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Senate panel OKs cutting R.I. tax refund for student loans

5:44 PM Thu, Oct 29, 2009 | Permalink
By Neil Downing

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PROVIDENCE, R.I. -- The state Senate Finance Committee on Thursday voted unanimously to allow the R.I. Division of Taxation to reduce a person's state income tax refund if that person is delinquent on college loans issued by the Rhode Island Student Loan Authority.

The offset provision now heads to the full Senate, where passage appears assured; the House unanimously approved the measure on June 26.

Rhode Island already allows for offset against state income tax refunds for delinquent federal taxes, Rhode Island state taxes, Connecticut state taxes, child-support payments, higher education loans involving the Rhode Island Higher Education Assistance Authority and some other items.

At a State House hearing on Thursday, Charles Kelley, executive director of the Rhode Island Student Loan Authority, said that the offset provision would allow the agency to borrow in the marketplace at lower interest rates, and issue loans to students and their families at lower interest rates.

State Sen. Daniel DaPonte (D-East Providence), chairman of the Senate Finance Committee, said that the provision would allow the agency to "borrow for less and pass those savings on" to students and their families. "That's the big-picture goal," DaPonte said in an interview after the hearing.

DaPonte also said that the provision would further encourage borrowers to repay their loans. "Paying back your college loans is important," he said.

The measure would affect repayment of Rhode Island Student Loan Authority obligations, but would have no impact on state tax revenues, according to an analysis prepared by the Senate Fiscal Office.

The Rhode Island Student Loan Authority is a nonprofit, quasi-government operation whose main focus is providing financial aid - including loans and grants - to students and their families.

The agency also operates the College Planning Center of Rhode Island, which provides free counseling to students and families on a range of issues, including college applications, admissions, and finding financial aid.

The agency oversees a portfolio of about $1.1 billion in education loans, including federal loans (essentially loans that are guaranteed by the federal government) and about $450 million in private loans (which are education loans that are not federally guaranteed), Kelley said.

The bill would allow the offset for the agency's private education loans, which it has been issuing since 1993, and which have a cumulative default rate of about 2 percent, he said.

The provision would make the agency's borrowings more appealing to firms that rate bond issues. As a result, the agency could borrow at lower interest rates, and, in turn, issue loans to students and families at lower rates - at least one-quarter to one-half a percentage point lower, Kelley said.

For the current academic year, the agency levies an interest rate of 7.76 percent on its 15-year, fixed-rate private loans for higher education, Kelley said.