SB 277-STUDENT LOAN PROGRAMS  The committee took up SB 277, at the request of the governor. MS. DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education ("Commission"), and Executive Officer of the Alaska Student Loan Corporation ("Corporation") testified that the objectives of SB 277 were five-fold. She referred to the sectional analysis in the committee packet and said she would provide a brief description. She outlined the objectives as follows: 1. To broaden the scope of the Corporation's bonding authority [indisc.] and to balance the general benefit of the state. This change is requested to ensure, as the ASLC has the capacity to return contributed capital to the state, that it will have a variety of means to do so and will be able to select the most effective and efficient means. 2. To reconstitute the state's student grant program to better focus on Alaska's workforce needs, and to enhance the Commission's current outreach and early awareness initiatives. 3. To provide the Commission with greater flexibility in offering loan consolidation options to existing borrowers. Current statutes limit the way in which the Commission can offer consolidation. Certain customers who have borrowed under the older Alaska Student Loan program, which has been discontinued, and its successor program, the AlaskAdvantage supplemental education loan program, cannot consolidate across programs. 4. To clarify the Commission's ability to administratively issue liens in the collection of defaulted education loans and to clearly set out the due process available to a borrower in the event of a dispute taken on action by the Commission. 5. To provide an exemption from the state procurement code for certain services related to guaranteeing and disbursing of education loans. Under the current business structure for education loans, a lender must be prepared to do business with the vendors and services preferred by the institutions participating in the program. In that case, a low bidder approach may lead to doing business with an entity not used by the schools being served. 1:55 p.m. MS. BARRANS continued the sectional analysis, beginning with Section 1, saying that this area adds authority and clarifies the process to issue [indisc. due to paper shuffling] amending language shown on page 2 of the bill. Section 2 allows financing of the Education Incentive Grant Program through the funds of the Corporation, adding it as one of the financial aid programs that the Corporation can fund. Section 3 has conforming language adding to the Corporation's ability to use funds and assets to finance that program. Section 4 specifically broadens the scope of bonding authority for the Corporation. Lines 23 - 31 allows for additional payment - to issue bonds to finance state projects, as identified. She explained that in Section 5 the Commission and Corporation both feel it's more appropriate for the financial authority to set the fees and rates associated with the programs. Section 6 makes changes to the current consolidation language in statute; it removes the limitation of consolidating loans under the old program and says consolidation can occur when a borrower holds two or more education loans. Section 7 relates to the authority for establishing a collection order. New language is on page 5, lines 3 - 5. Section 8 contains all new language and sets out the specific due process for those challenging the placement of a lien through the administrative process. That new language continues through page 7, line 9. MS. BARRANS referenced Section 9, page 7, and explained that for about 20 years, the old state Education Incentive Grant Program was funded through the general fund. Those funds, partially because of the small amount of federal dollars that could be captured, were lined out of the budget in the late '90s, and grant funds have not flowed to Alaskans through a state- operating program since then. She then apologized and clarified that Section 9 contains a conforming change to statute regarding the trademark name of AlaskAdvantage. Ms. Barrans continued with Section 10, noting the requirement for immediate repayment of consolidation loans. Rather than giving a six-month grace period that normal education loans give, between cessation of school attendance and the start of repayment, there is no six- month grace period. Once the loan has originated, repayment commences within 30-45 days. Section 11 on page 7, contains conforming changes for the new administrative collection order authority. Section 12 reflects a trademark name change. Section 13 is a conforming change that allows for the consolidation of supplemental education loans. Section 14 is an eligibility requirement. She said that currently there is a double standard under the Alaska supplemental education loan program. If a loan applicant's credit score is of a certain level, he/she can receive the loan even if there was a prior default on a debt. As long as it is cleared and the credit score is met, he/she can receive that loan. However, if there was a previous default on one of our loans, even if it was repaid in full, a co-signer is required. This change attempts to even the playing field; if the applicant meets all other criteria, a co-signer won't be necessary. Ms. Barrans pointed out that some changes are "clean-up" rather than substantive. CHAIR DYSON suggested that she skip through those changes. MS. BARRANS continued that Section 16 refers to the AlaskAdvantage education grant program and the following several sections provide for key changes to that program. The grant program would be used in Alaska, and presuming there would be more demand than available funds for those grants, it would allow the Commission, by regulation, to create a priority system whereby students enrolled in certain programs of study leading to employment in critical worker-shortage areas in Alaska would have first priority for those funds. This creates a fusion of a needs-based Alaska-centric approach, making it a stronger and more highly valued program in Alaska. She told members she would skip to Section 24, page 11, and said the occupational areas she was recommending as being of greatest priority for grant funding were set out in lines 19 - 22. These occupational clusters, pre-defined by the Alaska Department of Labor [and Workforce Development] are: · community and social service; · education, training, and library; · healthcare; · protective service. She said the second tier criterion was whether there was a workforce shortage and that obviously there may be a workforce shortage in some of those occupations but not in others. As defined on lines 25-28, the Department of Labor would determine whether there was a current or recurring vacancy rate of 10 percent or greater, as an attempt at defining who could receive a prioritized grant award. SENATOR GREEN asked, "Are you sure you want these in statute? They don't narrow you too much, or open you to, in some ways, too broad?" She questioned whether the language "severe shortage" would allow for the ability to respond to an emergency or a change in circumstance. She asked, "Is this in addition or is it just part of the defining?" MS. BARRANS replied this had to do with the prioritization of funds, and involved the Commission's long-term approach to creating a mechanism to prioritize for these areas. Funds could be made available under the grant program to any otherwise qualified grant applicant attending an accredited program of study in Alaska. She said the scenario suggested by Senator Green was certainly a possibility; however, she was working from the reality base of it being unlikely that there will ever be sufficient funds to grant to everybody. She explained that by focusing on the already identified long-term worker shortage areas in the state, there would be a program that, at least for some years, wouldn't require modification, although she wouldn't expect the program to fully address the need for teachers, RNs, LPNs, or nurses' aides. SENATOR GREEN noted that the group being highlighted was a narrow group, and suggested that at times a different group might have a higher priority. She said she thought Ms. Barrans would prefer to have a floating description of "shortage" and re-stated her question regarding whether Ms. Barrans wanted to define this in statute. MS. BARRANS responded that this had already been discussed within the agency and her answer to the question at this point was yes. She said that a number of other industries in the state could be pointed to as having shortage areas, such as bankers, engineers or computer scientists. The identified group focuses on a healthy infrastructure regarding public safety and well being while weighing in economic factors. Recruiting for high-end, high-wage jobs such as computer scientists, engineers, or architects, is different. Candidly, she said there have been a number of initiatives over the years and the feeling is that professions having to do with health, safety, and education fall into a special category - the infrastructure of a community. She said there was only so much money to go around, and targeting in this way makes sense. SENATOR GREEN asked for clarification regarding the pot of money and the program being defined in Section 24. She wondered if shortage priority related to a very limited grant program, not having anything to do with anything else. MS. BARRANS replied, "No, absolutely not." She explained that the intention was to keep the costs of other programs low, competitive, and unilaterally available to every Alaskan. SENATOR GREEN stated that although she doesn't often disagree with Ms. Barrans, she wasn't sure she was in agreement with Ms. Barrans's taking responsibility for determining "what is the state's highest priority, and if it should be social service, health, education, protective service." She said she wasn't sure this was within [Ms. Barrans'] purview. CHAIR DYSON acknowledged this was a good question, and pointed out the demonstrable public safety need in rural Alaska and asked if such training was outside of the availability of this category of grants. MS. BARRANS said no, that as long as the program of study was required for entry into that occupation and was offered through an accredited institution in Alaska, it would qualify. She mentioned AVTech, University of Alaska's campuses, Ilisagvik [College}, Alaska Pacific, and Sheldon Jackson's trooper course in Sitka as potentially qualifying programs. CHAIR DYSON remarked that if and when there is a gas pipeline, there would be a desperate need for quality welders; this language wouldn't allow the grants to be used for such an anticipated future need. MS. BARRANS said she believed the Commission would have the ability, through regulation, to define a current [need] and to factor in train-up time, if in fact DOL forecasts an anticipated shortage in the future that's not a shortage today. CHAIR DYSON asked, "Which one of these categories under Section 24?" MS. BARRANS referred to page 11, line 25 and said she believes that the Commission, through regulation, could define "current" as meaning anticipated to occur within a six-month or twelve- month period for example, in which case prioritization could be considered. SENATOR GRETCHEN GUESS asked if the priority list was on page 10, line 26 - 31: The commission shall give an applicant eligible under (a) of this section priority for a grant award if that applicant is, or is about to be, enrolled in a program of study that is preparatory for employment in a health, human services, education, or public safety occupation or profession for which the Department of Labor and Workforce Development, or another workforce data source selected as reliable by the commission, indicates there is a severe shortage of trained individuals in this state. MS. BARRANS replied this was correct. SENATOR GUESS questioned whether welders would be considered under this part of the statute. MS. BARRANS responded, "If it appears within one of those four occupational clusters." CHAIR DYSON asked about this having to be a profession. MS. BARRANS said, "or occupation." CHAIR DYSON said, "A welder isn't a public safety occupation and is questionably not a profession." MS. BARRANS said it was unlikely that "welder" falls into one of the four occupational clusters set aside for prioritization. 2:15 p.m. CHAIR DYSON asked if these grants would apply to a student at AVTech. MS. BARRANS replied absolutely. CHAIR DYSON referred to the possibility of a student taking a welding class [at AVTech]. MS. BARRANS explained that students could apply; prioritization depends on what the pool of applicants looks like for that year, how much money is available, and whether or not prioritization is necessary. If there are no worker shortages and prioritization is not necessary, then money is dispensed on a needs basis. CHAIR DYSON said if a huge project need was recognized, the four categories would have to be satisfied before the first welder would be taken. MS. BARRANS replied this would depend on how regulations were written, as this relies on the Commission to put a lot of the bones into the structure of the program. The Commission could allocate 'x' percentage of funds to the prioritization fields for that year, "and make the others generally available to applicants." CHAIR DYSON said he understood what was said, acknowledging that he wasn't sure it was good public policy to leave it just to the Commission. MS. BARRANS concluded [the sectional analysis] by referencing Section 29, page 12, saying that this would exempt the disbursing, and guarantee third party from the state [indisc.]. CHAIR DYSON referred to Section 4, page 3, sub-paragraph 3, line 28. TAPE 04-4, SIDE B  CHAIR DYSON continued that this appears to say that proceeds of the bonds can be used to finance any kind of state activity approved by law. He asked if this was a change from current policy. MS. BARRANS responded that it was. She explained that the Corporation would like to achieve the objective in the next few years, as funds are available, to return the original contributed capital that the state gave to start up the Corporation between 1988 and 1992, in cash and assets - over $360 million [indisc. due to paper shuffling]. This would allow the Corporation to consider if it was most efficient and cost- effective to return the capital through the issuance of bonds. The return being made in FY 05 is based on a bonds issuing of assets that are free and clear, allowing for the ability to proceed because of not being pledged to any other indenture currently outstanding for the Corporation. Even if the assets continue to be pledged to the indenture, if the additional bonds can be financed to give the proceeds to the state to use, typically, as they will be in FY 05 for capital project expenditures, the Corporation would be able to select that option. CHAIR DYSON commented that this was a significant change in policy. He asked if it said, "up to the limit" of what the state originally contributed to this fund. MS. BARRANS said it did not. It does not set a cap. Financial advisors have identified that about $250 to $260 million could be returned. This will be less than the $306 [million] originally used to capitalize the program; however, the Corporation's annual dividends, paid to the state for the last four years, is expected to continue in a rather flat, modest amount. Through FY 05, the Corporation will have returned $22 million in dividends. She said the expectation is that over time, the total return to the state will be its contributed capital plus some earnings on the Corporation, but those will be relatively modest. SENATOR GUESS referred to Section 4 and asked, "What do we bond for now?" MS. BARRANS replied it was to finance the Corporation's programs. SENATOR GUESS asked about the included language, specifically the Corporation's borrowing money or issuing of bonds. MS. BARRANS replied, "That's how bond counsel recommended it." SENATOR GUESS commented on the language being "as broad as I've ever seen language" and questioned whether there was any limit on bonding for these purposes, or what would stop someone from bonding again after the $260 million. MS. BARRANS replied, "The capacity to do so in a way that makes sense is really what would be lacking." The Corporation issues bonds at AA rating or greater, and to do that, there must be minimum levels of cash flow, minimal levels of coverage to issue bonds at that rating in the financial market. Once the return of capital has been completed, there will be no capacity to do that and the Corporation's extra, resulting from regaining financial health, will be gone. SENATOR GUESS asked, "What if you need the extra to keep the health of the Corporation during the time of repayment?" MS. BARRANS replied that something attractive about a 3-year phased-in project is that OMB [Office of Management and Budget] understands that each year the Corporation will run cash flows ensuring that low-cost loans can be offered that can continue to be reserved for the benefits on the program and will then ask, "to what extent funds are available." She said there is always some flex in the next two annual cycles because of wanting to do that in real time. The Corporation felt a need to be candid regarding its long-term objective. SENATOR GUESS asked, "There's no more excess but there is some flexibility?" She admitted to being worried about [the time] when Ms. Barrans would be gone, voicing that this was pretty broad language and the stopgaps and check systems weren't included to ensure that bonding past capacity wouldn't happen. She voiced concern about the potential scenario of the program not being offered, yet there being a student loan rate increase due to someone wanting to finance projects in the state and deciding to use ACPE as that means. MS. BARRANS replied that she couldn't predict the future but her observation has been that [student loan] programs have been so valued over the past ten years that every effort has been made to secure the financial well being of the Corporation. She said it was beyond her imagination that someone would close down the programs, especially as support has been increasing. She doesn't believe the public or any Legislature or administration would close this down. SENATOR GUESS recalled a time when the program wasn't as good as it is now and stated that she didn't share Ms. Barrans' confidence. She remarked that the language was even broader than [AHFC's, Alaska Housing Finance Corporation's] bonding language, and thought this was fairly irresponsible language. She asked how much it would cost the Corporation to pay back the bonds. MS. BARRANS replied that year one has a $75 million revenue piece. She said there were two fiscal notes, and a $120 thousand federal match. She said there should be $75 million in revenue on the ASLC fiscal note for FY 05 and she would get that [information] to the committee. The overall debt service expected to pay in principal and interest, over 13 years, will total about $92 million, she said. SENATOR GUESS asked if this would impact the dividend paid to the state. MS. BARRANS responded that statute is currently structured to determine the dividend at about $500 thousand less per year. SENATOR GUESS asked if the state would get $260 million over a three-year period. MS. BARRANS confirmed this to be the case, from FY 05 through FY 07. 2:29 p.m. SENATOR GUESS referenced page 11, lines 1 - 4, and asked for an explanation of "priority." MS. BARRANS said the Commission, through regulation, might use this as a tool to promote positive student behavior. For example, the Commission could prioritize funds for students who have taken a designated college preparatory course during their secondary school program. She said this wouldn't be the Commission's first priority. One of her concerns as a program administrator was the importance of having a program that could be deemed a success. When a state has limited resources available and chooses to invest funds in a grant program, it's better if a grant recipient succeeds in what he/she has been subsidized to do. It's fairly clear that if a student enrolls in a challenging curriculum during a secondary program, he/she is better prepared and able to succeed, once postsecondary objectives are being pursued. Because this has a needs-based component, in looking at Alaska's 19-year old population, fewer than 30 percent continue to postsecondary education, and of those in the lowest income level, less than 1 in 10 continues on to postsecondary education. Her concern is that if educational financial assistance is offered to someone who is not only poor but also under-prepared, this could be putting that person in a worse situation than he/she was in before. SENATOR GUESS asked if the lien provision comes after all the other liens. MS. BARRANS replied, "First come, first served." SENATOR GUESS mentioned that she had spoken with President Therriault about collections, administrative hearings, and liens that she thinks should be reviewed by Judiciary rather than being the focus of HESS or Finance. MS. BARRANS said, "that is existing, we have that authority" and the due process is being clarified to improve an already existing authority. CHAIR DYSON stated that this committee's primary role was to ensure that what's going on isn't to the detriment of student loans or grants, and is hopefully an enhancement to it, while the financial issues are better handled by Finance. He said he shares Senator Guess's surprise. CHAIR DYSON took public testimony. MR. RICK WILLIAMS, Chief Enrollment Officer, University of Alaska, Anchorage, testified via teleconference in favor of SB 277, especially Section 16. He said there is a real need in the state to help needs-based students. He said the data on low- income students reveals that an average of 75 percent of the students who receive Pell Grants - which are really poverty- level grants - from the time of application to enrollment actually go on to class. That is, except for one small group who are of maximum need, and that statistic is only about 50 percent. He pointed out that even with the maximum amount given, those students are still unable to afford college. He said he was probably referring to first-generation students whose parents haven't been to college, people trying to get a leg up in life. He said this grant program was a step in the right direction, especially the targeting of workforce needs in 2009 that the state needs to develop. MR. TED MALONE, Director of Financial Aid, University of Alaska, Anchorage, testified via teleconference in support of SB 277, specifically sections relating to the AlaskAdvantage education grant program. He said Alaska was the only state in the union without a state grant program in place. He said Alaska could significantly enhance its ability to attract students into the previously enumerated lower paying occupations. As students accrue more debt, many career choices are based on one's ability to pay off that debt. Regarding a decision between accounting, starting at $45,000, or social work starting at $25,000, the state's offering of an incentive could go further than the actual dollars; a little bit of grant money could make a substantial difference, as it could be an encouragement and incentive for someone to pursue and persist in a service- oriented field rather than physical labor, for example, whereby a similar starting wage might be available without involving the expense of going to school. CHAIR DYSON asked if the administration had requested that Mr. Williams or Mr. Mallone testify on this bill. MR. WILLIAMS replied that his administration didn't know he was testifying; he had spoken with the Commission and was excited about this program. CHAIR DYSON thanked them for their testimony and asked if there was any further testimony. Hearing none, he took a brief at- ease from 2:40 - 2:41 p.m. He announced that the bill would be held in committee until probably early next week.