SB 170 REPAY GRADUATE EDUCATION AID  Number 001 CHAIRMAN WILKEN called the Senate Health, Education & Social Services Committee (HES) to order at 9:06 a.m. and introduced SB 170 as the first order of business before the committee. JOE AMBROSE , Staff to Senator Taylor, read the following Sponsor Statement into the record: Senate Bill 170 was introduced at the request of constituents interested in preserving the WAMI Medical Education Program. This is a companion measure to House Bill 193 and its introduction is intended to compliment that effort. These bills would convert the Alaska program into a loan program. The state of Montana has already made this conversion. WAMI has been a program of financial assistance named for the participating states of Washington, Alaska, Montana, and Idaho. It is intended to facilitate the education of medical professionals. Alaska participated to the tune of $1,309,000 in FY97. WAMI has been criticized because there has been no real incentive for a student to return to the state upon completion of their education. By converting this program to a loan program and including a provision for loan forgiveness, proponents feel young Alaskans will be more likely to bring their new skills back to Alaska. The House sponsor has been working with the Postsecondary Education Commission and has developed a committee substitute. Senator Taylor recommends adopting the same language as a substitute for SB 170. SENATOR GREEN moved that CSSB 170(HES) be placed before the committee. Without objection, CSSB 170(HES) was before the committee. SENATOR LEMAN inquired as to the impact on the borrower. When does the pay back schedule for the WAMI loan begin? JOE AMBROSE pointed out the language on page 2, lines 7-9 "Interest imposed under this subsection begins to accrue when the person terminates studies under the graduate education program." Mr. Ambrose believed the legislation allows for the internship. Mr. Ambrose directed Senator Leman to page 2, lines 27-29 "A person employed in a medical residency program is not required to begin repayment to the state as long as the person remains in the medical residency program." With regard to the impact on the borrower, Mr. Ambrose deferred to the Postsecondary Education Commission. Number 115 LAURA BURLESON , UAF Pre-Med student, supported SB 170. WAMI is important to Alaskan pre-med students because WAMI gives Alaskans preference for admission and tuition. WAMI treats Alaskan pre-med students as residents for admission purposes. Ms. Burleson informed the committee that a school to which she recently applied had received over 10,000 applicants for 113 positions while another school had 8,000 applicants for 32 out of state positions. With those odds, Alaskan students do not have much of a chance because Alaska does not have a medical school to provide in state admission preference. SB 170 is a compromise to the alternative of eliminating the program. Without WAMI, the challenge of the numbers of getting into a medical school out of state would be very difficult. Furthermore, this bill could help WAMI students applying for the program. In the past the return rate for students returning to the state is relatively low. The return or repayment clause in SB 170 would help those students who do intend to return to the state and practice. WENDY REDMAN , Vice President of the University of Alaska statewide system, thanked Representative Bunde and Senator Taylor for their work on this issue. WAMI is very important to the university. The University of Alaska-Anchorage offers the first year of the medical program which provides the basis of a biomedical program. Ms. Redman was supportive of this legislation if it is a means to maintain WAMI. Ms. Redman hoped that the Senate action deleting WAMI will be worked out. Ms. Redman suggested that the pay back provision for the first year be eliminated. The first year of the program is offered in Alaska and is important to the university and the state by drawing medical research here. Ms. Redman recognized that the WAMI program is an expensive program, but it is substantially less expensive than having a medical school. The decision to bring back WAMI students to Alaska is a policy call which SB 170 addresses. Currently, 48 percent of the WAMI participants do return to Alaska which is higher than the national average for other medical schools. The WAMI program is a bargain for Alaska and Alaskan students. Ms. Redman urged the committee to continue the WAMI program and consider an amendment that would provide that the first year of pay back be eliminated. Number 263 SENATOR ELLIS asked if the return rate was expected to substantially increase with the Sisters of Providence family practice residency program. Senator Ellis projected that a substantial increase in the return rate would occur due to the availability of the residency program within the state. WENDY REDMAN agreed with Senator Ellis that students tend to become permanent residents in the community in which the student did residency. Therefore, the family practice residency in Alaska would make a big difference. SENATOR ELLIS inquired as to the average debt load of a student after seven years of medical training. WENDY REDMAN informed everyone that the average loan is $45,000 to $80,000 per the information of the Postsecondary Commission. With SB 170, $56,000 would be added if all four years pay back are included or $44,000 if the first year of pay back is eliminated. That would total about $100,000 to $130,000 of debt. Ms. Redman pointed out that these are family practitioners, not cardiac surgeons which could possibly absorb that debt. SENATOR ELLIS stated that the higher the debt load, the more likely someone is to specialize and practice in a major urban center in order to pay off the debt. The lower the debt load, the more likely someone would choose to deliver babies in a rural setting. SENATOR GREEN noted that students could accumulate $50,000 in post graduate debt before beginning the WAMI program as well as the debt the WAMI program would incur. When does repayment begin for the debt incurred in the post graduate education? WENDY REDMAN explained that the Postsecondary Commission would provide deferment on the baccalaureate loans while the student is attending medical school on a loan. Ms. Redman pointed out that the loans are additive. If a student has a loan from Alaska, the first baccalaureate loan would be deferred while the student continues his/her education. At the time the student graduates from medical school and one year afterwards, the entire loan would begin repayment. SENATOR GREEN asked if the student's record was clean with a deferment; is there a bad debt record being assessed against the student or the institution? Number 322 DIANE BARRANS , Executive Director of Postsecondary Education Commission (PSEC), stated that there are provisions for deferment that do not damage a student's credit history. SENATOR LEMAN inquired as to the tax consequences of WAMI; is the program treated like a scholarship which is nontaxable? DIANE BARRANS explained that it would be categorized as gift aid. Since the loan is not associated directly with an individual, there is simply a contractual fee paid to the University of Washington. Therefore, the WAMI loan would not relate to an individual's scholarship or loan limits. SENATOR LEMAN ascertained then that there is no obligation by the party benefiting to pay the IRS any portion of that benefit. DIANE BARRANS replied no. SENATOR LEMAN asked if a loan program with forgiveness was created, would that be a taxable benefit? DIANE BARRANS understood that in the past, the tax code made some provisions for those receiving a benefit related to specific employment or service. In the early 1990s, the IRS did contact PSEC and required the disclosure of forgiveness benefits upon which people were taxed. However, Ms. Barrans said that at that time there was no provision in the tax code for people to receive a benefit simply because the person resided in a particular area. Ms. Barrans said that it is difficult to receive tax advice from the IRS, therefore a tax accountant or tax attorney should be contacted. SENATOR LEMAN did not want to inadvertently establish a cash drain away from Alaska or Alaskans to the IRS. Senator Leman expressed the need to make the tax consequences benefit Alaska or Alaskans who participated. Number 370 In answer to the first half of Senator Leman's question, DIANE BARRANS explained that the student with a WAMI loan would be borrowing the differential between the resident and the non- resident University of Washington School of Medicine rate of tuition. Currently, the student pays the resident rate of tuition which is about $8,000 per year. The student would be borrowing the additional amount that is charged to residents. Ms. Barrans pointed out that was calculation 2 in the committee packet. SENATOR LEMAN determined then that the student is responsible for the resident tuition rate and may borrow that under other loan programs, but not specifically under the WAMI loan program. DIANE BARRANS agreed with that assessment. CHAIRMAN WILKEN requested that the concerns with SB 170 be addressed and the Chair held SB 170.