SB 94-EDUCATION & SUPPLEMENTAL LOAN PROGRAMS  9:03:12 AM CHAIR HOLLAND announced the consideration of SENATE BILL NO. 94 "An Act relating to the education loan program and Alaska supplemental education loan program; and providing for an effective date." He stated his intent to have the administration introduce the bill and then hold it in committee. He asked Sana Efird to introduce the bill. 9:03:40 AM SANA EFIRD, Executive Director, Alaska Commission on Postsecondary Education (ACPE), Executive Officer, Alaska Student Loan Corporation (ASLC), Juneau, Alaska, began by presenting the missions of Alaska Commission on Postsecondary Education (ACPE) and Alaska Student Loan Corporation (ASLC) on slide 2: The Alaska Commission on Postsecondary Education supports Alaskans' access to and success in postsecondary education and career training after high school. The Alaska Student Loan Corporation operates as an enterprise agency of the State of Alaska, funding and facilitating the Alaska Student Loan Program and the related work of the Alaska Commission on Postsecondary Education. 9:06:40 AM MS. EFIRD said that SB 94 addresses requests from Alaska's higher education community and student loan borrowers by expanding eligibility for the Alaska refinance loan program, removing current loan limits from statute, and clarifying language to offer a loan program with immediate repayment to new borrowers. As tuition rates and overall costs to attend postsecondary education have risen nationally and in Alaska and with the growing need to establish a well-trained Alaskan workforce to fuel the state's economy, it is now crucial more than ever that Alaska's students have access to low cost education funding that meets their full financial needs to achieve career training and/or college credentials. MS. EFIRD said federal loans no longer meet Alaska students' full financial needs. Those loans are not always less expensive than Alaska loans. Private loans generally cost more with lower approval rates. Alaska state loan programs fill the gap with low-cost, high-quality loans. Current state loan limits, though, are becoming a barrier to Alaska students who may not be able to attain funding from private lenders due to strict underwriting criteria. Private loans are also on average subject to higher interest rates than those from the ASLC. SB 94 would remove loan limits from statute and provide the loan corporation with the authority to set loan limits to meet the changing financial needs of Alaska students. Furthermore, the other changes in the bill would expand eligibility for the ASLC refinanced loans and allow Alaska student loan borrowers the option to apply for a loan program with immediate repayment. These proposed changes would provide additional loan financing options with reduced interest rates and overall lower costs. 9:09:22 AM MS. EFIRD presented the sectional analysis: Section 1: Amends AS 14.43.122(b) • Expands Eligibility for Alaska Refinance Loans o Currently eligible: Alaska residents only o Proposed: previous borrower, cosigner, or beneficiary of an Alaska loan o Proposed: Alaska high schools and postsecondary institutions graduates SENATOR BEGICH asked her to confirm that this isn't offering loans to anybody other than Alaskan residents. It is for those who may have been eligible for a loan and have moved out of state but still have the loan burden to Alaska. He asked what is driving the change. MS. EFIRD replied the change is at the request of a number of student loan borrowers. They still have a nexus to Alaska; this is the reason for the inclusion of must be an Alaska high school graduate or graduate of a postsecondary education. It also includes current student loan borrowers or cosigners who have had a loan with the state of Alaska and moved out of state. Now they are asking to come back and refinance those Alaska loans into the new refinance program, which allows them to consolidate all their loans to a lower-interest rate loan, so it is a benefit to those student borrowers. 9:12:32 AM SENATOR MICCICHE said he does not know what the default rate is, but he assumes the benefit to the state is reducing the default rate for those who are no longer in Alaska but would like to meet their commitments. MS. EFIRD answered that is part of it. She doesn't have the current default rate in front of her but can get that. This is really to respond to the requests from borrowers who say, the state gave them a loan originally and now the state has another program with a lower interest rate that they are not eligible for. It is responding to that need to help those borrowers. SENATOR HUGHES offered her reading of the bill, which is that a person would not need to be an official resident. That person could be a resident of another state but if that person was a graduate of an Alaskan high school or postsecondary institution that person would qualify. MS. EFIRD replied yes, a graduate of an Alaskan high school or postsecondary institution. SENATOR HUGHES said that she wanted to make that clear because sometimes students go to school out of state and maintain their Alaska residency, but this is for those who are not residents. It is good if they can their repay loans. She noted that the person would have to be a graduate but people sometimes don't graduate from high school yet they go on to a postsecondary institution. Sometimes they do not graduate without a degree but they may have attended a few years and have a student loan. She asked if the term "graduated" should be replaced with the term "attended" high school or postsecondary institution. MS. EFIRD responded that the administration would entertain that but she would need to do some research. The reason for saying graduate is that research and data show that a graduate is more likely to pay off loans and not go into default. SENATOR HUGHES said that makes sense. 9:15:52 AM SENATOR STEVENS said that he would be interested in knowing the impact that COVID-19 has had on students and the state default rate. So many people in the state are unemployed and having financial difficulties. This is a lost year for many students. He asked if she had any reflections on that. MS. EFIRD replied that she has had three months in her new role and has a lot to learn. The committee should have received the current higher education almanac from ACPE. That has information about what is known at this point in time about COVID. ACPE is still unraveling the ramifications of COVID, which are going to be long term and far reaching. The almanac does have COVID specific information. There has been a decrease in applications for postsecondary institutions. Students are postponing their plans to attend postsecondary programs. ACPE is trying to encourage Alaskans that now is the time to get on the road to getting a degree or certificate or training credentials, so they can get to work and get the economy on track. SENATOR STEVENS observed this is an anomaly this year and perhaps next. Eventually things will get back to normal and young people will want to get a higher education. 9:18:56 AM SENATOR BEGICH followed up on Senator Hughes's comment saying that only Alaska residents are eligible for the Alaska student loans. He asked if that was correct for the original loans. MS. EFIRD answered that is correct; the program currently is only open to Alaska residents. SENATOR BEGICH said that to reinforce what Senator Hughes said about whether someone is a graduate or not of high school or postsecondary institution located in the state, someone who received a loan in the first place was once a resident. He encouraged her to change that to "have attended" a high school or postsecondary institution physically located in the state. It is not changing the fact that someone out of state is not getting any benefits. He clarified that the only people who could have gotten these loans were Alaskan residents at the time they got the loans. MS. EFIRD replied yes if they have a loan, but this would be expanded to include those who may not have a loan. The administration is asking to expand the refinance options to those who have graduated from an Alaska high school or postsecondary institution. They may not have current loans. The administration will expand the pool of eligibility for the refinance loans. SENATOR BEGICH stated that is not making out-of-state residents eligible for a new loan. They would have had to have had a previous loan. He doesn't want to take the state's resources and give them through a loan process to out-of-state residents. If they were once residents, received a loan from the state, and time has passed, they come to the state and ask for help to consolidate the loans they legitimately got with the state of Alaska even though they are no longer Alaska residents--that is what the administration is trying to. MS. EFIRD responded yes, the proposed change is to allow previous borrowers or cosigners who are no longer Alaska residents to refinance the original loans, but the administration is asking to allow the refinance program to be used by others who have a nexus to Alaska through being a high school or postsecondary institution graduate. 9:22:25 AM SENATOR BEGICH said that is a concern. He asked if she is saying if he had once attended and graduated high school in Alaska and had federal loans or loans from other institutions from out of state he could come with his loan package and the ACPE will help him refinance his entire package of loans that he might have gotten from Idaho or the U.S. government or is the administration asking for the ability to take multiple years of students loans that were given in Alaska and refinance them as a new package. The first thing is unacceptable to him. The second is extraordinarily acceptable to him. MS. EFIRD asked Director Kerry Thomas to address this. 9:23:56 AM KERRY THOMAS, Director of Program Operations, Alaska Commission on Secondary Education, Juneau, Alaska, said the request the administration is putting forth in legislation is to expand eligibility for the refinance program as Director Efird described. One of the primary reasons is to assist the Alaskans who took out loans and have left the state. It is also to expand the reach with the loan program to generate income to sustain Alaska's loan program into the future. It is an economy of scale issue. As the corporation's loan portfolio gets smaller, there are certain fixed costs spread across borrowers. It is a way to increase the size of the loan portfolio and generate income so the corporation can provide the loan program to Alaskans in the future. SENATOR BEGICH said his concern is that the corporation is saying to people who were once residents of Alaska that whatever loans they have from Idaho, California, or the federal government, Alaska will buy and refinance their loans, and they will have only one payer, Alaska. Alaska is taking on the burden of their debt. That is what this bill is saying. He asked if that is correct. MS. THOMAS replied that that is what the bill is putting forward. CHAIR HOLLAND said he wants to know the default rates, but he can understand where the corporation is going with this as far as generating profits to keep the program going in the future. 9:27:03 AM MS. EFIRD continued the sectional: Sections 2, 3 & 4: Amends AS 14.43.173(a), (c) & (d • Removes annual loan limits from statute • Removes lifetime maximums from statute • Provides for the Corporation to set annual and lifetime limits for both half-time and full-time loans MS. EFIRD said that the ASLC would be able to set the annual loan maximums to be more responsive to the needs of Alaska's students and Alaska's higher education institutions, especially as tuition costs change. SENATOR MICCICHE said that he is concerned himself. Limits are being removed and the ASLC is being opened up to unlimited out- of-state exposure. He would like to see a stress test on that. Obviously, Alaska is a small pool, which is not efficient. This expands the pool. There must be some benefit that is perhaps not obvious to the committee, but this is a big change. There is a reason to include Alaska residents. It is easier to reach out and touch them than someone who has no interest in coming back to the state. He is a little worried, but he has a lot of respect for Ms. Pitney. He is sure that she has a document where she has stress tested what she is asking to do here, what the department is asking to do. He would like to see that. Without a limit, the corporation is potentially taking on hundreds of thousands of dollars per student. That is millions of dollars of additional exposure that may or may not have the same connectivity for collecting those dollars in the future. He said it would be nice to see the math. 9:30:22 AM SENATOR BEGICH said he would agree if the issue is to make a more robust portfolio that provides some level of financial security. He needs evidence of that. He is not convinced, but he understands. Like Delaware attracted corporations by changing its laws, maybe this would make Alaska the student loan Delaware of America. Then there could be profit, but what is the evidence to back that up before jumping into a perhaps high-risk strategy that may not have a benefit for Alaskans at all. It has no Finance Committee because it is a zero fiscal note. As a consequence, Senate Education may be the only committee that gets to have this discussion. The committee needs to know what the policy is. CHAIR HOLLAND suggested that Ms. Efird could address that in the future. SENATOR HUGHES pointed out that the bill has a referral to Finance. MS. EFIRD addressed some of the concerns saying the refinance loan program has a high criteria for borrowers to meet. With that and some other provisions in the program, there is a lower possible default rate. She will be happy to provide some data about why the corporation feels this would be beneficial to Alaska student borrowers. 9:33:02 AM SENATOR STEVENS commented that the organization has fixed costs that have to be spread across borrowers. He suggested the solution is to expand the reach and bring in more students, but what about reducing the fixed costs. SENATOR HUGHES clarified that there is a higher, stricter criteria to refinance than for a basic loan. MS. EFIRD answered that is correct. She will provide information on the interest rates for all of the loan programs. SENATOR HUGHES asked her to also provide the criteria for the different loans. MS. EFIRD answered yes. SENATOR MICCICHE shared that he added the Finance referral because he had difficulty understanding that there would be no fiscal impact. Before he supports moving the bill out of committee, he wants a greater understanding of that. 9:35:53 AM MS. EFIRD continued the sectional. Section 5: Amends AS 14.43.175 • Adds clarifying language that ACPE can offer future student loan borrowers a loan program with immediate repayment MS. EFIRD said such a loan would reduce costs for student borrowers because interest would not be deferred and capitalized. Such a loan would not impact current borrowers. Immediate repayment has been shown to be an option where in- school student borrowers would start repaying their loans to get in the habit of making loan payments, helping them to understand the obligation for the loan, and over the life of the loan reduces the amount because the interest is not accruing when they are in school. MS. EFIRD said the bill has an effective date of July 1, 2021, the beginning of FY22. MS. EFIRD said the ACPE did determine that the bill has a zero fiscal note. It is not anticipated to increase agency operating costs. All of loan operating costs are funded from receipts of the Alaska Student Loan Corporation. 9:38:31 AM SENATOR HUGHES asked if there are any projections of additional applications and how much additional debt the corporation would take on in a year's time. MS. THOMAS replied that the corporation has not projected that. It is challenging to project how many former Alaskans or additional borrowers the corporation would get and what amount of debt they would have. When the corporation originally rolled out the refinance program several years ago, the corporation set an amount in the budget for the first year without knowing what to anticipate. The corporation does have a history of controlling for an unexpected large number of applications. To address the discussion about loan limits, Sections 2-4 don't relate to the refinance loan program. They relate to in-school loans, the Alaska supplemental education loan. Those are only available to Alaskan residents or those attending postsecondary education in Alaska. The current maximum for those loan programs is for the annual costs that are unmet after grants, scholarships, and federal aid, and they are insufficient to meet a large number of student needs on an annual basis. The request to increase the maximum is not related to the refinance loan request. It is strictly for the annual loans made to Alaska residents or students attending postsecondary institutions in Alaska. 9:41:31 AM SENATOR BEGICH said this is a good idea given that the cost of education continually changes, and it gives power to ACPE to adjust to those changes that are absolutely out of its control. The state has arbitrary limits that were set years ago. He appreciates these three sections. SENATOR MICCICHE said for the analysis of exposure and benefits of expanding the program, what happens if this administration actually does forgive student loans. He asked if that would dramatically affect their interest income. He asked if that has that been analyzed. He doesn't need an answer now, and perhaps no one knows how that would work. CHAIR HOLLAND asked if anyone had a comment on that. It sounds like a complicated subject. MS. EFIRD said that the corporation is in conversations about how any loan forgiveness options may affect the corporation. That is on their minds. 9:43:33 AM SENATOR BEGICH said that in the past forgiveness has been considered part of income that had to be reported. He read that a bill being considered would remove that stipulation. SENATOR HUGHES asked regarding the immediate payback, if there is any research that shows those students are apt to do better academically and are more apt to graduate. MS. EFIRD answered that in conversation with the Education Finance Council and other professional organizations, she has heard anecdotal reference to what Senator Hughes is talking about--that it does create that connection between working for something that a student is paying for. She is not sure about any specific data, but she will look for that. MS. EFIRD thanked the committee for allowing the introduction of bill and thoughtful consideration. To address Senator Stevens comment, the ACPE over the past five years has reduced its operating footprint. It is down almost half of its positions from a few years ago. Everyone is working diligently on operating costs, doing due diligence to provide the best service at the lowest cost for Alaskans. 9:46:26 AM CHAIR HOLLAND held SB 94 in committee.