HOUSE BILL NO. 204 "An Act relating to the Alaska Commission on Postsecondary Education and the Alaska Student Loan Corporation; relating to student financial aid programs and the financing of those programs; establishing the Alaska Advantage Loan Program and the Alaska Supplemental Education Loan Program; increasing the bonding authorization of the Alaska Student Loan Corporation; providing for liens resulting from a default under AS 14.43 or AS 14.44; relating to the duties of the recorder regarding those liens; relating to defaults under the Western Regional Higher Education Compact; relating to the prohibition on discrimination regarding programs under AS 14.43; relating to fees for the review of certain postsecondary institutions; making conforming amendments; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education, Department of Education and Early Development, testified in Juneau that the bill creates the Alaska Advantage Student Loan Model. She explained this loan program would provide benefits to borrowers, institutions and the Alaska Student Loan Corporation by combining federally guaranteed student loans with state loans, which would be supplemental to the guaranteed loans. Ms. Barrans stated the objective of this model is to allow the Corporation to finance the loans and the Commission to service them. Because the federal portion of the Commission's portfolio would be subsidized and guaranteed by the federal government, she remarked that the loans could be offered a substantially lower interest rates then loans traditionally financed by the Corporation. She elaborated that by authorizing the Commission to package the loans, borrowers could be offered the "lowest possible borrowing rates" and the borrowers could receive funding from one source rather than multiple lenders. She added that borrowers would also become eligible for consideration for federal grant funds for the application process. Ms. Barrans continued noting program changes generated by following the federal student loan model would expand the repayment and deferment options available to borrowers. She added this would also allow borrowers to consolidate all educational debt with a single Alaskan lender. Ms. Barrans pointed out benefits to the institutions participating in the model by providing a retention and recruitment tool through the improved interest rates, which would ease administration efforts by streamlining financial aid delivery. She noted these loans would have comparable terms that would allow financial aid counselors working with potential borrowers, the ability to compare loan products. She stated this would also provide "targeted financial rewards" to borrowers who remain in, or return to, Alaska. She told of the additional support for institutions to manage the default rate of these loans. Ms. Barrans asserted that besides providing these benefits to both institutions and borrowers, there would also be "clear financial benefits" to the Corporation. She detailed there would be new income streams to the Corporation through the interest subsidies on a certain portion of the federal loans made under this model. She also told of the special allowance the federal government pays to lenders in its programs to protect against fluctuations in interest rates. She continued this would eliminate 98 percent of the losses due to default, death, disability and bankruptcy on those loans that were federally guaranteed. Ms. Barrans remarked that the combination of the financial benefits would allow the Corporation to enhance its underlying credit rating from AA to AAA. Ms. Barrans spoke of secondary objectives of the legislation, including identification in the findings section of the bill, relating to the mission of the Commission and the Corporation as a student-focused delivery system. She noted the Commission's functions are updated in this legislation as well; by eliminating provisions no longer applicable because the federal programs have been discontinued or modified. She continued explaining the Commission's collection authority would be clarified to provide the same collection authority for all the financial aid programs it administers in the event of default. She stated this legislation also allows the Commission to issue administrative liens in addition to administrative wage garnishment authority previously granted. Ms. Barrans noted this legislation would allow the Corporation to offer extended maturities on the bonds issued in the event it is financially advantageous to the Corporation. She said it would allow the Corporation to increase the amount of bonds issued in a two-year period of time. Ms. Barrans concluded that the bill provides that the current student loan program remains in place for the next year while the model is prepared for implementation in the fall of 2002. Co-Chair Donley pointed out the type of funds are not specified in the fiscal note. Ms. Barrans indicated a new fiscal note would be prepared correcting this error and showing the fund source as Alaska Student Loan Corporation Receipts. Senator Wilken offered a motion to move HB 204 from Committee with a forthcoming fiscal note from the Department of Education and Early Development. The bill MOVED from Committee without objection. AT EASE 7:34 PM / 7:46 PM