer meet Alaska students                                                               
full financial needs.  Those loans are not  always less expensive                                                               
than Alaska loans.  Private loans generally cost  more with lower                                                               
approval  rates. Alaska  state loan  programs fill  the gap  with                                                               
low-cost, high-quality loans. Current  state loan limits, though,                                                               
are becoming a barrier to Alaska  students who may not be able to                                                               
attain funding  from private lenders  due to  strict underwriting                                                               
criteria. Private  loans are  also on  average subject  to higher                                                               
interest rates than those from the  ASLC. SB 94 would remove loan                                                               
limits from  statute and  provide the  loan corporation  with the                                                               
authority  to set  loan  limits to  meet  the changing  financial                                                               
needs of Alaska  students. Furthermore, the other  changes in the                                                               
bill would expand  eligibility for the ASLC  refinanced loans and                                                               
allow Alaska  student loan  borrowers the option  to apply  for a                                                               
loan  program with  immediate repayment.  These proposed  changes                                                               
would  provide additional  loan  financing  options with  reduced                                                               
interest rates and overall lower costs.                                                                                         
9:09:22 AM                                                                                                                    
MS. EFIRD presented the sectional analysis:                                                                                     
     Section 1: Amends AS 14.43.122(b)                                                                                          
        • Expands Eligibility for Alaska Refinance Loans                                                                        
             o Currently eligible: Alaska residents only                                                                        
             o Proposed:   previous    borrower,   cosigner,   or                                                               
               beneficiary of an Alaska loan                                                                                    
             o Proposed: Alaska high schools and postsecondary                                                                  
               institutions graduates                                                                                           
SENATOR  BEGICH said  he is  trying  to clarify  that this  isn't                                                               
offering loans to  other than Alaskan residents. It  is for those                                                               
who  may have  been eligible  for a  loan and  have moved  out of                                                               
state and still have the loan  burden to Alaska. He asked what is                                                               
driving the change.                                                                                                             
MS. EFIRD  replied the change  is at the  request of a  number of                                                               
student loan borrowers.  They still have a nexus  to Alaska; this                                                               
is the reason for the inclusion  of must be an Alaska high school                                                               
graduate  or  graduate  of a  postsecondary  education.  It  also                                                               
includes  current student  loan borrowers  or cosigners  who have                                                               
had a loan with  the state of Alaska and moved  out of state. Now                                                               
they are  asking to  come back and  refinance those  Alaska loans                                                               
into the new refinance program,  which allows them to consolidate                                                               
all  their loans  to  a  lower-interest rate  loan,  so  it is  a                                                               
benefit to those student borrowers.                                                                                             
9:12:32 AM                                                                                                                    
SENATOR MICCICHE said he does not  know what the default rate is,                                                               
but he assumes  the benefit to the state is  reducing the default                                                               
rate for folks who are now far  away who would like to meet their                                                               
MS.  EFIRD answered  that is  part of  it. She  doesn't have  the                                                               
current default  rate in front of  her but can get  that. This is                                                               
really to  respond to  the requests from  borrowers who  say, the                                                               
state gave them  a loan originally and now the  state has another                                                               
program with  a lower  interest rate that  they are  not eligible                                                               
for. It is responding to that need to help those borrowers.                                                                     
SENATOR HUGHES  clarified that a person  would not need to  be an                                                               
official resident.  That person  could be  a resident  of another                                                               
state  but if  that  person was  a graduate  of  an Alaskan  high                                                               
school or postsecondary institution that person would qualify.                                                                  
MS. EFIRD  replied yes, a graduate  of an Alaskan high  school or                                                               
postsecondary institution.                                                                                                      
SENATOR HUGHES  said that she  wanted to make that  clear because                                                               
sometimes  students do  go to  school out  of state  and maintain                                                               
their  Alaska  residency, but  this  is  for  those who  are  not                                                               
residents. It is  good if they can their repay  loans. The person                                                               
would  have to  be a  graduate. Sometimes  people don't  graduate                                                               
from  high  school and  go  on  to a  postsecondary  institution.                                                               
Sometimes  they do  not graduate  without a  degree but  they may                                                               
have attended  a few years and  have student loans. She  asked if                                                               
"graduated"  could be  replaced  with "attended"  high school  or                                                               
postsecondary institution.                                                                                                      
MS.  EFIRD  responded  that the  administration  would  entertain                                                               
that. She would  need to do some research. The  reason for saying                                                               
graduate is that  research and data show that a  graduate is more                                                               
likely to pay off loans and not go into default.                                                                                
SENATOR HUGHES said that makes sense.                                                                                           
9:15:52 AM                                                                                                                    
SENATOR STEVENS said  that he would be interested  in knowing the                                                               
impact  that COVID  has had  on  students and  the state  default                                                               
rate.  So many  people in  the  state are  unemployed and  having                                                               
financial difficulties.  This is a  lost year for  many students.                                                               
He asked if she had any reflections on that.                                                                                    
MS. EFIRD replied  that she has had three months  in her new role                                                               
and has  a lot to learn.  The committee should have  received the                                                               
current higher education almanac  from ACPE. That has information                                                               
about what  is known at this  point in time about  COVID. ACPE is                                                               
still unraveling the  ramifications of COVID, which  are going to                                                               
be  long term  and  far  reaching. The  almanac  does have  COVID                                                               
specific information.  There has been a  decrease in applications                                                               
for  postsecondary institutions.  Students  are postponing  their                                                               
plans  to  attend  postsecondary  programs.  ACPE  is  trying  to                                                               
encourage Alaskans  that now is  the time to  get on the  road to                                                               
getting a degree or certificate  or training credentials, so they                                                               
can get to work and get the economy on track.                                                                                   
SENATOR  STEVENS  observed  this  is an  anomaly  this  year  and                                                               
perhaps  next. Eventually  things  will get  back  to normal  and                                                               
young people will want to get a higher education.                                                                               
SENATOR BEGICH  said to  follow up  on Senator  Hughes's comment,                                                               
the loans themselves  are only going to  Alaska residents, Alaska                                                               
residents  are  the ones  who  are  eligible for  Alaska  student                                                               
loans. He asked if that is right for the original loans.                                                                        
MS. EFIRD  answered that  is correct.  This program  currently is                                                               
only open to Alaska residents.                                                                                                  
SENATOR BEGICH  said that to  reinforce what Senator  Hughes said                                                               
about whether  someone is  a graduate  or not  of high  school or                                                               
postsecondary  institution  located  in the  state,  someone  who                                                               
received  a loan  in  the first  place was  once  a resident.  He                                                               
encouraged her  to change that  to "have attended" a  high school                                                               
or postsecondary institution physically  located in the state. It                                                               
is  not changing  the  fact  that someone  out  of  state is  not                                                               
getting  any benefits.  He  clarified that  the  only people  who                                                               
could have gotten these loans  were Alaskan residents at the time                                                               
they got the loans.                                                                                                             
MS. EFIRD  replied yes  if they  have a loan,  but this  would be                                                               
expanded  to  include  those  who   may  not  have  a  loan.  The                                                               
administration  is  asking to  expand  the  refinance options  to                                                               
those  who  have   graduated  from  an  Alaska   high  school  or                                                               
postsecondary institution.  They may not have  current loans. The                                                               
administration  will  expand  the  pool of  eligibility  for  the                                                               
refinance loans.                                                                                                                
SENATOR BEGICH  stated that is not  making out-of-state residents                                                               
eligible  for a  new loan.  They  would have  had to  have had  a                                                               
previous loan. He doesn't want  to take the state's resources and                                                               
give them  through a loan  process to out-of-state  residents. If                                                               
they were  once residents,  received a loan  from the  state, and                                                               
time  has passed,  they come  to the  state and  ask for  help to                                                               
consolidate the  loans they  legitimately got  with the  state of                                                               
Alaska even though  they are no longer  Alaska residents--that is                                                               
what the administration is trying to.                                                                                           
MS.  EFIRD  responded  yes,  the  proposed  change  is  to  allow                                                               
previous  borrowers  or  cosigners   who  are  no  longer  Alaska                                                               
residents   to   refinance   the    original   loans,   but   the                                                               
administration is  asking to  allow the  refinance program  to be                                                               
used by  others who have a  nexus to Alaska through  being a high                                                               
school or postsecondary institution graduate.                                                                                   
SENATOR BEGICH said that concerns him.  He asked if she is saying                                                               
if he had  once attended and graduated high school  in Alaska and                                                               
had federal  loans or loans  from other institutions from  out of                                                               
state he could come with his  loan package and the ACPE will help                                                               
him  refinance his  entire package  of loans  that he  might have                                                               
gotten   from  Idaho   or   the  U.S.   government   or  is   the                                                               
administration asking for  the ability to take  multiple years of                                                               
students loans that were given in  Alaska and refinance them as a                                                               
new package. The  first thing is unacceptable to  him. The second                                                               
is extraordinarily acceptable to him.                                                                                           
MS. EFIRD asked Director Kerry Thomas to address this.                                                                          
9:23:56 AM                                                                                                                    
KERRY THOMAS,  Director of Program Operations,  Alaska Commission                                                               
on  Secondary Education,  Juneau,  Alaska, said  the request  the                                                               
administration  is  putting forth  in  legislation  is to  expand                                                               
eligibility  for   the  refinance   program  as   Director  Efird                                                               
described. One of  the primary reasons is to  assist the Alaskans                                                               
who took out loans and have left  the state. It is also to expand                                                               
the reach  with the  loan program to  generate income  to sustain                                                               
Alaska's loan program into the future.  It is an economy of scale                                                               
issue. As  the corporation's loan  portfolio gets  smaller, there                                                               
are certain fixed  costs spread across borrowers. It is  a way to                                                               
increase the  size of the  loan portfolio and generate  income so                                                               
the corporation can  provide the loan program to  Alaskans in the                                                               
SENATOR  BEGICH  said his  concern  is  that the  corporation  is                                                               
saying to people who were  once residents of Alaska that whatever                                                               
loans  they   have  from  Idaho,   California,  or   the  federal                                                               
government, Alaska will  buy and refinance their  loans, and they                                                               
will have only one payer, Alaska.  Alaska is taking on the burden                                                               
of their  debt. That  is what  this bill is  saying. He  asked if                                                               
that is correct.                                                                                                                
MS.  THOMAS  replied  that  that  is what  the  bill  is  putting                                                               
CHAIR HOLLAND  said he wants  to know  the default rates,  but he                                                               
can understand  where the corporation  is going with this  as far                                                               
as generating profits to keep the program going in the future.                                                                  
9:27:03 AM                                                                                                                    
MS. EFIRD continued the sectional:                                                                                              
     Sections 2, 3 & 4: Amends AS 14.43.173(a), (c) & (d                                                                        
        • Removes annual loan limits from statute                                                                               
        • Removes lifetime maximums from statute                                                                                
        • Provides for the Corporation to set annual and                                                                        
          lifetime limits for both half-time and full-time loans                                                                
MS. EFIRD  said that  the ASLC  would be able  to set  the annual                                                               
loan  maximums to  be more  responsive to  the needs  of Alaska's                                                               
students and  Alaska's higher education  institutions, especially                                                               
as tuition costs change.                                                                                                        
SENATOR MICCICHE  said that he  is concerned himself.  Limits are                                                               
being removed and  the ASLC is being opened up  to unlimited out-                                                               
of-state exposure.  He would like to  see a stress test  on that.                                                               
Obviously, Alaska is  a small pool, which is  not efficient. This                                                               
expands the pool. There must be  some benefit that is perhaps not                                                               
obvious to  the committee, but this  is a big change.  There is a                                                               
reason to  include Alaska  residents. It is  easier to  reach out                                                               
and touch  them than someone who  has no interest in  coming back                                                               
to  the state.  He is  a  little worried,  but  he has  a lot  of                                                               
respect for Ms. Pitney. He is  sure that she has a document where                                                               
she has  stress tested what  she is asking  to do here,  what the                                                               
department is asking to do. He  would like to see that. Without a                                                               
limit,  the  corporation is  potentially  taking  on hundreds  of                                                               
thousands of dollars per student.  That is millions of dollars of                                                               
additional  exposure   that  may  or   may  not  have   the  same                                                               
connectivity  for  collecting those  dollars  in  the future.  It                                                               
would be nice to see the math.                                                                                                  
SENATOR BEGICH said  that he would agree if the  issue is to make                                                               
a more  robust portfolio  that provides  some level  of financial                                                               
security. He needs evidence of that.  He is not convinced, but he                                                               
understands.  Like Delaware  attracted  corporations by  changing                                                               
its laws, maybe this would  make Alaska the student loan Delaware                                                               
of America. Then there could be  profit, but what is the evidence                                                               
to back that up before  jumping into a perhaps high-risk strategy                                                               
that  may not  have a  benefit  for Alaskans  at all.  It has  no                                                               
Finance  Committee  because  it  is  a zero  fiscal  note.  As  a                                                               
consequence,  Senate Education  may  be the  only committee  that                                                               
gets to  have this discussion.  The committee needs to  know what                                                               
the policy is.                                                                                                                  
CHAIR HOLLAND said that sounds  like a great idea. Director Efird                                                               
can address that in the future.                                                                                                 
SENATOR HUGHES pointed out that the  bill does have a referral to                                                               
MS.  EFIRD  said  that  to  address some  of  the  concerns,  the                                                               
refinance  loan program  has  a high  criteria  for borrowers  to                                                               
meet. With that  and some other provisions in  the program, there                                                               
is a  lower possible default rate.  She will be happy  to provide                                                               
some  data  about  why  the   corporation  feels  this  would  be                                                               
beneficial to Alaska student borrowers.                                                                                         
SENATOR STEVENS said  the organization has fixed  costs that have                                                               
to be  spread costs across  borrowers. The solution is  to expand                                                               
the reach  and bring  in more students,  but what  about reducing                                                               
the fixed costs.                                                                                                                
SENATOR  HUGHES  clarified  that  there  is  a  higher,  stricter                                                               
criteria to refinance than for a basic loan.                                                                                    
MS. EFIRD answered that is  correct. She will provide information                                                               
on the interest rates for all of the loan programs.                                                                             
SENATOR HUGHES  clarified that Ms.  Efird would also  provide the                                                               
criteria for the different loans.                                                                                               
MS. EFIRD answered yes.                                                                                                         
SENATOR MICCICHE shared  that he added the  Finance referral even                                                               
though it has a zero fiscal  note because he had a difficult time                                                               
considering there would be no  fiscal impact. That information is                                                               
important. Before he  supports moving the bill  out of committee,                                                               
he wants a greater understanding of the bill.                                                                                   
9:35:53 AM                                                                                                                    
MS. EFIRD continued the sectional.                                                                                              
     Section 5: Amends AS 14.43.175                                                                                             
        • Adds clarifying language that ACPE can offer future                                                                   
          student loan borrowers a loan program with immediate                                                                  
MS.  EFIRD  said such  a  loan  would  reduce costs  for  student                                                               
borrowers   because   interest   would  not   be   deferred   and                                                               
capitalized.  Such a  loan would  not  impact current  borrowers.                                                               
Immediate  repayment has  been shown  to be  an option  where in-                                                               
school student borrowers would start  repaying their loans to get                                                               
in the habit of making  loan payments, helping them to understand                                                               
the  obligation for  the  loan, and  over the  life  of the  loan                                                               
reduces  the amount  because the  interest is  not accruing  when                                                               
they are in school.                                                                                                             
MS. EFIRD  said the bill has  an effective date of  July 1, 2021,                                                               
the beginning of FY22.                                                                                                          
MS. EFIRD  said the ACPE did  determine that the bill  has a zero                                                               
fiscal note. It  is not anticipated to  increase agency operating                                                               
costs. All  of loan operating  costs are funded from  receipts of                                                               
the Alaska Student Loan Corporation.                                                                                            
SENATOR HUGHES asked  if there are any  projections of additional                                                               
applications and  how much additional debt  the corporation would                                                               
take on in a year's time.                                                                                                       
MS. THOMAS replied  that the corporation has  not projected that.                                                               
It  is  challenging  to  project  how  many  former  Alaskans  or                                                               
additional borrowers  the corporation  would get and  what amount                                                               
of debt they  would have. When the  corporation originally rolled                                                               
out the refinance program several  years ago, the corporation set                                                               
an amount in  the budget for the first year  without knowing what                                                               
to   anticipate.  The   corporation  does   have  a   history  of                                                               
controlling for  an unexpected large  number of  applications. To                                                               
address  the discussion  about loan  limits,  Sections 2-4  don't                                                               
relate to  the refinance loan  program. They relate  to in-school                                                               
loans,  the Alaska  supplemental education  loan. Those  are only                                                               
available to  Alaskan residents or those  attending postsecondary                                                               
education in Alaska. The current  maximum for those loan programs                                                               
is  for   the  annual   costs  that   are  unmet   after  grants,                                                               
scholarships, and federal aid, and  they are insufficient to meet                                                               
a large number  of student needs on an annual  basis. The request                                                               
to  increase the  maximum is  not related  to the  refinance loan                                                               
request.  It is  strictly for  the  annual loans  made to  Alaska                                                               
residents  or students  attending  postsecondary institutions  in                                                               
SENATOR BEGICH  said that is a  good idea given that  the cost of                                                               
education  continually changes,  and it  gives power  to ACPE  to                                                               
adjust to those  changes that are absolutely out  of its control.                                                               
The  state has  arbitrary  limits  that were  set  years ago.  He                                                               
appreciates these three sections.                                                                                               
SENATOR MICCICHE said  for the analysis of  exposure and benefits                                                               
of  expanding the  program, what  happens if  this administration                                                               
actually  does forgive  student  loans. He  asked  if that  would                                                               
dramatically affect their  interest income. He asked  if that has                                                               
that been  analyzed. He doesn't  need an answer now,  and perhaps                                                               
no one knows how that would work.                                                                                               
CHAIR HOLLAND  asked if anyone had  a comment on that.  It sounds                                                               
like a complicated subject.                                                                                                     
MS. EFIRD  said that  the corporation  is in  conversations about                                                               
how  any loan  forgiveness  options may  affect the  corporation.                                                               
That is on their minds.                                                                                                         
9:43:33 AM                                                                                                                    
SENATOR  BEGICH  said  that  in the  past  forgiveness  has  been                                                               
considered part of  income that had to be reported.  He read that                                                               
a bill being considered would remove that stipulation.                                                                          
SENATOR HUGHES  asked regarding the  immediate payback,  if there                                                               
is any  research that shows those  students are apt to  do better                                                               
academically and are more apt to graduate.                                                                                      
MS.  EFIRD  answered  that in  conversation  with  the  Education                                                               
Finance  Council and  other professional  organizations, she  has                                                               
heard  anecdotal  reference to  what  Senator  Hughes is  talking                                                               
about--that it  does create that  connection between  working for                                                               
something that  a student is  paying for.  She is not  sure about                                                               
any specific data, but she will look for that.                                                                                  
MS. EFIRD thanked the committee  for allowing the introduction of                                                               
bill  and thoughtful  consideration. To  address Senator  Stevens                                                               
comment,  the ACPE  over  the  past five  years  has reduced  its                                                               
operating  footprint. It  is down  almost half  of its  positions                                                               
from  a  few  years  ago.   Everyone  is  working  diligently  on                                                               
operating costs, doing due diligence  to provide the best service                                                               
at the lowest cost for Alaskans.                                                                                                
9:46:26 AM                                                                                                                    
CHAIR HOLLAND held SB 94 in committee.                                                                                          

Document Name Date/Time Subjects
SB58 - Senate Education Hearing Request 1.29.21.pdf SEDC 3/5/2021 9:00:00 AM
SB 58
SB94 - Senate Education Hearing Request 03.01.21.pdf SEDC 3/5/2021 9:00:00 AM
SB 94
SB 94 Support Letter from UA State Director Hutchison.pdf SEDC 3/5/2021 9:00:00 AM
SB 94
SB 94 3.5.21 (S) EDC Presentation.pdf SEDC 3/5/2021 9:00:00 AM
SB 94
SB 94 - Charter College - Letter of Support 3.2.21.pdf SEDC 3/5/2021 9:00:00 AM
SB 94
SB58 - Correspondence Programs as of 12.2020.pdf SEDC 3/5/2021 9:00:00 AM
SB 58
SB58 CorrespondenceADM&CostHistoryFY12-FY22Proj - Legal Size.pdf SEDC 3/5/2021 9:00:00 AM
SB 58
SB58 FY2022 Foundation Funding Program.pdf SEDC 3/5/2021 9:00:00 AM
SB 58