One bill to give, One bill to take

UA students who rely on state loans to fi nance their
education may soon fi nd they no longer have a credit
rating high enough to obtain them. The fi nancial crisis
has begun to bear down on Alaska and some state
legislatures are suggesting state money go only to
credit-worthy applicants.
Introduced in early February, House Bill 109 drafted
by Rep. Paul Seaton (R-Homer) would require students
applying for the Alaska Supplemental Education Loan
(ASEL) to have good credit or a viable co-signer. This
is because by the Alaska Commission of Postsecondary
Education (ACPE) might not be able to continue to
disburse student loans to all those who apply.
Executive director of ACPE Diane Barrans said the
problem fi rst arose in February of 2008, when the bond
market froze.
“Stafford loans are backed by the federal government,
but Alaska State loans are not,” Barrans said.
ASELs are funded by the Alaska Student Loan
Corporation (ASLC), which issues bonds on the capital
market, using different education loans as collateral.
“With the market frozen, we’ve been paying out
loans with [cash] for the past year. and the commission
cannot sustain them much longer,” Barrans said. “There
were about 5,100 state loans disbursed last year – the
dollar volume is at about $40 million for the past loan
year. I characterize this as a very serious problem.”
What has many people concerned about HB 109,
however, is that high school students entering college
tend to have no credit, which would place
them into the “bad credit” bracket. FICO,
the most common model for estimating
credit scores, has the average American
credit at 720. According to their 2008
annual report, people between the ages of
18-29 have an average credit of 637.
Barrans said the credit rate won’t be as
high as FICO standards, but will be high
enough to be viewed as ratable by the
rating agencies.
“Most UA students are older students –
not right out of high school,” said Barrans.
“So they tend to have already established
their credit.”
While the UA campuses do have a lot of
older, returning students, nearly 50 percent
of them are under 24. That would mean
half of all UA students predominantly fall
into the low to bad credit rating bracket.
“Students with no credit or bad credit
really shouldn’t be applying for loans,”
Barrans said. “They should be applying for
grants and scholarships and if they need
more assistance, then they should apply
for federal loans [which don’t require good
credit].”
Traditionally, most students apply for
an ASEL before a federal loan because the
interest is signifi cantly lower.
With tuition, books and the cost of
living on the rise, more students are
borrowing than ever. According to the
National Center for Public Policy and
Higher Education’s 2008 Report Card, the
number of student borrowers has more than
doubled in the past 10 years. The majority
of borrowers-about 55 percent-are in
the lowest of low-income brackets.
Sen. Johnny Ellis (D-Anchorage) is the
sponsor of SB 33, a bill that would create
a critical needs merit based grant. He said
that with the beating the bond market has
taken, he understands why the ASLC has
proposed HB 109.
“[Barrans] is very worried that the
[ASLC] might need a bailout from the
state legislature this year,” Ellis said. “I
don’t know if it’s the right solution or the
right approach. but when I was a kid and
going to UAA, I was a kid without credit,
and thank god I was able to get a student
loan, or else I wouldn’t have been able to
go to school.”
Ellis said that SB 33 and its companion
bill HB 94 would help alleviate some of
the additional fi nancial stress that may be
accrued with the loss of a supplemental
state loan.
According to the NCPPHE Report Card,
Alaska was issued an F in its affordability
of higher education. Affordability is an
issue the entire nation is facing – all states
except California were given an F grade.
Rep. Les Gara (D-Anchorage) said
Alaska has the additional problem of not
offering enough economic relief to its lowincome
students.
“We have, historically as a state, never
put more than half a million dollars into
our fi nancial aid program,” Gara said. “Our
grant program for low income students –
that’s the second worst grant program in
the country.”
Gara said that for the state of Alaska
to have a decent grant program, it would
need about $7 million a year. Last year
Gara championed to get $2.2 million for
fi nancial aid put into the capital budget
and won.
The money went to ACPE, who will
distribute it over the next two years.
“The problem with ACPE is that they
can’t give out, by statute, more than $2,000
in grants to somebody,” Gara said. “[HB
94 and SB 33] are extremely crucial if
we’re going to have a real grant program.
We’re going to need real legislation, like
they’ve proposed.”
Gara said a college-educated populace
is essential to the betterment of the state,
and that it’s essential to keep it accessible.
“This is a state that has a very poorly
diversifi ed job base,” Gara said. “Outside
of a few professions, we don’t have the
same type of job opportunities as people
have in the Lower 48. And the university
is one of the things that creates jobs in this
state. You can’t tell people they can’t go to
college or they can’t get job training just
because they don’t have money.”
Barrans said HB 109 is not about
making education inaccessible to students,
but rather continuing to provide additional
assistance. She said ASLC hopes that
by guaranteeing the credit rating of its
applicants, the bond market will open
up again, although it may take several
different maneuvers to ensure this.
Another relief to students as well as the
bond market is the new federal stimulus
package, The American Recovery and
Reinvestment Act. The ARRA has
appropriated $6 billion toward higher
education. State legislators are currently
working with the governor to fi gure out
how to appropriate those funds.