Legislature(1995 - 1996)
03/20/1995 09:11 AM Senate HES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SHES - 3/20/95
SB 123 POSTSECONDARY EDUCATION PROGRAMS
Number 272
CHAIRMAN GREEN introduced SB 123 as the next order of business
before the committee.
JOE MCCORMICK, Executive Director of the Alaska Commission on
Postsecondary Education, stated that SB 123 would achieve three
objectives: the improvement of customer service, strengthen the
financial stability of the Alaska Student Loan Program, and
improvement of the overall program and its administration. He
pointed out that the University of Alaska has increased its tuition
by 250 percent since 1984 while loan limits have remained unchanged
since 1981. Section 1 of SB 123 raises the loan limits. He
presented a sectional analysis of SB 123.
In discussion of the bill's objective to strengthen the financial
stability of the loan program, Mr. McCormick informed everyone that
the loan program is funded entirely through corporate receipts.
This results in the program absorbing loans lost due to death,
disability, default, and forgiveness on loans prior to 1987. The
loss due to interest free deferment payments are also absorbed by
the program. He emphasized that the statutory changes outlined in
SB 123 are necessary in order for the loan fund to remain self-
sufficient. Section 5 would eliminate the interest free deferment
periods that students now receive; approximately $4 million in
revenue is expected to be generated from the $50 million that would
be lent next year. Section 14 would charge a five percent
origination fee in order to cover losses in those cases that the
program formerly absorbed which would generate approximately $2.5
million of the $50 million lent. Mr. McCormick explained that
Section 17 provides that incarcerated persons would be ineligible
for Alaska Student Loan funds due to their inability to demonstrate
the ability to repay the loan. He noted that the Department of
Corrections has an amendment to offer for Section 17 to which the
ACPSE does not object.
Number 180
Mr. McCormick highlighted the technical amendments that support the
objective of the overall improvement of the program and its
administration. Those amendments can be found in Sections 8, 15,
20, 24, and 27. He commented on the recent legislative audit which
reported that the Alaska Student Loan fund could lose upward of $60
million by the year 2011. Those findings simply confirm what the
council has known for some years; the Alaska Student Loan fund is
not an actuarily sound loan fund. The findings of the report also
point out that the State of Alaska would have in equity
approximately $200 to $220 million in cash; that money is to be
returned to the state treasury. He emphasized that the most
important point to remember would be that the program by the year
2011 would have provided more than $900 million in student loans to
184,000 borrowers in Alaska. The legislative audit would seem to
support SB 123. In conclusion, Mr. McCormick pointed out that the
goal of the commission is to ensure that the Alaska Student Loan
program is present and financially viable for the future.
Number 112
SENATOR LEMAN expressed concern with the language that requires the
state to pay the interest under Section 5. This would obligate the
state rather than the fund. JOE MCCORMICK explained that Section
5 is reworded upon the advice of the Department of Law; the
existing statute already requires that the state pay this interest
during specified periods subject to appropriations. This is not an
addition, the language has merely been reworded.
SENATOR SALO commented that SB 123 is a good bill in that the
changes make the program more actuarily sound. However, she did
not want the program to become a profit making program at the
expense of the students. She indicated that the best part of this
program is the number of students that can access the program. She
stated that in general she was supportive of the legislation.
SENATOR ELLIS inquired as to the section changing the priority
order of student loans and child support. JOE MCCORMICK stated
that at present there is no priority on wage garnishments, it is a
first come first serve basis. Child support has taken a priority
in the past years and the commission would like to follow that and
the remaining debt collectors would remain on the first come first
serve basis.
SENATOR ELLIS expressed concern in attempting to reach actuary
soundness for the program with the collection of interest during
deferment periods. What would the scenario be with regard to the
effect of this on students? JOE MCCORMICK explained that bonds are
issued and the holders receive interest on those bonds, every year
that you pay interest to the bondholders for which you do not
collect interest money is lost. More money is lost when a student
is allowed to have an interest free loan during their time in
school than during deferment periods. Mr. McCormick noted that was
due to the fact that typically a deferment period would not be as
long as the time a student attends school.
TAPE 95-18, SIDE A
Number 005
Mr. McCormick noted that the commission shared these concerns in
developing the legislation. The commission chose not to charge
interest during the period when a student attends school. The
legislative audit report recommends that interest be charged when
the student attends school. Mr. McCormick stated that under the
circumstances he would agree with the legislative audit
recommendation; interest should be charged for all the periods in
which the commission pays interest.
SENATOR SALO asked what the corrections amendment would achieve.
JERRY SHRINER, Special Assistant to the Commissioner of
Corrections, specified that the Department of Corrections' concern
lies in the possibility that specifically removing any possibility
for incarcerated persons to obtain a loan may result in court cases
for the state or the department. The state and the department are
required to provide incarcerated persons with various opportunities
for rehabilitation. He noted that less than 10 incarcerated
persons had applied for student loans of which none have been
granted. Removing the possibility for application may allow the
person to enter into court contesting that the state is acting in
bad faith with regards to the Cleary settlement.
SENATOR SALO asked if incarcerated persons pay tuition and for what
would they need a loan. JERRY SHRINER stated that there are some
inmates who will graduate from a college and either pay for the
tuition themselves or have a pell grant. Mr. Shriner was not aware
of any who used the Alaska Student Loan program.
Number 071
CHAIRMAN GREEN said that inmates are not kept from education even
without SB 123. JERRY SHRINER explained that even without this,
the inmates would have the opportunity to pursue an education. Mr.
Shriner clarified that Mike Stark and the Attorney General's Office
were concerned that SB 123 would provide an opportunity for an
inmate to go to court and charge that the state is acting in bad
faith with respect to the Cleary settlement. Mr. Shriner suggested
that the language be modified according to the amendment or remove
Section 17 entirely.
SENATOR SALO felt that there must be inmates who would owe money to
the Alaska Student Loan corporation; what would happen to their
payment schedules during incarceration? JOE MCCORMICK stated that
the loan would be shown as in default and it would continue to
accrue interest. The interest rate is 10 percent for defaulted
loans.
SENATOR SALO stated that such a scenario seemed more problematic
than granting more loans to current inmates. She suggested
reviewing that problem.
JOE MCCORMICK informed the committee that the provision was present
because there had been requests from incarcerated students to
receive Alaska Student Loans. The Department of Law advised the
commission that there was nothing in existing statutes to allow the
denial of the loan. He explained that the provision is present in
order to establish firm ground if an inmate is denied an Alaska
Student Loan.
Number 148
CHAIRMAN GREEN noted that there were other amendments that had been
recommended by the department.
SENATOR LEMAN moved a memo from the Commission on Postsecondary
Education which would advance changes in Section 15 and 19,
Amendment 1. Without objection, Amendment 1 was adopted.
SENATOR LEMAN moved that CS SB 123(HES) be moved out of committee
with individual recommendations. Hearing no objection, it was so
ordered.
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