04/30/1994 02:30 PM Senate HES

 CHAIRMAN RIEGER introduced  HB 506  (STUDENT LOAN PROGRAM) as the             
 next order of business before the committee.                                  
                                                                               
 ERIC FORRER, Member of the University of Alaska Board of Regents              
 and Postsecondary Education Commission, explained that HB 506                 
 speaks to the Postsecondary Education Commission's primary                    
 responsibility of turning the student loan fund into a revolving              
 fund.  This fund is approximately $500 million in state investments           
 which should be self-supporting.  He indicated that the                       
 commission's goal was vigorous management of this fund.  He said              
 that with such high capital, it is easy to lose track of this bad             
 situation.  Strict management of this fund is necessary for the               
 long term.                                                                    
                                                                               
 Mr. Forrer mentioned that the portion of HB 506 which denies the              
 reissuance of a license by the state to an individual whose student           
 loan was in arrears.  He did not believe that discussion was about            
 the correct issue.  He felt that it would be more onerous not to              
 require people to be in good standing with their student loan than            
 to require it.  That would illustrate the commission's seriousness            
 about rigorous management of the fund.  He urged passage of HB 506.           
                                                                               
 CHAIRMAN RIEGER expressed concern with the first section of HB 506            
 regarding the denial of an occupational license.  He did not think            
 that any other lender in Alaska could go to the Department of                 
 Commerce and request for denial of an occupational license of a               
 borrower who is in default.  He suggested that on page 1, line 12             
 after "licensee," the following clause be inserted:  "and the                 
 balance owing on the loan is $100,000."  Super agencies with more             
 power than those of the lending community should not be created.              
 He also indicated concerns with the statutory provisions regarding            
 assigning wages for a defaulted loan.                                         
                                                                               
 Number 363                                                                    
                                                                               
 JOE MCCORMICK explained that the Alaska student loan program is a             
 non-collateralized loan.  He pointed out that this section speaks             
 to the renewal of a license not the initial license.  The section             
 is more like a concept, a reminder.  He noted that reminding an               
 individual that their Alaska student loan is in arrears when they             
 renew their occupational license is common practice in many other             
 states.  That would send a message to the borrower that the state             
 of Alaska is serious about the repayment of student loans.                    
                                                                               
 SENATOR MILLER inquired as to the ability of pursuing an individual           
 whose loan is in arrears through legal procedures.  JOE MCCORMICK             
 said that eventually that could happen.  A judgement or garnishment           
 of wages of the borrower could occur.  Mr. McCormick reiterated the           
 importance of sending the message to the bond market and the                  
 borrower that the state of Alaska does expect a borrower to repay             
 their loan.                                                                   
                                                                               
 SENATOR MILLER felt that the majority of non-payers are individuals           
 living outside of the state.  JOE MCCORMICK said that was not                 
 necessarily the case.  The percentage of individuals with                     
 occupational licenses who have delinquent loans are less than 10              
 percent.  Mr. McCormick explained that this would not be a                    
 mechanism in which to collect money.  He added that he was not                
 advocating this provision because he thinks it is going to collect            
 a lot of money for the Alaska Student Loan Program.  He is                    
 advocating as simply sending a message to the borrower, as well as            
 sending the message to the people that they receive their bonds               
 from, that they really are serious about making this a viable                 
 program and having sound financial integrity.                                 
 Number 418                                                                    
                                                                               
 CHAIRMAN RIEGER asked if the names of the delinquent borrowers are            
 published in the newspapers and JOE MCCORMICK acknowledged that               
 they are published.  Also, they have the power to garnish wages,              
 but that power is much more difficult for self-employed                       
 individuals.                                                                  
                                                                               
 CHAIRMAN RIEGER requested Mr. McCormick's comments on an amendment            
 that he was proposing which provides if the balance owing on a loan           
 is in excess of $100,000, it would trigger the denial of the                  
 occupational license.  JOE MCCORMICK responded that the important             
 thing is to get the legislation passed, and while he does not                 
 particularly favor the amendment, he believes it is important to              
 get it passed in some form.                                                   
                                                                               
 Number 441                                                                    
                                                                               
 SENATOR SHARP commented that he has extreme difficulty with the               
 amendment, and he wants to enhance the lowest cost method possible            
 to collect delinquent student loans.  To go through the court                 
 system is not cheap.                                                          
                                                                               
 Number 451                                                                    
                                                                               
 CHAIRMAN RIEGER moved the adoption of his proposed amendment.                 
 Senators Miller and Rieger voted "Yea" and Senators Sharp, Leman              
 and Duncan voted "Nay."  The motion failed.                                   
                                                                               
 Number 453                                                                    
                                                                               
 SENATOR MILLER moved that CSHB 506(FIN) am be passed out of                   
 committee with individual recommendations.  Hearing no objection,             
 it was so ordered.