SJR 23-CONST. AM: STUDENT LOAN DEBT  8:03:09 AM CHAIR STEVENS announced that the first order of business would be SJR 23. SENATOR ANNA FAIRCLOUGH, Alaska State Legislature, Juneau, Alaska, sponsor of SJR 23. She explained that SJR 23 provides Alaska's students the lowest possible debt, should they have to acquire debt. The Constitutional Amendment would be placed before voters in the November general election, and should the voters agree with a constitutional amendment that would allow the best possible debt to be purchased for students in Post- Secondary Education, the first loan would not be available until about 2017. 8:04:30 AM CHAIR STEVENS asked why there is a 41 percent denial rate for student loan applicants. He asked if this bill would help to remedy that problem by lowering the cost of loans. SENATOR FAIRCLOUGH explained that in 2008, the federal government changed the definition of credit. Students without credit before 2008 were considered to have good credit and the government would take a risk in allowing the student to take out a student loan. After that date, student loans began to increase in delinquency and if a student had zero debt, it was considered bad debt. In short, SJR 23 would allow the Alaska Student Loan Corporation to lower that threshold slightly and anticipate positive repayment rates. SENATOR GARDNER asked if it would have any impact on the interest rate. SENATOR FAIRCLOUGH said yes. She said they have been told that the delta is somewhere above 1 percent. If one could pledge the full faith and credit of the state of Alaska, there would be an AAA bond rating, whereas the current loans carry a higher rate. She deferred to Ms. Barrans to answer. SENATOR GARDNER asked if the student loans would have an interest rate of 1 percent or higher. SENATOR FAIRCLOUGH clarified that the students would see a decrease of at least 1 percent or higher in their loan rate if general obligation bonds could be issued. She noted a person who testified in opposition to SJR 23, claiming that the bill encourages student loan debt. She stated that this bill does not encourage student loan debt. It allows the state to offer debt at a lower interest rate than it currently can under the current scenario. The Alaska State Constitution only allows the state to issue debt for a bond for capital projects or bonds for veteran homes. This is a policy decision that is permissible, but would have to come back to the legislature every time a bond is issued. CHAIR STEVENS commented on the amount and cost of student debt. He recalled an article about a young couple who graduated from the University of Washington Medical School and owed half a million dollars between them in student debt. He said he appreciates the sponsor's efforts to help solve this issue. 8:08:22 AM DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education, Juneau, Alaska, presented information on SJR 23. She expressed appreciation for the sponsor's interest in supporting a long-term solution to offer Alaska residents the lowest possible cost of an education loan in a fashion that would not require any financial output by the state in terms of general fund support. CHAIR STEVENS appreciated efforts to change the culture. He recalled problems with students not repaying loans in the past. He inquired if the bill would have any negative impact on student repayment of loans. MS. BARRANS said, to the contrary, she believes that by reducing the financing cost to students they would be better able to meet their obligations. SENATOR GARDNER asked what the current interest rate on state- funded student loans is. MS. BARRANS said 7.3 percent is the base rate. She added that the Alaska Student Loan Corporation annually reviews its capacity to offer discounts or credits - borrower benefits. Currently, the corporation does offer a half percent benefit to individuals attending school in Alaska and for borrowers in repayment, a quarter percent discount for those who take advantage of on line electronic repayment options. It allows the corporation to reduce the total cost by three-quarters of a percent against the 7.3 percent. SENATOR GARDNER asked if SJR 23 passes, then the interest rate would be 6.3 percent or less. MS. BARRANS replied that it would depend on the market. At this point in time, it would be at least a 1 percent reduction, possibly as much as 1.25 percent due to being able to leverage the state's outstanding credit. 8:11:53 AM CHAIR STEVENS said because it is a constitutional amendment, it will be on the November general election, not on the August primary, which is pretty crowded. MIKE COONS, representing himself, Palmer, Alaska, testified in opposition to SJR 23. He wished to add information to a recent testimony. He said he spoke of the major flaws in the bill at that time. CHAIR STEVENS stated that this is a new committee that has not heard previous comments. MR. COONS maintained that the U.S. is a debtor nation, not a saving nation and low interest rates encourage students to go into debt. He listed other ways for students to get a college education debt free. He stated his belief that less government is better. CHAIR STEVENS closed public testimony and held SJR 23 in committee.