SB 195-POSTSECONDARY EDUCATION LOANS/GRANTS  8:08:23 AM CHAIR STEVENS announced the consideration of SB 195. SENATOR ANNA FAIRCLOUGH, Alaska State Legislature, Juneau, Alaska, reviewed SB 195. She said bill makes substantive and housekeeping changes to the Alaska State Statutes regarding the Alaska Commission on Post-secondary Education and the Alaska Student Loan Corporation. These changes include allowing the commission to set favorable terms for borrowers and increase the total loan limit a student may borrow. Currently, loan limits have not been changed in almost 20 years. The cost of post- secondary education has almost doubled since 1995. Alaska students and their financial aid officers report that borrowers with a high unmet cost of attendance are increasingly choosing loans with higher loan limits, even those that have higher interest rates. She explained that this bill defines what an on-time student is so that they can reach and accomplish their goals. It enables a student to enter the workforce earlier and enter repayments sooner so that they have less debt to carry. There is strong evidence that shows the correlation between the intensity of the enrollment of a student and their completion rates. CHAIR STEVENS asked who the bill would affect and how many years the loan can be used. SENATOR FAIRCLOUGH deferred to Diane Barrans to answer. She said on page 13, lines 12-14, it takes the loan limit from $42,500 to $56,000 and from $60,000 to $87,000 for undergraduates and graduate students respectively. The bill also allows consolidation of loans. CHAIR STEVENS asked how many years the loan is available to a student. DIANE BARRANS, Executive Director, Postsecondary Education Commission, Department of Education and Early Development (DEED), Juneau, Alaska, answered questions regarding SB 195. She explained that there is not a limit on the number of years a student can access the loan; there is a total dollar amount. CHAIR STEVENS inquired if part-time students can receive a loan. MS. BARRANS said they can be part-time students and they have to be matriculated into a degree or certificated program. CHAIR STEVENS noted the presence of Senator Gardner. SENATOR GARDNER understood that currently a student with multiple loans is required to pay the oldest one first, not the one with the highest interest rate. She asked about the interest rate and impact of consolidated loans, as provided for in the bill. 8:12:53 AM MS. BARRANS clarified that Senator Gardner's understanding is not correct. As long as the student's other loans are paid to a current status, they can prepay any loan they select. Paying the highest rate loan first would be to their benefit. She stated that consolidation is done at the prevailing rate, which is 7.3 percent now. Currently, the only education loans eligible for consolidation are Alaska state loans; SB 195 would allow for other loans. CHAIR STEVENS asked if the provisions in the bill would apply to parent loans. MS. BARRANS said they would. SENATOR STEDMAN asked for additional information regarding the 7.3 percent interest rate and why there is no forgiveness program. 8:14:31 AM MS. BARRANS replied, with respect to the interest rate, the market environment post-2008 has substantially changed. The rates have risen substantially. Currently, the loan volume has dropped to the extent that the corporation can use available cash to fund loans. The previous legislation, SJR 23, would allow the corporation to leverage the AAA rating of the state, even though the bonds would be paid down with revenue from the loans. She addressed the forgiveness program question. She related that the loan forgiveness program was a very generous program funded through 1987. As a result of the fluctuation of oil revenues, that program was eliminated. The corporation was established in 1987 for the purpose of allowing student loans to become an enterprise operation of the state. She added that the only thing keeping the corporation from instituting a forgiveness program would be making funding available to pay the costs. SENATOR STEDMAN asked if the borrower would be better off with a forgiveness program or with a 7.3 percent interest rate. MS. BARRANS replied that very few students enjoyed any benefit from the forgiveness program. When looking at the almost $500 million of loans that the state funded, fewer than 30 percent of the students enjoyed any benefit. Only 21 percent of those received the full 50 percent forgiveness and the cost to the loan program was larger in loan write-offs from individuals who failed to repay the debt than the cost of loan forgiveness itself. About $74 million in loans were forgiven. She noted she was one of those who benefitted from loan forgiveness. She said it would depend on which of those students you were, as to whether or not it would be more beneficial to have loan forgiveness. The mind set of borrowers during that time was that it wasn't really a loan. CHAIR STEVENS said he also received loan forgiveness. He remarked that if people spend five years working in Alaska they will probably stay. Legislators have always liked the idea of loan forgiveness. 8:19:05 AM SENATOR STEDMAN said he also had a forgiveness loan. He opined that a person who signed a note in the 80's was under the same payback obligation as someone today. He said he has a hard time drawing a conclusion that there was a different attitude in the past. He suggested that underwriting requirements could be rectified. He said the state has some tools available that should be considered for the future. He noted that a 7 percent interest rate is a whole lot different than 50/50 forgiveness. As far as a policy call, the state has tools available to use. The resources in the treasury are owned by everyone, and he said he is more inclined to come up with a mechanism to encourage students to return to the state. 8:21:54 AM MS. BARRANS said it is up to the will of the legislature. She encouraged loan repayment programs, which are programs that are not entitlements but would pre-fund an account and could be used to pay down loans for individuals who complete credentials in areas that have economic interest to the state. The legislature created such a program two years ago that focused on health care professions; however, the budget for that program has been cut in half. Individuals were recruited into health care jobs and are now at risk for not receiving that benefit. She concluded that SB 195 is more sustainable without relying on year-to-year funding. 8:23:35 AM CHAIR STEVENS said more work is needed on this issue. SENATOR FAIRCLOUGH hoped the committee would move the bill out of committee. She said she and Ms. Barrans have been working on SB 195 for over a year in order to provide a tool the legislature can use at its discretion to help assist students. CHAIR STEVENS asked Ms. Barrans if she had any further comments. MS. BARRANS requested support of the bill and thanked the sponsor. She summarized that the key provisions in the bill are the ones that incent on-time enrollment and expedite the time it takes to get a degree. A large portion of students attend part time and complete their credentials in very low numbers. SENATOR STEDMAN if there was an increase in the number of staff needed to manage today's student loan programs. MS. BARRANS explained that the current loan portfolio is about $500 million and the staffing has not substantially changed in numbers. The last significant increase in staff was in the early 90's. Some staff have been reallocated through creating more efficient loan serving systems. Staff now provide outreach and early awareness out of the Anchorage office, and the number of staff on loan servicing has been reduced. CHAIR STEVENS asked how much the loan portfolio was in the past. MS. BARRANS explained that when the corporation was making both federally guaranteed and state loans, it was issuing in excess of $80 million a year in loans. The program was ended by the current administration in Washington, D.C. in 2008. Since then, there has been a rapid decline in the loan volume due to Congress's seeking to protect consumers against lenders who are not federal education loan lenders. That created barriers because they failed to make a distinction between state-based programs and other lenders. The state can no longer partner with schools to recommend a state loan. The other factor is that the state previously promoted the federally guaranteed loan. At the same time, in order to issue bonds the state had to change the underwriting criteria so that students now have to be credit worthy or have a credit-worthy cosigner. She concluded that this has resulted in a decline rate for about 40 percent of applicants. 8:29:37 AM SENATOR HUGGINS asked if any schools are precluded, such as religious schools. MS. BARRANS said the requirement is that the school be accredited or approved by the commission to participate in the loan program. SENATOR GARDNER asked if the average 18-year-old requires a cosigner. MS. BARRANS said yes. CHAIR STEVENS opened and closed public testimony. SENATOR DUNLEAVY moved to report SB 195 from committee with individual recommendations and attached fiscal note. There being no objection, the motion carried. 8:31:39 AM At ease