CS FOR SENATE BILL NO. 195(FIN) "An Act relating to the membership and authority of the Alaska Commission on Postsecondary Education; relating to the Alaska Student Loan Corporation; relating to teacher education loans; relating to interest on and consolidation of postsecondary education loans; relating to Alaska supplemental education loans; relating to AlaskAdvantage grants; relating to the Alaska family education loan program; relating to postsecondary educational institutions; and providing for an effective date." 9:49:10 AM LAURA PIERRE, STAFF, SENATOR ANNA FAIRCLOUGH, offered a sponsor statement: Senate Bill 195 makes both substantive and housekeeping changes to statutes regarding the Alaska Commission on Postsecondary Education and the Alaska Student Loan Corporation. These changes include allowing the commission to set favorable terms for borrowers, increase the total loan limit a student may borrow, and define "on-time" status for a student to reach completion. With increasing amounts of debt in the state of Alaska, borrowers need to make the best and most informed decisions when they borrow for their education, as well as when they are preparing to enter repayment. By allowing the corporation to set favorable terms, Alaska's students will receive their education for the best deal. The cost of tuition is going up at postsecondary institutions around the country; however, state education loan maximums have not been modified in almost twenty years. Increased loan limits will allow students easier access to enough financial aid from one loan servicer, thereby easing the processes of both borrowing and repayment. National trends show students are taking longer to complete their postsecondary education. In the past, an undergraduate degree took, on average, four years to complete. Now it is more common to see students take longer to complete their degree. By staying in school longer, students are accruing more debt and delaying entry into the workforce. Defining "on-time" status as 15 credits per semester encourages students to complete their postsecondary education in a timely manner. This, in turn, will keep their debt lower, more manageable, and allow them to enter the workforce sooner. The changes proposed in Senate Bill 195 will allow the commission to better assist Alaskans accessing higher education. It will create incentives for students to enroll in sufficient credits to expedite completion of their degree as well as begin their career as part of Alaska's workforce. Ms. Pierre noted that the bill interplayed with SJR 23, both would allow for a lower interest rate for students and incentivize early and on-time graduation. DIANE BARRANS, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, testified that the legislation would help to better meet the needs of students in the state. Co-Chair Stoltze thought that a constitutional amendment that would be a mechanism to reduce student loan rates was an attractive provision. Ms. Barrans relayed that the relatively attractive market prior to 2008 had never returned. She said that through the combination of the bill and the resolution, debt could be issued at a lower rate than could be otherwise achieved. Co-Chair Stoltze asked about the federal interplay related to student loan rates. Ms. Barrans answered that Congress and the U.S. Department of Education had created barriers between non-federal lenders and the consumer. She felt that this had been done under the guise of consumer protection but with respect to other governmental agencies, such as the state trying to offer low rates to students, they had created barriers in terms of schools being able to recommend state programs. Representative Holmes asked for clarification on interest rate changes and borrowing amounts. Ms. Barrans replied that one advantage would be a rate decrease of between 1 and 1.25 percent of what could be achieved with a revenue backed bond. She said that the other advantage would be that rating agencies and the market looked to the rating status of the state when examining general obligation debts rather than the underlying collateral. She said that credit criteria had been imposed in recent years that made the loans less accessible to Alaska residents. She believed that while credit criteria would need to remain in place, it could be moderated and make the loans more generally available. She hoped that by increasing the loan limits varied loan limits would be set according to the student's level of enrollment. 9:57:05 AM Representative Gara asked if the bill would allow for the reduction of the student loan rate by 1.25 percent compared to other bonds used currently. Ms. Barrans replied that yes, when comparing a revenue backed bond with a general obligation backed bond. Representative Gara asked whether the 1.25 percent was lower than the current rate. Ms. Barrans replied in the affirmative. Representative Gara asked whether students would be required to have a guarantor. He wondered whether low income students would be eligible to get the loan. Ms. Barrans answered that it would depend on the students credit score. She said that the combination of changes would not eliminate the need to have a performing loan portfolio. She furthered that the concept behind the bill was that general obligation debt would be issued but that the state would not be expected to repay the debt; the revenue on the loans would repay the debt. It was expected that the credit criteria could be reduced from what it currently was, but it could not be eliminated altogether. She said that a student would need to have adequate credit or a credit worthy co-signer. Representative Gara asked how low income families, with little or no credit, could qualify for the program. Ms. Barrans replied that the student would need to look to federal aid and state and federal grants. She said that under the legislation the maximum grant amount would be increased and the hope was that students would be able to package other aid to meet their needs. 10:00:27 AM SENATOR ANNA FAIRCLOUGH, SPONSOR, hoped that the committee would support both the legislation and SJR 23 unanimously. She said that the bill was one step closer to consolidating loans and making sure that students could borrow what they needed a t a particular point in time instead of having to go to several creditors. She noted that students that had to go to several creditors had higher interest rates than the state was charging; 7.3 percent. She asserted that the bill would expand the state's authority to let students borrow loans in one place and reduce their debt. 10:03:00 AM Co-Chair Stoltze mentioned a 1982 constitutional provision for veteran's housing bonds. He requested an explanation as to why the state constitution required provisions like SJR 23. Senator Fairclough testified that SJR 23 proposed to amend Article 9, section 8 of the Alaska State Constitution. Currently, state debt can only be borrowed for capital projects and veteran's homes. She asserted that the state's forefathers could never have imagined what student debt would look like in the future. She said that at the time that the constitution was written debt was a bad thing and most things were paid for in cash. She stated that students could not pay for school in cash and needed to borrow money. She shared that the legislature could help students borrow money at a lower interest rate by offering the full faith and credit of the State of Alaska. She explained that the constitutional amendment would insert very few words into the constitution that would allow the ability of the full faith and credit of the state to be used for student loans and the advancement of postsecondary education. She believed that if the amendment passed then the postsecondary education student loan corporation would have to advance a plant to the legislature asking whether debt should be taken on, but this time when going to the bond market the interest rate would be a full percentage point lower for students. She said that as the student loans would all be repaid. She emphasized that the language was permissive and would allow the state under the right circumstances to use a better way to finance student loans if the state wanted to take on or offer additional student loans. Co-Chair Stoltze appreciated the need to amend the constitution by anybody but the court system. 10:07:28 AM Representative Gara offered his support for the legislation. Co-Chair Stoltze CLOSED public testimony. He MOVED to ADOPT Amendment 1: Page 13, line 6: Delete "8,000" Insert "10,000" Representative Wilson OBJECTED for discussion. Co-Chair Stoltze spoke to the amendment. Senator Fairclough had no problem with the addition of the amendment. She noted that the bill had yet to be amended and a concurrence vote would be required. Co-Chair Stoltze appreciated the notation. Vice-Chair Neuman offered support for the amendment. Representative Guttenberg noted that the $2,000 was more significant for students pursuing vocational education. Representative Holmes supported the amendment but warned that comparing one student category with another could be unfair. Representative Thompson requested confirmation that the amendment would change the amount given to an eligible student attending a career education program to $10,000. Co-Chair Stoltze thought that the amendment could be made clearer. 10:12:31 AM Ms. Barrans interjected that currently career education students could borrow more than one certificate, the cap that applied to them was the undergraduate cap. Co-Chair Stoltze wondered if the amendment would cause any kind of drafting deficiency. Ms. Barrans replied in the negative. She said that the vocational loans covered a broader array of certificates; historically, the limit had been lower because the vocational programs had higher default rates. She said that differentiation between high value and those that produced a lower return on investment could be researched during the interim. Representative Edgmon expressed support for the amendment. Representative Gara asked whether the amendment would hamper the department's ability to make loans to all classes of students. Ms. Barrans answered no. Representative Thompson understood that under the amendment a student could borrow up to $56,000 for a career education loan. Ms. Barrans replied that the student would have to have borrowed to gain a series of credentials; under the amendment they could borrow up to $10,000 for each separate program of study, up to $56,000. Representative Thompson understood that the $10,000 loan would be for one program. Ms. Barrans replied in the affirmative. Co-Chair Stoltze expounded on the history of abuses of the system in the vocational education field. 10:19:36 AM Representative Wilson WITHDREW her OBJECTION to the adoption of Amendment 1. There being NO further OBJECTION, Amendment 1 was ADOPTED. 10:22:14 AM Co-Chair Stoltze OPENED public testimony. Co-Chair Stoltze CLOSED public testimony. 10:23:14 AM Co-Chair Stoltze queried the fiscal note for SB 195. Representative Costello discussed the one previously published fiscal impact note from the Department of Education and Early Development. Vice-Chair Neuman MOVED to REPORT HCS CSSB 195(FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HCS CSSB 195(FIN) was REPORTED out of committee with a "do pass" recommendation and with one previously published fiscal impact note: FN2 (DEED).