Legislature(2001 - 2002)

04/02/2001 02:00 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          SB 155-STUDENT LOANS/COMN. ON POSTSECONDARY ED.                                                                   
MS.  DIANE   BARRANS,   Director   of  the  Alaska   Commission   on                                                            
Postsecondary  Education (ACPE), gave  the following explanation  of                                                            
SB 155.   Recognizing  that  the financial  status of  ACPE and  its                                                            
financing   partner,  the   student  loan   corporation,  had   been                                                            
stabilized  18 months  ago, ACPE  management was  challenged by  the                                                            
board  to identify  ways to  expand its  services  and increase  the                                                            
public benefit  of those  services for Alaskans.   Working  with the                                                            
Commission's  team  of managers,  the ACPE  focused  on a  strategic                                                            
recommendation  made by  the agency's  external audit  firm of  KPMG                                                            
Peat Marwick and  developed the Alaska Advantage Program.   Over the                                                            
last 10 months,  it has analyzed customers' needs  and expectations.                                                            
That has  included extensive  communication  with administrators  at                                                            
the four institutions who  collectively administer financial aid for                                                            
approximately  40 percent of ACPE's  borrowing customers.   With its                                                            
outreach  effort,  ACPE  has  better identified   the needs  of  its                                                            
customers and  the ACPE is better informed to serve  these customers                                                            
now than ever before.                                                                                                           
To  that  end,  SB 155  has  been  introduced  by  the  Governor  to                                                            
establish the  Alaska Advantage Program.    The program will  return                                                            
meaningful  benefits  and  dividends   to its  stakeholder   groups:                                                            
students;   parents;  higher  education   institutions  in   Alaska;                                                            
legislators;  employers;  and  bond  holders.   SB  155 sets  out  a                                                            
statutory framework for  the ACPE and the corporation to develop and                                                            
implement  the  premiere  educational  loan program  in  the  United                                                            
States by and for Alaskans.   The statutory changes made by the bill                                                            
will result  in lower  cost educational  loans in  Alaska and  other                                                            
improvements  to  borrowers'  loan terms.    The ACPE's  success  in                                                            
marketing  such a  program will  be one  means of  helping  Alaskans                                                            
fight the high cost of  postsecondary education and hopefully change                                                            
their perception that education  is unaffordable.  SB 155 will allow                                                            
the ACPE  to facilitate these  changes without  putting at  risk the                                                            
financial  strength  of  the  corporation.    This  initiative  will                                                            
improve and expand services  to Alaskans and assist the institutions                                                            
in Alaska in attracting and retaining new students.                                                                             
For  borrowers, the  Alaska  Advantage  Program will  guarantee  the                                                            
lowest possible borrowing  rates.  It will improve aid packaging and                                                            
delivery  by  creating  a one-stop  shopping  format.    It  ensures                                                            
simultaneous  grant and loan application.   It approves and  expands                                                            
the borrowers  deferment and  repayment options  and it provides  an                                                            
opportunity for debt consolidation  in Alaska with an Alaska lender.                                                            
For  institutional  partners,  through  ASL-net,   the Commission's                                                             
internet  portal,  Alaska  Advantage   provides  a  recruitment  and                                                            
retention tool  through beneficial  interest terms.  It streamlines                                                             
and  improves  financial aid  delivery,  easing  the administrative                                                             
burden.  It eliminates  unnecessary program differences  to simplify                                                            
administration of these  programs for staff and it will enhance loan                                                            
product  comparisons  by  students  and  their families.    It  also                                                            
provides  specific financial  awards for borrowers  remaining  in or                                                            
returning  to Alaska  and it  enhances default  management  support.                                                            
For the corporation,  the Alaska Advantage  Program will  reduce the                                                            
risk  through  the federal  guarantee,  hopefully  resulting  in  an                                                            
improved bond  rating to AAA and further bond cost  reductions.  The                                                            
federal  interest  subsidies  will improve  cash  flow  and it  will                                                            
eliminate  98 percent  of  the loss  on the  federally underwritten                                                             
loans due to  borrowers' default,  death, disability or bankruptcy.                                                             
In time, ACPE  expects these changes to allow for  additional Alaska                                                            
Advantage  benefits  such as  upfront  interest reductions,  a  rate                                                            
reduction  for  borrowers   who  remain  in  or  return  to  Alaska,                                                            
repayment rewards,  bank payment rewards,  and other incentives  for                                                            
good borrower  behavior.  The results  achieved by the ACPE  and the                                                            
corporation in recent years  have meant a significant improvement in                                                            
both the program  finances and servicing.   These results  could not                                                            
have been achieved without  broad support of the Administration, the                                                            
Legislature, participating institutions and Alaska students.                                                                    
SB  155  will enable  the  ACPE  to  convert  these  successes  into                                                            
positive  momentum  and  raise  its  services  to  the  next  level.                                                            
Continued  and  substantial  improvement  is only  possible  through                                                            
proposed integration of  the programmatic and financial strengths of                                                            
federal  and state  student  services.    The timeline  reflects  an                                                            
extremely aggressive  schedule as  ACPE will seek to implement  this                                                            
servicing model for the 2002-2003 year.                                                                                         
MS. BARRANS  asked  for expedited  consideration  and passage  of SB
155, which  will permit the ACPE to  immediately direct 100  percent                                                            
of   its  resources   to   the   planning,   marketing   and   other                                                            
implementation  activities.  Success is feasible if  we begin in May                                                            
of this  year,  but the  process cannot  begin until  the  statutory                                                            
structure is in place.                                                                                                          
SENATOR  WILKEN  asked  Ms. Barrans  if  she  could review  for  the                                                            
committee the  projected income that  ACPE expects to make  with the                                                            
passage  of  SB 155.    He also  asked  Ms. Barrans  to  inform  the                                                            
committee  of the amount  of delinquent  loans that  have been  paid                                                            
through permanent fund dividend collections.                                                                                    
Number 689                                                                                                                      
MS. BARRANS directed  the committee's attention to  the fiscal note,                                                            
which shows a positive  change in revenues. By 2003, ACPE expects to                                                            
have  a $4.7  million  increase  in  net income,  with  that  amount                                                            
continuing  as the program evolves.   The fiscal note was  estimated                                                            
with all  things remaining  as they are.   However, ACPE intends  to                                                            
take  the  net  gain  and  roll  it  back  into  the  loan  products                                                            
themselves.  ACPE would like to offer below-market rate loans.                                                                  
CHAIRWOMAN  GREEN asked if the savings  from the projected  increase                                                            
would apply  to borrowers in the future  or whether they  would have                                                            
any retroactive impact.                                                                                                         
MS. BARRANS said  the savings shown on the fiscal  note are specific                                                            
to  the  federally  underwritten  law.    She  noted  regarding  the                                                            
permanent  fund dividend  collections for  bad debt, ACPE  recovered                                                            
$13 million this year and $12 million last year.                                                                                
Number 846                                                                                                                      
SENATOR LEMAN pointed out  that the fiscal note contains funding for                                                            
four new employees.  He  asked her to address, to the Senate Finance                                                            
Committee, whether  four new employees are necessary  and or whether                                                            
contracting out some of that work would be a better approach.                                                                   
CHAIRWOMAN  GREEN  announced  that  she  will hold  the  bill  until                                                            
Wednesday to  provide committee members  the opportunity  to get any                                                            
other questions answered.                                                                                                       
MS. BARRANS  informed  the committee  that the fiscal  note will  be                                                            
revised because  the numbers  used are consistent  with the  current                                                            
default rate;  that default  rate is expected  to decrease  with the                                                            
new program model.                                                                                                              
CHAIRWOMAN  GREEN took  a brief  at-ease and  then continued  taking                                                            
public testimony on SB 155.                                                                                                     
MR.  RICK  WEEMS,  University  of  Alaska  Anchorage  (UAA)  finance                                                            
officer, stated  support for SB 155 and said that  UAA's partnership                                                            
with ACPE is providing great services for students.                                                                             
There  being  no further  testimony  or  questions  on SB  155,  the                                                            
committee took up SB 91.                                                                                                        

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