Bill 77

                    Current Status

Bill Number:               77
Ratification Number:       30
Act Number                 15
Introducing Body:          Senate
Subject:                   Revenue bond debt limitation of the
                           State Education Assistance Authority

(A15, R30, S77)

AN ACT TO AMEND SECTION 59-115-80, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING IN PART TO THE REVENUE BOND DEBT LIMITATION OF THE STATE EDUCATION ASSISTANCE AUTHORITY, SO AS TO INCREASE THE LIMIT FROM FIFTY TO ONE HUNDRED MILLION DOLLARS.

Be it enacted by the General Assembly of the State of South Carolina:

Findings

SECTION 1. The General Assembly finds that:

In 1971 it established the State Education Assistance Authority (authority) as a public instrumentality of the State of South Carolina and empowered it to provide financial assistance to residents of South Carolina through the making or guaranteeing of student loans. The authority is governed by its members, who are by statute the members of the State Budget and Control Board. The authority acts through its contractual agent, the South Carolina Student Loan Corporation (corporation), a private nonprofit corporation.

The authority has designated the corporation to serve as a central statewide lender and to date, over twenty-eight thousand loans have been made to more than fifteen thousand students.

The administration of this program is totally separate from the loan programs administered by colleges and universities throughout the State, whose lending and collection experiences are quite dissimilar. Student loans made by the corporation from the revenue bond proceeds of the authority are one hundred percent guaranteed by the authority against the death, disability, or default of the student borrower. This guarantee does not in any way represent a pledge of the State's full faith and credit. The guarantee is limited to monies available in a reserve fund maintained by the authority funded through an insurance premium of three-fourths percent which is deducted from the loan made to each student borrower. There is now approximately one and one-quarter million dollars available in the reserve fund.

The State's guarantee is further backed by a federal program of reinsurance. The amount of this reinsurance relates to the annual default rate on student loans and ranges from one hundred percent to eighty percent. Unless the State's default rate exceeds five percent in any given year, all loans are reinsured at one hundred percent. Any defaults in excess of five percent, but less than nine percent, are reinsured at ninety percent; all defaults above nine percent are reinsured at eighty percent. Between this federal program of reinsurance and the State's reserve fund, there are sufficient funds to cover a default rate as improbably high as thirty-two percent.

Since the federal program of reinsurance began in 1978, defaults on all loans made by the corporation have always remained below five percent and thus the State has been reimbursed for one hundred percent of all default payments.

In an effort to avoid the legal, financing, and administrative costs of issuing revenue bonds each year, the authority now seeks an increase in its statutory debt limitation to permit the continued financing of this program for the next several years.

Revenue bonds authorized

SECTION 2. The first paragraph of Section 59-115-80 of the 1976 Code, as last amended by Act 91 of 1981, is further amended to read:

"Subject to the right to hereafter enlarge the authorization to issue revenue bonds, the General Assembly authorizes the authority to provide for the issuance, at one time or from time to time, of revenue bonds of the authority in an aggregate principal amount outstanding at any time of not exceeding one hundred million dollars for any of its authorized purposes, including the use of a portion of the proceeds of any issue of bonds for the establishment of a reserve for the payment of principal and interest of the bonds. The reserve may be deposited in the sinking fund. The bonds shall be designated, subject to such additions or changes as the authority deems advisable, 'State Education Assistance Authority Revenue Bonds, Series.........,' inserting in the blank space a letter or numerals identifying particular series of bonds."

Time effective

SECTION 3. This act shall take effect upon approval by the Governor.