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F I S C A L I M P A C T R E P O R T

SPONSOR Varela

ORIGINAL DATE

LAST UPDATED

02/12/06

HB 800

SHORT TITLE Reduce Student Loan Default Penalty

SB

ANALYST Williams

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

Indeterminate

Recurring

Various student loan

for service and loan

repayment programs

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to Appropriation in the General Appropriation Act for student financial aid programs

SOURCES OF INFORMATION

LFC Files

Responses Received From

Higher Education Department (HED)

Department of Health (DOH)

SUMMARY

Synopsis of Bill

House Bill 800 would reduce the penalty for default on specified student loan for service agree-

ments from 18 percent to 7 percent. Specifically the programs in this bill address the fields of

medical, osteopathic, allied health and teachers. As well, a similar reduction would be in place

for the Health Professional Loan Repayment Program and the Public Service Law Loan Repay-

ment Program. In effect, this is all loan for service programs except nurses. The bill also makes

technical changes to statute to reflect the creation of the Higher Education Department.

FISCAL IMPLICATIONS

The more lenient terms may drive up default rates, the magnitude of which is indeterminate at

this time. Note, however, the current rate of default is considered low, so there are generally not

significant repayment revenues to these funds under present law. Student financial aid program

funds do not revert to the general fund.

House Bill 800 – Page

2

SIGNIFICANT ISSUES

HED notes: “The high penalties for default on student loan for service agreements or the Health

Professional Loan Repayment Program were established to:

•

encourage participants to complete their obligated service in underserved areas

•

discourage buy-out of loans so that students could practice in areas that are not under-

served

•

discourage needed professionals from relocating out of state

•

consistently apply penalties across all loan for service programs

•

align penalties with those of National Health Service Corps (NHSC), which are three

times the amount of the loan and a formula-driven interest rate, which could be as high as

18%.”

“NMHED currently has the authority to assess a 7% interest rate if there is an acceptable extenu-

ating circumstance for why the professional cannot serve or comply with the terms of the con-

tract. This bill supports a key priority on the Department’s legislative agenda and is important for

improving student success.”

DOH notes: “The higher penalty for default has encouraged many students to complete their ob-

ligated service. This penalty amount was established when the program was first enacted to dis-

courage buy-out of loans so that students could opt to practice in areas that are not underserved

or to more easily relocate out of state. The intentions of the program were not to provide another

source of financial educational support, but to obligate future health care practitioners for rural

and underserved areas of the state.”

OTHER SUBSTANTIVE ISSUES

DOH notes: “HB 800, if enacted, could result in loss of the NHSC SLRP grant to New Mexico.”

HED notes: “The NHSC provides grants for state loan repayment programs and it does stipulate

that state penalties cannot be less severe than those imposed by the federal government. The

Health Professional Loan Repayment Program is the only federally funded program listed in this

bill; therefore, the only program subject to those penalties.”

POSSIBLE QUESTIONS

1.

Would this bill impact targets for performance outcome measures for these programs.

AW/nt