SJR 23-CONST. AM: STUDENT LOAN DEBT  9:01:34 AM CHAIR DYSON welcomed Senator Fairclough to introduce SJR 23. 9:01:42 AM SENATOR ANNA FAIRCLOUGH, Alaska State Legislature, Juneau, Alaska, stated that SJR 23 amends the Alaska Constitution which is a very serious matter. She explained that SJR 23 simply allows the Legislature to authorize a loan for post-secondary students. She added that SJR 23 fits into a constitutional amendment and allows for a post-secondary education bond that would have to come to the Legislature for approval. She said ultimately the resolution would have to go to voters and ask if they agreed with the Legislature. She pointed out that current state law under the Alaska Constitution allows for capital improvement indebtedness and housing loans for veterans. She detailed that SJR 23 would expand the legislative authority to cover a debt for one more entity. 9:03:23 AM SENATOR COGHILL joined the committee meeting. SENATOR GIESSEL asked why SJR 23 is needed. SENATOR FAIRCLOUGH answered that students across the nation are experiencing a high debt load, something that the country's Founding Fathers probably never considered. Debt was something different many years ago than it is today. She said the state's students are borrowing at a much higher rate than they can achieve or acquire. The federal national loan program was at 7 percent and has been reduced to 3.86 percent. She said the hope is for student to go and try to access federal loans first. She remarked that currently because of the structure of the Alaska's loan system, the state is financing 2014 loan debt for students at 7.30 percent via the Alaska Supplemental Education Loan and Family Education Loan. She said SJR 23's purpose is to first, extend student loans at a lower interest rate by using the full faith and credit in Alaska's AAA credit rating. Second, over time the Legislature could assist students by refinancing their higher interest loans. SENATOR WIELECHOWSKI stated that he supports Senator Fairclough's efforts. He asserted that the Legislature needs to drive down outrageously high loan costs for student. He pointed that the priorities are wrong when banks can get loans for less than 1 percent and Alaska is charging students 7 percent. He asked how much the interest rates can be driven down. He inquired if lowering interest rates was a better approach than funding loans through the State's General Fund. SENATOR FAIRCLOUGH responded that the lowest debt to students would occur through the State's General Fund. She said using the State's General Fund is a challenge due to volatile oil prices and tight budgetary times. She stated that SJR 23 would offer loans that would be a percent or percent-plus below what is currently offered. 9:06:23 AM DIANE BARRANS, Executive Officer, Alaska Student Loan Corporation (ASLC), Juneau, Alaska, noted that she was also the Executive Director of the Alaska Commission on Postsecondary Education. She said Senator Fairclough has done an excellent job of explaining the objective and the reasons behind SJR 23. She noted that Senator Fairclough is correct that, depending what is occurring in the market, general obligation bonds can be accessed with the Alaska's AAA credit behind it to achieve at least a percentage point reduction below what could otherwise be achieved. She added that another benefit would be the rating agencies and investors looking at Alaska's credit, rather than scrutinizing education loans, revenue will be provided to pay down bonds and the credit criteria may be widened so that more Alaska students can qualify. 9:08:25 AM SENATOR FAIRCLOUGH pointed out that around the time of the 2008 financial crisis, the federal government actually increased the credit scores required to access loans. She noted that previously, students were considered a good risk if they did not have credit. Currently the new definition requires a student to have a minimum credit score and students are not qualifying. She provided an example of having to co-sign for her son in order to obtain a student loan for college. 9:10:05 AM SENATOR WIELECHOWSKI said college student debt has become a national crisis. He pointed out that there is a trillion dollars of outstanding student loan debt. He asked how much the student loan interest rates will be reduced and how much the state will pay in addition to what the students will be charged. He inquired if SJR 23 is the best way to get the interest rates down for students. MS. BARRANS replied that a significant change to interest rates can be made. She pointed out that market-based rates have been at historical lows over the past several years and her intent was not to over promise what using the state's AAA rating will allow for the lowest possible cost of funds. She continued to explain as follows: If we were in the market today with AAA debt, I think we would be in the 4.5 to 4.6 percent range. Compare to if we were in market today with student loan backed bonds, we would be at least a percentage and a half higher than that. So that's kind of the differential that you can achieve, but again it would allow us as well to make the loans more widely available to students. Right now, as Sen Fairclough points out in her sponsor statement, we deny over 40 percent of applicants who come to us now. We are failing to really deliver the kind of program to state residents that we should both with respect to price and availability. To your second more broad question regarding is this the best approach, I would suggest that it is, not only will we not be looking at a year- to-year situation where if we were to go to a general fund supported program where we have to rely on what other priorities the state is dealing with financially and we can't make a long term commitment to borrowers, but we are using the state's credit very efficiently without associating a financial obligation upon the state. The loans themselves can be structured to pay down the bonds, avoid any potential burden on the state general fund, but still deliver a product that would rival any other non-federal loan in the country. We would hopefully be second to none under this structure. 9:13:33 AM SENATOR WIELECHOWSKI asked if SJR 23 is essentially revenue neutral by passing through costs with administrative fees. He inquired if the state is losing money or will SJR 23 allow the state to make money. He addressed delinquency rates and queried if the state anticipates a problem. MS. BARRANS answered that cost is rather revenue-neutral. She explained that the business model has been to keep costs to the borrower as low as possible while remaining in a position to demonstrate good faith in repaying bond holders. She noted that hundreds of millions of dollars of bonds have been issued over the years without ever having to statutorily ask the Legislature for funds to cover bond shortfalls. She pointed out that borrowers have been provided with benefits in the form of credits that are applied to loans. She explained that a student who attends school in Alaska and is making automated payments can receive a 0.75 percent credit. She said delinquency rates are quite low and average in the 5 to 8 percent range. She noted that delinquency rates increased during the recessionary period, but rates have declined during the past two years. She set forth that ASLC is in a very good situation to look at supporting the next generation of student loan financing. CHAIR DYSON invited public testimony. 9:17:07 AM MIKE COONS, representing himself, Palmer, Alaska, said he opposed SJR 23 and noted the nation's propensity for debt rather than savings. He stated that lowered interest rates will exasperate student debt. 9:20:08 AM CHAIR DYSON announced that public testimony is closed. He asked to confirm that if SJR 23 gets on the ballot and is approved by voters, SJR would have to come back to the Legislature for authorization by specific law. SENATOR FAIRCLOUGH concurred with Mr. Coons' concern with student debt and noted that she supported savings. She stated that voting for SJR 23 supports loans for students who do not have savings or parents that can help out. She pointed out that ASLC already has the capacity to borrow, so there is nothing new that would have to happen. She agreed with previous SJR 23 testimony that a student can carry less debt if they graduate on time. She added that the state should help students understand the cost of education and the debt that will have to be carried in the future. 9:22:21 AM SENATOR COGHILL noted that the student loan program is a tool that allows the state to put together a way to make the best use of its money. He added that the concept really comes down to the cost of money. SENATOR GIESSEL agreed with Mr. Coons and Senator Fairclough that debt is not good. She stated that she supports SJR 23, but noted that the resolution does not get at the problem of why secondary-education is becoming more expensive. CHAIR DYSON announced that the Chair will entertain a motion. 9:23:36 AM SENATOR GIESSEL moved to report SJR 23 from committee, labeled 28-LS1394\U with individual recommendations and attached fiscal note(s). 9:23:50 AM CHAIR DYSON announced that seeing no objection, SJR 23 passed out of the Senate State Affairs Standing Committee.