Legislature(1995 - 1996)
01/17/1996 03:08 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 17, 1996
3:08 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Norman Rokeberg, Vice Chairman
Representative Kim Elton
Representative Jerry Sanders
Representative Beverly Masek
Representative Brian Porter
Representative Gene Kubina
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
WORK SESSION: Status of Alaska's private trade and technical
schools.
WITNESS REGISTER
GEORGE DOZIER, Committee Aide
House Labor and Commerce Committee
Alaska State Legislature
Capitol Building, Room 432
Juneau, Alaska 99811
POSITION STATEMENT: Clarified information regarding student loans.
JENNIFER DETZ, Owner
Career Academy; President, State
Association of Private Career Schools
1415 East Tudor road
Anchorage, Alaska 99501
Telephone: (907) 563-7575
POSITION STATEMENT: Commented on student loan regulations.
MITCH GRAVO, Lobbyist
170 Botanical Circle
Anchorage, Alaska 99515
Telephone: (907) 244-2406
POSITION STATEMENT: Commented on student loan regulations.
GILLIAN HAYS, Executive Assistant
Postsecondary Education Commission
Department of Education
3030 Vintage Boulevard
Juneau, Alaska 99801-7109
Telephone: (907) 465-6740
POSITION STATEMENT: Responded to questions regarding student loan
regulations.
TARIKA LEA
101 College Road
Fairbanks, Alaska 99701
Telephone: (907) 452-2555
POSITION STATEMENT: Commented on the student loan program.
SARA EDDINGS
New Concepts
3677 College Road, Number 4
Fairbanks, Alaska 99709
Telephone: (907) 452-4684
POSITION STATEMENT: Commented on the student loan program
regulations.
DONALD SCHEAFFER, Director
Financial Aid
University of Alaska - Fairbanks
P.O. Box 756360
Fairbanks Alaska 99775
Telephone: (907) 474-7256
POSITION STATEMENT: Commented on the student loan program
regulations.
DONALD M. LOCKMAN
Testing Institute of Alaska
2114 Railroad Avenue
Anchorage, Alaska 99501
Telephone: (907) 276-3440
POSITION STATEMENT: Commented on the student loan program
regulations.
DENNIS MILLHOUSE
Trend Setters School of Beauty
407 East Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 274-7150
POSITION STATEMENT: Commented on the student loan program
regulations.
CAROL HART
Elite Hospitality Center
800 East Dimond Boulevard
Anchorage, Alaska
Telephone: (907) 349-1400
POSITION STATEMENT: Commented on the student loan program
regulations.
ANN ADASIAK ANDREW
SST Travel Schools of Alaska
2221 East Northern Lights Boulevard
Anchorage, Alaska
Telephone: (907) 272-8585
POSITION STATEMENT: Commented on the student loan program
regulations.
PREVIOUS ACTION
No previous action to record
ACTION NARRATIVE
TAPE 96-1, SIDE A
Number 001
The House Labor and Commerce Standing Committee was called to order
by CHAIRMAN PETE KOTT at 3:08 p.m. Members present at the call to
order were Representatives Elton, Sanders, Rokeberg and Kott.
Number 077
CHAIRMAN KOTT announced the purpose of the meeting was to conduct
a work session concerning private trade and technical schools in
Alaska given the importance to the state of Alaska of a skilled and
trained work force. He then reviewed some housekeeping matters
regarding the rules of the committee. He announced what the normal
scheduled meeting times are for committee meetings and reviewed the
time frames for which information must be submitted to the
committee in order to hear legislation.
Number 363
CHAIRMAN KOTT again stated the meeting is a work session to address
the importance, the impact or the relevance of potential
regulations that have been put out by the Postsecondary Education
Commission that may affect how loans are granted to trade schools
and nontraditional schools in the state of Alaska as well as
nontraditional schools outside the state.
CHAIRMAN KOTT began by showing the committee a chart entitled,
"Vocational Schools." The chart showed the approximate numbers of
loans, by percentage, that are made to Alaska students. He said
vocational students have about 15 percent of those loans and the
traditional schools have about 85 percent of the loans. Chairman
Kott referred to a chart entitled, "Actual Dollars," and said it
shows the total dollars that are provided to vocational students
for student loans amounts to about 12 percent of the total amount.
About 88 percent goes to the other category, traditional schools.
Chairman Kott referred to another chart relating to defaults and
said there are 19 schools with approximately 14,675 recipients.
The average default, based on the number of recipients, is just
short of $1,700. Chairman Kott explained Alaska state funded
schools, universities and colleges is about 54.2 percent. He
pointed out there is about 24 percent or $11 million in default
money that is out of state. He referred to Alaska private
vocational schools and said the figure is almost 22 percent in
default. Chairman Kott noted a measure relating to this was
introduced in the form of SB 123 and there was a lot of numbers
flung around from one side or the other.
Number 667
REPRESENTATIVE NORMAN ROKEBERG referred to the figure 54.2 percent
and asked if that is equaling the $25 million. He asked if the $25
million figure is the amount of loans or is it the amount in
default.
GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee
Alaska State Legislature, explained $25 million represents the
amount of dollars in default. He noted the percentage is the
percentage of all the dollars in default.
REPRESENTATIVE ROKEBERG asked Mr. Dozier if he is saying there is
$50 million and half are default. MR. DOZIER informed
Representative Rokeberg it is attributable to Alaska state funded
schools, universities and colleges.
REPRESENTATIVE ROKEBERG referred to the gross amount of recipients
and asked if those are the recipients in schools. He also asked if
those are all the loans that have been made during 1989 to 1993.
MR. DOZIER said it is his understanding that the chart is a
composite of all defaults.
CHAIRMAN KOTT noted it is not for any particular calendar year. It
is currently what is in default.
REPRESENTATIVE BRIAN PORTER arrived at 3:20 p.m.
JENNIFER DETZ, Owner, Career Academy; President, State Association
of Private Career Schools, informed the committee the Association
of Private Career Schools came to Juneau for the Alaska Student
Loan Corporation's meeting the previous day in hoping to open a
dialog to find some resolution and solutions to the problem before
the committee. The private vocational schools in the state of
Alaska want to be part of the solution to make trade and technical
education available to all Alaskans at whatever level or whatever
choice. Ms. Detz said there are lots of people who have been a
part of the problem. She noted her organization has a list of
recommendations that should be considered. Ms. Detz explained she
will be meeting with Mark Begich, as well as the commissioner of
Department of Revenue and others to begin developing the process of
which schools will be measured on default rates and how schools can
be part of the solution. She said they deal with students in small
numbers at a time. They know where students are, they want to help
find them and encourage them to be good borrowers. Ms. Detz said
some of the major concerns are that all schools, profit, nonprofit,
academic, vocational, public or private are held accountable for
the same number - the same situation. Whatever the default numbers
are, all schools need to have some part in trying to resolve the
problem.
MS. DETZ said she doesn't believe that there should be a minimum
rate. Regardless of the number of students or the number of
dollars, a school should have some part in finding resolution for
defaults. Part of this problem is not only dealing with the
regulations that have been passed and are before them for
implementation, but the problem starts with the statute. She said
the 1987 statute was intended to address default. In 1987, it was
not envisioned that the Alaska Student Loan Program would be today
what it was in 1987. There are more borrowers and institutions in
state, out of state and internationally. She said the definition
of the default rate needs to be readdressed. Ms. Detz stated all
schools should have some method of default management, loan
management, loan counseling. In more traditional vocational
schools versus traditional education, they meet with students.
There is a process of loan counseling and management for students.
There is also a process of ensuring that students are good
candidates to go to school. Ms. Detz noted it has been her
experience that students who are in default feel more comfortable
about contacting her than they do a regulatory body. She pointed
out that the default rate is a floating number and moves from year
to year. As we pay attention to defaults, the rates will drop.
The federal loan defaults have been dropping over the years because
we've paid attention to them. Servicing agreements have changed.
Students are contacted in a different way.
MS. DETZ said if the default rate is 11 percent this year and the
rate drops to 5 percent next year, then her school is automatically
out. Her school was a good school 24 hours ago, but when the
calendar turned over and the rates are again calculated, her school
is no longer a good school. She has 30 days to come back to state
and say she is working on this. The definition of "default" needs
to evaluated. Ms. Detz said she believes a comprehensive loan
management plan can be developed. It is important to continue to
develop a loan servicing plan for the Alaska Student Loan Program.
Ms. Detz said within the last several weeks, two new nationwide
collecting servicing companies have been employed to help service
the Alaska student loan portfolio. At the same time, the
commission wants to hold schools accountable, retroactively, for
what has happened since 1969 or the beginning of the Alaska Student
Loan Program. She said her school hasn't had an opportunity to
have any access to any delinquent or defaulting borrower
information. The information hasn't been available because of
programming problems. There is no way for schools to redeem
themselves under the current regulation. Someone should define
what acceptable rates and standards are.
Number 1391
CHAIRMAN KOTT said it is his understanding that the 1987 statute
and the regulations that accompany the statute are currently in
effect and have been in effect since November, 1995.
MS. DETZ said the statute that passed in 1987 sat for seven years.
During the last legislative session, regulations were promulgated
and signed into law November 30. The intent was to publish the
default numbers effective December 31, and allow schools 30 days to
respond back to the commission. She referred to the regulations
being in place and said there will be another series of meetings to
discuss process. She said if the regulations don't change and
there isn't any legislative relief through a new statute or a
change in statute, they won't be able to deal with the regulations.
Ms. Detz questioned how the process will work.
Number 1543
MITCH GRAVO, Lobbyist, said he represents the private school folks.
He explained there are three different issues occurring
simultaneously that have to do with the Student Loan Corporation.
He said everyone is aware of SB 123 which was the topic of
discussion at the end of last session. That is one issue. Mr.
Gravo said another issue is a regulation that was promulgated in
November, 1995, pursuant to a statute that was passed by the
legislature in 1987. Basically, the statute is a qualification for
participating in the Student Loan Program for "for profit schools
only." If your default rate is 1.5 times greater than the average,
you can't participate. Mr. Gravo said the third issue that deals
with the Student Loan Corporation is the Governor's executive order
and the legislation that he has introduced that would implement the
executive order. He pointed out all the issues are interrelated
but they're all separate also. The issue that is of immediate
concern to the private school folks is the promulgation and the
implementation of the 150 percent regulation which affects only
them. He said he believes once the statistics come out, most of
them will be precluded from participating in the Student Loan
Program.
CHAIRMAN KOTT referred to when a determination is made as to which
schools receive $100,000, plus, in student loans and are over the
1.5, and asked how many schools will suffer.
MR. GRAVO said he doesn't really know yet.
MS. DETZ said they really don't have a clue. She referred to the
report regarding the short-term debt on long-term service that the
legislators received, those numbers are based on the number of
borrowers and not the total dollars in default. She noted she
thinks the numbers on the charts are very high. Ms. Detz said she
doesn't have a clue as to how many of her students are delinquent
or are in default. There are approximately 42 schools in the state
of Alaska who are authorized to receive students using the Alaska
Student Program. She said she doesn't know how many will be
eliminated from the program. Ms. Detz said the education and
training that these schools provide is education for labor and
trades in Alaska.
REPRESENTATIVE KIM ELTON said he is assuming that if the regulation
of 150 percent was promulgated in November, it was promulgated
under the auspices of the Postsecondary Education Commission. He
asked Mr. Gravo if he knows if there is going to be review of that
regulation by the new entity.
MR. GRAVO informed the committee that the chairman indicated the
previous day that they want to work with two commissioners,
somebody from the University of Alaska and somebody from private
schools to review the regulation and the other issues that have
arisen since November. Mr. Gravo said he got the impression that
it was their intention to take a serious look at how this will be
implemented and how it will unfold given the impact that it might
have on the private schools. He said he doesn't believe anyone
wants to take swift action that might be counter productive to
legislation or discussions that may occur during session.
REPRESENTATIVE ELTON asked if they use words like "suspend
implementation," or do they say they're just going to review.
MS. DETZ explained they are concerned about the process of
implementing the regulation.
MR. GRAVO said a request has been made to the commission urging
them to consider suspending implementation at least until May 8.
He said this is going to be an issue for the legislature. The
commission said they would consider the request. Mr. Gravo said it
is the commission's opinion that they were directed by the
legislature to promulgate the regulation in November. If the
legislature were to express that wasn't their intention or that it
is alright with the legislature if they suspend implementation
until May 8, that would give them some ammunition to not
immediately go forward.
Number 1800
CHAIRMAN KOTT asked Gillian Hays to come before the committee. He
informed her he has a letter dated January 15, signed by her
executive director on the commission's letterhead. He referred to
the third paragraph which said, "Last session the Alaska
Legislature specifically directed the commission to enforce this
law which was passed in 1987." Chairman Kott said this paragraph
disturbs him. He asked Ms. Hays where that specific direction came
from.
GILLIAN HAYS, Executive Assistant, Postsecondary Education,
Commission, Department of Education, said the first conference
committee issued a letter of intent. That letter of intent doesn't
go into effect until the bill is passed. Joe McCormick, the
previous executive director, felt that was a strong enough message
from the legislature that the commission prepared draft regulations
on how to calculate the default rate. They went through the
regulatory process to get those regulations into effect.
CHAIRMAN KOTT said he thinks the stronger message was that SB 123
had passed and, therefore, the letter of intent was null and void.
He asked Ms. Hays if she knows if there will be some type of action
that will correct this misinformation.
MS. HAYS said she has delivered a letter to Sharon in Senator
Miller's office explaining that Dr. McCormick had felt that this
was a strong enough message. The commissioners were very concerned
at that time of going back to the bond market and perhaps not
getting insurance for the loans. They decided to go ahead and act.
Number 1999
REPRESENTATIVE ELTON asked what the regulatory process is. He said
he thought regulations were based on statute and never based on
letters of intent.
CHAIRMAN KOTT said he believes Representative Elton is correct.
The regulations that have been promulgated are based on the 1987
statute. There is somewhat of a time lag in enforcement, he
stated.
Number 2025
REPRESENTATIVE GENE KUBINA said the statute is on the books and
that is the law of the land.
CHAIRMAN KOTT said he would agree with that assessment. Since the
statute was passed in 1987, things have changed dramatically within
the student loan application process. As to whether or not the
regulations promulgated in November are still appropriate, that is
why the committee is addressing the issue.
Number 2055
REPRESENTATIVE ROKEBERG referred to regulations in the committee
folders and asked if those are the regulations in question, 20 AAC
15.925. CHAIRMAN KOTT said that is correct.
REPRESENTATIVE JERRY SANDERS said if the bill, being an eight year
old bill, is applicable today, would 30 days be enough time for the
schools to answer. He asked of eight years could be adjusted in 30
days.
CHAIRMAN KOTT asked if the 1.5 figure is cumulative. MS. HAYS
responded that is correct. She referred to the 30 day time period
and said it is a period of time for which the institutions can
review the information that the commission gives them and verify
that, "Yes, Joe Smith went to my school." It is not a period of
time that they are to collect or find the defaulters or to provide
the commission with addresses. It is simply to verify the
information the commission has in their system with the records of
the students that went to that school.
CHAIRMAN KOTT said they are just going to verify names of
individuals who attended the school and nothing more. He said they
are not arguing that a person, for whatever reason that falls
within various categories, is not within that default category such
as if a person was deceased while attending the school. They would
not be included as part of the overall default rate.
Number 2188
MS. HAYS said the schools could let the commission know if a
borrower that attended their school has deceased. The school could
also inform whether the borrowers on the list really attended their
school. Ms. Hays explained after 30 days, the school would submit
their information to the commission. The commission will review
the information for accuracy. She informed the committee that
there is the appeal process for when the school doesn't agree with
the commission's determination that the school is ineligible to
receive Alaska student loan recipients. Ms. Hays informed the
committee that on December 31, 1995, they took a snapshot of all
the loans. The commission's Information Support Services (ISS)
Section is currently entering the calculations in order to separate
the student with the code with the amount, so each institution will
have their individual institutional default rate.
MS. HAYS said once the determination has been made, the schools
review the information, send it back to the commission, the
commission reviews and makes whatever changes are necessary in the
programming to coordinate the schools records with the commission's
records. She noted on a quarterly basis, the commission can print
another list for the schools, but according to the statutes, the
commission is to take the snapshot annually. Ms. Hays said as she
understands, the schools will have a year to implement their
default management plan.
Number 2275
REPRESENTATIVE PORTER asked if the commission will work with the
schools before they are deemed ineligible. MS. HAYS said having
not done this before, she understands that is not the case. She
said they hope to have some way to cease the distribution of funds
to an institution by April or May. She noted that is not set out
in concrete.
REPRESENTATIVE PORTER said it seems to him that the legislature's
intent was that the regulations be done in a normal period of time
after the statute. Currently, if the loans exceed $100,000 and the
loan default rate is 150 percent, it is grossly skewed by the time
of when the statute was written and when the commission is finally
getting around to starting the process. Representative Porter said
he thinks the legislature would be concerned if quite arbitrarily,
regulations are written that didn't take that lapse into account.
There would be no ability on the other end to make some
adjustments.
MS. HAYS explained the calculations the commission has undertaken
do not include any loans made prior to 1986. REPRESENTATIVE PORTER
asked if that was determined arbitrarily. Ms. Hays said
information on their computer system, prior to that time, was not
coded in a manner that they could separate the different
institutions and they determined it would be a very labor intensive
process to figure how much money went to what school.
Representative Porter asked if 1986 was the first year they went on
record. Ms. Hays said it was loan year 1987. Representative
Porter said if the regulations would have been timely, the
commission would have had one and a half years of data. Now they
have eight or nine years worth of data. Ms. Hays said she doesn't
think that there is any question that the process is hard to
understand and to know what is right and what isn't. The program
default rate is cumulative and does include all the loans prior to
1986. She said having the numerator, denominator and how that all
works out, it is to the advantage of the institutions now to have
the cumulative rate and the program rate.
TAPE 96-1, SIDE B
Number 001
MS. HAYS referred to the number in the statute and said it is based
on all other loan programs that go to the bond market for bonding.
The bond market is familiar with that number.
REPRESENTATIVE PORTER said he thinks he could make a case that the
commission is actually causing more grief than benefit by figuring
things the way they are.
Number 047
CHAIRMAN KOTT asked to what extent, if any, can the Postsecondary
Education Commission examine the credit worthiness of an applicant.
MS. HAYS said they currently don't have the authority to do that.
Chairman Kott asked what the current requirements are for obtaining
a student loan. Ms. Hays said you have to be physically present in
the state for at least 12 months prior to an application, go to an
institution that is authorized by the state and other written
conditions the committee members had before them. Chairman Kott
asked if there is a mechanism to verify residency. Ms. Hays said
they have a residency questionnaire that is sent to questionable
applicants asking for proof such as rental records, voter
registration, etc. Chairman Kott asked if there is something on
the applications that would tip them off if an applicant did not
meet the 12 month residency requirement. Ms. Hays said there isn't
unless they committed fraud.
Number 111
REPRESENTATIVE SANDERS asked Ms. Hays how they would know if
somebody committed fraud. MS. HAYS said there has been instances
where they have found students that have applied under several
different names. Those names were forwarded to the Department of
Law to pursue repayment of those loans. The commission would be
tipped off if a borrower didn't read the application and had only
been in the state for 11 months. She noted that those people,
after 12 months, may submit a revised application.
Number 160
CHAIRMAN KOTT asked Ms. Hays if her opinion is that if there were
some kind of statutory authority that gave the commission the
opportunity to do a credit check or check on an individual's credit
worthiness, would that assist the overall program default rate.
MS. HAYS indicated she didn't know enough information to answer the
question. She said if the commission were to assume that no credit
is good credit, a lot of the borrowers wouldn't have credit as they
have just come out of high school.
CHAIRMAN KOTT said there may not be a track record for establishing
credit, but most 18-year olds would have some kind of work history
where a credit or reference check could be done. He pointed out
that his 18-year old son applied for a visa card and received one.
He listed a savings and loan bank where he had an account.
Chairman Kott said students have to meet some requirements but
we're not actually checking to see whether they do.
Number 254
REPRESENTATIVE KUBINA referred to people who default on their loans
and said he assumes a vast majority of them have moved out of
state. MS. HAYS said she thinks it is about 50/50. Representative
Kubina referred to the effort that is gone through to collect the
money and said their permanent fund dividends (PFD) could be taken.
Ms. Hays indicated that is currently the case. Representative
Kubina asked how many people the commission gets to pay their loans
back. Ms. Hays informed the committee last year they put a claim
on 8,000 PFDs. She noted she didn't have the exact numbers with
her. Ms. Hays said she believes the commission actually collected
from 6,500. If people are behind in child support or IRS payments,
those other agencies get the PFDs first. Representative Kubina
said if the PFDs are taken, do the schools then get credit for that
and the school, in essence, is not really in default as much
because the commission has collected some. Ms. Hays said she isn't
real sure of the answer. If the borrower is still in-house and the
commission collects, it goes towards the school. If the borrowers
have been turned over to a collection agency, a portion of it does.
She noted she doesn't know exactly how the calculation works.
REPRESENTATIVE KUBINA asked if the commission reaches a point where
a student's name is turned over to a collection agency. MS. HAYS
said they do reach that point. She said they have a required due
diligence process that must be met. Legally, the commission has to
make a certain amount of calls and contacts with truth and lending
letters, etc. If it starts costing the commission more to track a
non performing loan then it does to transfer them, they transfer
them.
REPRESENTATIVE KUBINA asked if there is an analysis as to what kind
of people the students are. For example, he has heard doctors and
lawyers are a terrible risk for student loans even though they are
probably receiving some of the highest salaries. He asked if there
has been an analysis of this. MS. HAYS said the committee members
have some information before them where there is a chart that
separates default rate by field of study or by major. She said the
report shows that the length of study is the issue where you ask
the questions, "Do they have enough education in order to get a job
where they would make enough money to repay their loan?" You also
ask, "Did they get enough education to understand the need to repay
a loan." She said she doesn't know if they have done a study on
each field.
Number 408
CHAIRMAN KOTT said he recalls reading an article in December that
was quoting Diane Barrans that they are beefing up the collection
process of loans in default. The impression he got is they are now
vigorously trying to collect. He was left with the impression that
prior to that perhaps there wasn't such a vigorous attempt to
collect those monies. Chairman Kott said it seems like one full-
time person is being added and two other part-time people in the
office are now involved. There are also two outside collection
agencies that have been hired. He said he applauds the commission
for those attempts.
MS. HAYS informed the committee two years ago, they had requests
for proposals (RFP) for new collection agencies. When Dr.
McCormick came on board, he was very concerned that the collection
agency the commission currently had contracts with weren't
nationally known. There weren't large branches in the Lower 48
where the borrowers, who are no longer living in Alaska, could
easily be contacted. Ms. Hays noted in 1988, the commission
received authority to hire 22 new staff members and 12 of those
staff members went to due diligence or precollections. She said
the commission has hired people who have actual student loan
experience. They are trying to beef up the professional expertise
within their own agency.
CHAIRMAN KOTT asked if the commission currently uses instate
collection agencies such as Alaska Credit Association (ACA) and
Collect Alaska Network Management Adjust Bureau. MS. HAYS said
there was one other agency but she couldn't remember the name. She
noted their first account was with Patterson/Van Able in 1982. Ms.
Hays noted they haven't sent any accounts to Patterson/Van Able in
about ten years.
Number 560
REPRESENTATIVE KUBINA asked if there is any punishment to the
borrowers if they default. MS. HAYS stated any borrower in the
Alaska Student Loan Program would lose any benefits they may have.
For instance, if a student has an old loan with the forgiveness
provision, they will lose access to the forgiveness provision,
they'll no longer be eligible to take out any other kinds of
deferments such as medical or military. Once an account is
transferred to a collection agency, the collection agency can take
legal action against them. They place liens, attach checking
accounts, etc.
REPRESENTATIVE KUBINA asked if student's names are printed in the
paper. MS. HAYS said they aren't allowed to print their names as
they are a state agency. She noted collection agencies are allowed
to print the names and have.
CHAIRMAN KOTT asked if licenses are withdrawn for those who are in
a licensed profession. MS. HAYS stated HB 506 gave the commission
the authority to deny renewal of occupational licenses. She noted
they don't want to take away the borrowers ability to earn a
living. The commission wants the student to know they have the
ability to earn a living and they need to pay back their loan
Representatives Porter, Kubina and Masek arrived.
Number 655
REPRESENTATIVE SANDERS said he recalls something that he read in
the Anchorage newspaper where there was no enforcement on the
default rate. He asked Ms. Hays if she knows when things might
have changed.
MS. HAYS said she didn't know. She did say that Patterson/Van Able
was hired in 1983 or 1984, in order to help collect.
REPRESENTATIVE SANDERS asked if the repayment rates have gotten
better since there is more enforcement. MS. HAYS indicated they
have. Representative Sanders asked if you looked back two years,
would you get the same picture as if you looked back ten years.
Ms. Hays said it is a better picture and that is their goal.
REPRESENTATIVE SANDERS asked if the year 1987 is a locked in done
deal or could it be adjusted to the last three or four years. MS.
HAYS said their legal council looked at that question. She said it
doesn't say anywhere in the statute that they should start at a
certain time. It says, "The loan program."
REPRESENTATIVE SANDERS said if this has been improving even
slightly as the years go by, is there a possibility that it would
cure itself in another two or three years or will it never cure
itself. MS. HAYS referred to a meeting the commission had the
previous day where their bond counsel and financial advisor were in
attendance. She also noted their bond underwriter was also in
attendance and he drew a very descriptive chart. Ms. Hays said
there is no way to recoup just fixing the default. SB 123 has many
other provisions in it that will help stop the drain on the loan
fund. One being recoup provision is charging interest during
deferments, increasing the origination fee, etc., but just letting
the program go as it is with internal corrections is not going to
stop the drain.
Number 937
REPRESENTATIVE PORTER said there seems to be some flexibility or
adjustments being made on how they are making (indisc.). He asked
what formula the bond market uses when looking at the commission's
data and saying whether they are going to good rating, (indisc.) or
bad rating. MS. HAYS informed the committee that in their official
statement each year, it is all written out as to how they calculate
default, forgiveness, etc.
Number 999
REPRESENTATIVE ROKEBERG asked if a replacement has been appointed
for Dr. McCormick. MS. HAYS said Ms. Diane Barrans has been
appointed and her office is in Juneau. She pointed out Ms. Barrans
has worked with the agency for over 14 years.
REPRESENTATIVE ROKEBERG referred 20 AAC 15.925 and asked if that
was the totality of the regulations that were published on November
30. MS. HAYS answered in affirmative. Representative Rokeberg
asked Ms. Hays if she is familiar with the regulations. Ms. Hays
again responded in the affirmative.
REPRESENTATIVE ROKEBERG asked Ms. Hays to describe the difference
between a program default rate and an institutional default rate.
MS. HAYS said a program default rate is defined as all of the
student loans. Institutional is you separate out how much money a
student borrowed to go to an institution. That amount is taken by
all institutions. The program is all institutions, all students
(indisc.). Representative Rokeberg asked how they worked the math
to get to 150 percent. He asked what the relationship is. Ms.
Hays said the relationship is you have a total program rate, for
instance 19 percent. The Alaska Student Loan Program's default
rate is 19 percent. The institutional default rate is calculated
the same way only by looking at how much money has gone to that
institution. The program rate is multiplied by 1.5 times. She
noted she likes round numbers. So you have the 20 percent and half
of that is 10. So 30 percent is a 150 percent of the program
default rate. She referred to the institution and said you are
calculating how much money went to an institution and match the
two. Ms. Hays noted some of the earlier loans weren't interest
accruing. She pointed out for forgiveness, medical write offs,
death and disability are all taken out of the equation.
REPRESENTATIVE ROKEBERG asked if "Program default rate" is defined
in statute. MS. HAYS said she believes there is a definition that
explains what "program" means. She said she would check on that.
Number 1409
REPRESENTATIVE ELTON said what happens if he went to flight school
and management changed in 1992, when the flight school's default
rate was 60 percent until then. The new management comes in. They
could lose their school even though the regulations weren't
implemented until 1996. He said he would like to make a general
comment. SB 123 was a vehicle to address some of the bond market
imperatives and some of the other program imperatives.
Representative Elton said his concern is that one of the things
that isn't being discussed that was in SB 123 was the ability for
university students to get a higher loan amount. He said he hopes
we don't get so bogged down in some of the details that we forgo
the opportunity to do what we probably should do in allowing a
higher loan amount this year. Representative Elton said he has the
sense that some of the concerns that the private schools,
postsecondary education and bond markets have are going to keep us
tied in knots.
REPRESENTATIVE KUBINA referred to a 40 percent default rate and
said that is over a period of years. MS. HAYS pointed out the
snapshot is taken every year. Representative Kubina referred to
1995-1996 and said lets say they are over the 30 percent. From
1995 to 1996 they come in at 28 percent, but only brings their
overall average to 32 percent or 35 percent. Would they still then
not be eligible? Ms. Hays indicated that is true. Representative
Kubina said you'd think in the regulation it doesn't seem like the
law would have (indisc.) to that if in one year you come down
within the realm of under the 150 percent, you have, therefore,
done it. You need to stay at that 150 percent. It seem like that
is common sense. The fact is that school - that year is there and
they should be fine. If in the next year they go up to 32 percent
or 34 percent, then they have not done it. He said some incentive
should be put on schools, both private and public.
REPRESENTATIVE PORTER asked Ms. Hays if the commission feels they
have the authority to write a regulation that would allow
flexibility. MS. HAYS indicated she didn't know as there is a new
body of commissioners. Representative Porter said if a company has
changed hands, it seems grossly unfair to lay the last 10 years bad
record on people who didn't know how to manage their business. Ms.
Hays noted that information would be available if they wished to
obtain it. She said the commission has financial statements that
are required by institutions each year. The new owner would look
at that statement.
CHAIRMAN KOTT thanked Ms. Hays for her testimony.
Number 1932
TARIKA LEA, testifying via teleconference from Fairbanks, said she
operates a small school with 10 to 20 students a year. She said
one-third of them take student loans. Ms. Lea said she feels this
really affects the direction of the future of Alaska. A loan is
not a handout and her school does everything in their power to
teach students how to be responsible. She pointed out that the
student loans have been very helpful, particularly for the women.
She said about 80 percent of her students are women and she finds
most of them have children, no husbands or credit. This is their
first big chance to be independent and to find dignity in their
lives. She said the commission has worked very diligently with her
to make it very clear that the students are responsible. She said
her students sign extra papers saying, "I understand, I am
responsible, this is a loan," etc. Ms. Lea emphasized the
tremendous value that the vocational schools provide for Alaska.
Ms. Lea said she would forward a letter to the committee members
discussing her views. She said the student loan program and
education is one of the greatest services offered.
Number 2317
SARA EDDINGS, New Concepts, said since her acquisition of the
school in 1994, she has implemented a pilot program she uses for
her federal funds for tracking for management of default, etc. She
said she has some guidelines for Alaska student loans. Ms. Eddings
stated there isn't much she can do about what happened with New
Concepts prior to her purchase. She said she would try if she had
the information to work with. Ms. Eddings referred to the
commission hiring more experts to help collect from defaulters and
said none of these people have ever contacted her trying to locate
a student.
TAPE 96-2, SIDE A
Number 001
Ms. Eddings referred to regulations and said it doesn't say what
the commission should use for that time frame in literally cutting
off the school for participating. She thanked the committee for
listening to her comments.
DONALD SCHEAFFER, Director, Financial Aid, University of Alaska -
Fairbanks, testified via teleconference. He said he is not
testifying as a University of Alaska person but more as a financial
aid person. He said on the national level, we have been concerned
about the default rates and even though this particular issue in
Alaska doesn't affect University of Alaska students or the
university, it does affect the higher education in Alaska. One
concern is the possible negative impact that we see across the
state on higher education. He said he feels we're in this all
together and we should be pulling together in support of higher
education. Realistically we need to develop a system of default
management or default reduction. The Alaska loan program is where
the student, in the privacy of their own home, can fill out the
application and walk into the university's office and ask to pick
up their check. Mr. Scheaffer said the university doesn't know who
they are, where they came from and they have no way of certifying
that loan before the person gets it. There are no real mechanisms
to do any insurance counseling or make the students aware of their
rights or responsibilities. Mr. Scheaffer said his only concern is
that the issue, as it is currently going forward, may cause some
disruption that may negatively impact all higher education
throughout the state. He thanked the committee for listening to
him.
Number 110
REPRESENTATIVE KUBINA said he would like to note that he doesn't
find a definition in the statutes or in the regulations of what a
default rate is or anything defining exactly how it is determined.
He said he thinks the department has the latitude to write the
regulation in a far more reasonable and workable manner so that it
encourages schools to bring their loan rates down and not throw
them out of the program.
REPRESENTATIVE ROKEBERG said he knows that there was a report that
shows statistics of the default rates of the private schools. MS.
HAYS said it is borrower based and not dollar based.
Representative Rokeberg requested a copy of the statistics.
Number 162
REPRESENTATIVE ROKEBERG referred to the commission doing the
snapshots and asked if they are crunching the numbers. MS. HAYS
said that is correct. She noted they are also waiting for the
proprietor school owners to submit their suggestions on what kind
of situations they have where borrowers should be eliminated from
the equation. Ms. Hays stated at the November 30, and December 1,
commission meeting, an institutional (indisc.) meeting they were
invited to submit suggestions.
REPRESENTATIVE ROKEBERG asked what the appeals process is. MS.
HAYS said it is just a regular administrative appeals procedures.
Having not implemented this regulation before, this will all be new
ground as far as having an institution appeal. She said she
imagines it will be similar to any appeals process that they afford
a borrower. If a borrower wishes to go to an institution and is
denied, they would write a request to the executive director, the
executive director has staff review their appeal, and if it an
appealable item then it goes to the commission. Ms. Hays noted if
a borrower is appealing for default of an account, the status does
not become static during the appeal process. They still have to
make payments while the appeal process is going on.
Number 296
DONALD M. LOCKMAN, Testing Institute of Alaska, was next to
testify. He noted the Testing Institute of Alaska is a welding
school in Anchorage. Mr. Lockman referred to the charts and said
the numbers probably came from a letter he written and those
numbers were generated from a memorandum that was submitted by the
Postsecondary Education Commission at a meeting in December. He
said the terminology is long-term debt for short-term services or
disservice. He said there are six pages in the document that
delineates each one of the schools. The document states the
percentage in default is per recipient and not per dollar. They
are high on vocational schools as far as the recipient is
concerned. Not having any other figures to work with, he took the
percentage of default into the number of recipients to get the
number of recipients that would be in default in that percentage.
He then multiplied that times the average amount borrowed. Mr.
Lockman said that is probably not going to be a true picture but it
should give some relevancy of percentages of dollars. He then said
he divided up the schools in state funded Alaskan schools that
remain with (indisc.), private vocational schools and all of those
outside of Alaska. That is how he came up with the numbers on the
chart.
MR. LOCKMAN referred to Representative Sanders comment about an
article he read in the Anchorage newspaper and said the average
overall percentage is 19.3 percent. He said he imagines that is a
percentage based on recipients and not dollars. That means 28.95
percent would be the cutoff for the 150 percent of that 19.3
percentage. When you take that percentage and apply it to the
schools percentage that is listed, of the 21 private schools 13
would no longer be eligible. The 150 percent rule applies only to
the private schools, it doesn't apply to any of the outside schools
or the state schools. If you did apply it, there would be 6 of the
19 schools in the state that are university oriented that would no
long be eligible and 16 other schools outside of the state that
would also be ineligible. Mr. Lockman referred to the last
commission meeting and said there was a motion to allow the private
schools to give the state some criteria as to judge the
ineligibility of a defaulted person to that school. He noted he
hasn't received anything from the Postsecondary Education
Commission asking for that information and said he isn't even sure
if it was passed.
Number 522
REPRESENTATIVE KUBINA said it is interesting why only private
schools are listed in that part of the law. He said he guesses he
understands why they didn't say "Alaska private schools," although
he thinks it would have been good to do so.
MR. LOCKMAN said in his school, they probably deal with higher risk
students than some of the other schools. He said some of their
students include incarcerated people and street people. Some of
the students, after they've been in training for awhile, tell him
that they have no intention of paying the loan back. Mr. Lockman
said there has to be some kind of a mechanism that would take those
people out of the default category. Mr. Lockman stated there is
nothing they can do about this situation once they've entered into
the training program. He pointed out that there was one street
person who attended for two years. The Testing Institute of Alaska
contacted the Postsecondary Education Commission and told them this
person was a street person living at Brother Francis' shelter and
that they were going to send that person's check back to
Postsecondary. Postsecondary said they couldn't. Mr. Lockman said
he told the student that he didn't think he wanted him in the
program. The student told him that he was going file a lawsuit.
There should be something to take those people out of the equation.
REPRESENTATIVE ROKEBERG questioned Mr. Lockman's concern regarding
people who are incarcerated. MR. LOCKMAN said he thinks that a
person who is incarcerated needs to get out of that realm of
his/her life and get on to being a productive person. Chances are
he doesn't have a skill level or maybe he does and just wants to be
a criminal. If he doesn't have a skill level, welding is a skill
that most of these types of people can work with. They work with
their hands rather than their mind. They need to have training and
be productive citizens, but to give them a student loan with
nothing being secured and the mindset of a criminal, chances of him
paying back the money is slim.
Number 860
DENNIS MILLHOUSE, Trend Setters School of Beauty, said his school
has been operating in the Anchorage area for 24 years. He
explained they work with the Department of Commerce and Economic
Development for licensing and then they have another layer of
government, the Postsecondary Education Commission. Years ago, the
school helped the commission track people. He noted it could be
done through the Department of Commerce and Economic Development
because any person who leaves the state has to get a license and
they need reciprocity. He said they had a good working
relationship with the people at the Postsecondary Education
Commission but, over the last couple of years, things got real
ugly. They changed their attitudes. He said it so easy to get a
student loan and there is no requirements. Mr. Millhouse said by
regulation, if a student attends 30 hours a week, they have to
release the loans. In some cases, they release the loan, the
student takes off. That loan now becomes the school's problem when
it goes into defaults. He said the school is a pathway to
student's goals. Alaska has some of the best schools. He
suggested calling the permanent fund people as they will really
know if people are residents. Mr. Millhouse explained if a student
doesn't attend the school, they have to refund the money. With the
regulations, they have to carry the students half way through the
course which is five months. If a student defaults on room and
board, the school is still tagged with the expense. He said they
are just asking for fairness. If a student goes into default and
then pays his/her payments and gets out of default, the commission
keeps them in the default column until they are totally out of the
program. Since Mr. McCormick has been around, everything has
changed - misinformation, etc.
Number 1173
CAROL HART, Elite Hospitality Center, said in making some of her
management decisions and putting together her business plans to
purchase her school and move forward, she contacted the student
loan office on several occasions trying to find out different
rates, defaults, loan information, etc. She said she has letters
in her files that state there are no statistics or means for them
to provide the information to her. Ms. Hart said she new they must
have some kind of information and she needed some tools to make
some management decisions. In 1991, she called Sherri Jager, and
her suggestion was to tag on with one of the schools that was
already in place, which she did do. Now she receives information
that from the time the school opened, she is responsible for those
default rates and she had requested that information. Her school
is governed differently than other schools. They can't hand an
individual their check, it has to go into a trust fund. If a
person enrolls, the money is put into a trust fund handled by their
administration staff. She said she has a letter signed by Mr.
McCormick saying they can't get the default rates as they have no
means of getting it. She said she has some major concerns
regarding the issue.
Number 1414
ANN ADASIAK ANDREW, SST Travel Schools of Alaska, referred to SB
123 and short-term programs versus long-term programs and said she
would like to explain the argument that for a university student to
be considered a full-time student for a semester at a university,
they have to be enrolled for 12 credit hours at a university. That
stretches over the course of about 15 weeks. Ms. Andrew said 12
contact hours a week for 15 weeks is 180 contact hours. The
minimum length of any one of their programs is six weeks at 30
hours a week which is 180 contact hours. That is the minimum for
any one of their programs. Other programs, such as Mark Johnson's
with the Truck Driving School, is 210 hours. To receive a four
year degree, there are 130 required credits. Ms. Andrew said she
wanted to explained that to committee in terms of loan amounts for
a short-term program versus a long-term program. Ms. Andrew said
her second point is about previous schools, fly-by-night
institutions, that have come in and hammered a sign on the door of
their house, "SKOOL." They then sign people up for loans, leave
town and rip off people. There were a number of institutions like
that. The institutions that remain in Alaska have survived that.
There are now a number of regulations in place and we have made
progress to control that. Ms. Andrew said she doesn't think there
are bad schools in Alaska anymore. The schools that did survive
that period have absorbed those students at no cost to the students
or the state. They absorbed them, they graduated from their
programs, they got placement assistance. Ms. Andrew said suppose
one of those students chose to default on their loan because the
school they signed up for left town. She asked if one of those
students graduated from her institution, would that institution be
tagged with the default rate of that student.
MS. ANDREW said her last point is that she was surprised at knowing
the commission has allowed the schools input on how they are
supposed to eliminate students from attending their programs or
getting loans. She said she attended a commission meeting last
spring where Mr. McCormick was in attendance. She implored the
commission to help the schools set guidelines on how to determine
whether or not a student gets a loan. She noted the school has no
legal rights. The schools can set certain entrance requirements,
but they don't want to be caught in a legal bind. Ms. Andrew
thanked the committee.
Number 1635
CHAIRMAN KOTT said there has been a lot of information on this
matter. He said it is his intent to appoint a subcommittee to
address the issues the committee has heard such as collection
procedures and dealing with the lack of information. He said he
would perhaps like the subcommittee to look into the possibility of
putting together a House resolution and forwarding it to the
Governor. It should urge the Governor to direct regulations to be
held in abeyance until a time certain date to be determined by the
subcommittee. He then appointed Representatives Masek, Kubina and
Sanders to the subcommittee.
Number 1813
ADJOURNMENT
There being no further business to come before the House Labor and
Commerce Committee, CHAIRMAN KOTT adjourned the meeting at 5:20
p.m.
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