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. DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION COMMISSION, DEPARTMENT OF EDUCATION, explained that the Alaska Student Loan Program has achieved great success in the past few years. The Commission on Postsecondary Education and the Alaska Student Loan Corporation have turned the program around, running it in the black for the first time in history and paying a dividend back to the State. The bill would establish the AlaskaAdvantage Loan Program. Under the legislation, Alaska would participate in the federal guaranteed student loan program, which brings benefits including low interest rates for borrowers and reduces risk to the State through federal loan guarantees. Ms. Barrens testified that the bill would create a supplemental loan program to provide financial assistance in the event that the AlaskaAdvantage Loan program was insufficient to cover education costs if the student does not qualify for assistance under the federal guaranteed student loan program. The bill would create a one-stop financial aid information center and financial opportunity, guarantee the lowest possible borrowing rates, streamline aid delivery and reduce financial risk to the State through the federal guarantee. The program would also offer expanded options for borrowers with special needs in loan repayment. Co-Chair Mulder pointed out the renaming of the student loan program. Ms. Barrens replied that because there would be loans offered to none resident students, the choice was to go with a "generic" name. Co-Chair Mulder referenced Page 11, the increase bond issuance by $75 million dollars. Ms. Barrens replied that at this point, it is not anticipated that the annual bonding will need to be increased, however, in the future if there is a substantial jump, the Division would like to be able to make that effort. Co-Chair Mulder clarified that only bonds necessary to substantiate the application would be issued. Ms. Barrans replied that was correct. Vice-Chair Bunde asked about the students that remain in Alaska following graduation. Ms. Barrens explained that the State believes that there could be efficiencies created with the automation and connection with the institutions in Alaska that could result in lower servicing costs of the loans. The bill proposes to offer a preferred interest reduction for individuals that remain in Alaska. There currently is not a program of that kind in existence. The financial model that underlies the program has some new revenues coming into the corporation. In the past, the Division lost money and those programs were not feasible. As the Commission has moved from the "red" into the "black", they have been reluctant to be overly aggressive of reducing costs at the low market without some revenue stream associated with that. The benefits of the program will allow the Commission to afford new programs. Vice-Chair Bunde asked the current "dead beat" rate. Ms. Barren replied that there are not good statistics on the average debt of the person graduating from the program. The average debt of a borrower is around $15,000 dollars. She added that this year, the default rate fell below 10%. Representative Davies inquired the incentives for the students that stay within the State and at what point would they become eligible. He pointed out that if the incentives were not provided to the students, the dividend to the State would become larger. Ms. Barrens explained that as the Commission moves forward for the next six to nine months, they will be undertaking financial modeling. At this time, the plan is to make it available to anyone who borrows to attend an institution in Alaska or for those attending outside Alaska, they would need to return to Alaska upon graduation. Administratively, that would be a much simpler benefit to pay out. The rational is that if you live in Alaska or attend school in Alaska, the costs to the program are lower and therefore that piece of interest paid for servicing should be lower. Ms. Barrans added that because the dividend amount is formulated and is a certain percentage of the net income, anything that would reduce the net income would affect the dividend to the State. She explained that one of the things that the bill does is clarifies the mission of the Corporation which, must be focused on the students served and the borrowing customers. The decisions that would reduce net income would be a direct benefit to borrowers and would occur through the bill. She stressed that it is important to the corporation to have that language included in the bill.       TAPE HFC 01 - 83, Side B  Representative Hudson inquired if there was anything that would modify the cost of the loan. Ms. Barrens noted that there is not currently a cap on the interest that could be charged on a loan; rather it is tied to the interest that could be charged on a loan. It is tied to the financing of the program. The bill would establish a cap. Ms. Barrans added that the residency definition was not changed, but it does allow the loans to be made to people that come to Alaska to go to an Alaskan institutions. That is a change. She added that change is one that the Commissioner believes is necessary. Vice-Chair Bunde MOVED to report HB 204 out of Committee with individual recommendations and with the accompanying fiscal notes. Representative Davies OBJECTED. Representative J. Davies pointed out that there was not a fiscal note included that indicates the effect on the general fund. Ms. Barrans replied that the fiscal note included with the bill is a positive fiscal note. Implementing the program would be creating a positive effect on the net income of the Corporation. What is not included are the various pieces. The Corporation will have the flexibility within its own statute to authorize benefit programs to the borrowers. There is nothing that states there should be a net zero value and the Commission could offer below market rate interest. That rate would be variable and the rate is not known and cannot be factored into the fiscal note. Representative Davies stated that he had a bill substantially similar to a portion of the proposed legislation. He advised that bill currently was in the House Finance Committee. Representative Whitaker understood that the Corporation anticipates an increased number of loans. He asked how it could be predicted that the dividend would decrease. He acknowledged that it would be difficult to predict the fiscal impact. Ms. Barrans agreed that this is a dilemma and at this point the deferred terms need to be established. Until the volume is assessed, it is nebulous. The reason that the cost can be estimated, the interest rate should be 15-100 basis points below the rate charged other borrowers. That is how the fiscal impact was calculated for the program. A roll call vote was taken on the motion. IN FAVOR: Bunde, Foster, Harris, Hudson, Lancaster, Whitaker, Williams, Moses OPPOSED: Croft, Davies Co-Chair Mulder was not present for the vote. The MOTION PASSED (8-2). HB 204 was reported out of Committee with a "do pass" recommendation and with new fiscal notes by the Alaska Commission on Post Secondary Education and the Department of Fish and Game.