By Tom Loftus
By Tom Loftus
There is a lot of focus this week on what can be done to address the student loan debt crisis—with cumulative U. S. student loan debt having reached $1.2 trillion and continuing to grow. On Monday President Obama signed an executive order that will lower student loan payments for up to five million additional students and forgive their loan balances after 20 years of repayment. And the Senate is set to consider a bill to allow graduates with student loan interest rates much higher than those currently available to refinance their student loans.
The President’s executive order and the Senate proposal bring needed action on and attention to the challenges of college affordability and student debt, which affect the ability of Kentuckians to earn degrees and save for retirement, homeownership and business start-up after college.
President Obama’s executive order, which will go into effect at the end of 2015 at the earliest, expands eligibility for an existing program, “Pay As You Earn,” that lowers student loan payments to 10 percent of low-income borrowers’ monthly incomes; after 20 years of payments—if the loan isn’t paid off before then—the loan balance is forgiven. Up to five million additional borrowers (including those who took out loans before October 2007) will now be eligible to participate.
Since student loan interest rates are now set at levels slightly higher than the rates on Treasury bonds, recent graduates have gotten low interest rates on their student loans (i.e., currently 3.86 percent for undergraduates) while those who graduated in years past typically have higher interest rates on their loans (i.e., in many cases nearly 7 percent or higher for undergraduates). The bill sponsored by Senator Elizabeth Warren would enable about 25 million of those with higher interest rates—including an estimated 359,000 Kentucky borrowers—to refinance their loans at the current rate. Borrowers with federal or private student loans and high debts relative to their incomes would be eligible. The refinancing would be paid for through the closing of tax loopholes for the wealthiest Americans.
Such legislation would help many Kentuckians who have increasingly turned to loans in order to pay for college as tuition has increased dramatically at the state’s public colleges and universities—tripling since 1998—as a result of state budget cuts to higher education. As seen below, the average debt for graduates at four-year colleges and universities grew from $14,250 in 2003-2004 to $22,384 in 2011-2012—a 57 percent increase in just eight years.
Source: College Insight
In addition to recent tuition hikes, Kentucky students are also driven into debt by the diminishing purchasing power of the Pell Grant and the dearth of state need-based financial aid. In the 1970s, a Pell Grant paid for around 80 percent of tuition, fees and room and board at a public four-year university. Today it pays just a third of those costs, and those who receive Pell grants are actually more than twice as likely to be in debt than those who do not qualify for Pell—and have greater debt. In addition, the state’s need-based financial aid is so underfunded that more qualified students are denied scholarships than receive them. In 2012-2013, more than 76,000 qualified students (67 percent) in Kentucky were denied a need-based College Access Program (CAP) grant because of lack of funds.
Actions and legislation like the executive order and the Senate proposal can help make some Kentuckians struggling with large amounts of student debt better able to manage their monthly payments, qualify for mortgages and even pay a smaller total loan amount. However, they are only a step toward solving the nation’s (and state’s) college affordability problem. For instance, they do not keep students from going into such large amounts of debt in the first place—as a result of high tuition and inadequate need-based financial aid—or keep student loan interest rates from rising (which they are expected to do). Lowering monthly student loan payment amounts, providing debt forgiveness after decades of payments and even lowering student loan interest rates for some students helps ease the pain. But to do more, we need to begin to reinvest in higher education—something the majority of states are at least beginning to do, but Kentucky is not—and make critical investments in need-based financial aid.
Kentucky is gaining much-deserved national attention for the initial success of Kynect, the state’s new health insurance marketplace. Since Kynect’s launch, 413,000 Kentuckians have signed up for coverage either through Medicaid or private plans. Kynect’s website has worked smoothly, and in a recent poll more respondents had a favorable impression of the new program than a negative one.
This last fact is quite a feat given that Kynect is the state’s version of the Affordable Care Act (ACA), which since its passage has been the target of millions of dollars in negative ads and misinformation. Kentucky stuck its neck out by implementing the ACA while other states in the South rejected it.
Now opponents of the law are starting to adjust their rhetoric in light of its success in getting people covered. Also spurring a shift is the popularity of measures like letting young adults stay on their parents’ plans until age 26 and ending discrimination based on pre-existing conditions.
While Kynect’s success is good news for the state’s health, it could also be the first step toward a new, uniquely Kentucky approach to solving problems. Values and goals at the heart of the program suggest a sensible agenda for other pressing issues facing our state.
For example, Kynect’s main purpose is to help people gain health insurance who couldn’t otherwise afford it through access to Medicaid and financial assistance to buy private coverage. It’s the program’s biggest success so far.
What if we looked at new strategies to help Kentuckians better afford other critical needs like higher education, housing, energy costs and retirement savings? More people would be able to build and retain wealth, which would have positive repercussions for the entire state.
A related Kynect assumption—cited in Governor Beshear’s announcement at its launch—is that by making Kentuckians healthier we will build a foundation for economic development. Too often, development policy is limited to gimmicky tax breaks that have questionable effectiveness in luring jobs. But real long-term economic strength comes from investing in a higher quality of life, including better health, greater levels of education and a modern infrastructure. What if that assumption drove our economic development plans?
Prevention is also a core value of Kynect. The American health care system is rightly criticized for being more of a sick care system; its strength has been in providing innovative—and expensive—treatment to people after serious problems have advanced, but it’s done comparatively little to prevent problems in the first place. With Kynect, we’re hearing stories of people going to the doctor for the first time in years to get treatment for lingering conditions before ending up in the emergency room.
What if we applied that same philosophy of prevention to investment in early childhood education, or to intervention in problems like heroin use before they become crises? In addition to improving lives, we would save money in the long run on remedial learning and incarceration.
An additional lesson from Kynect is the need to do what works, without bells and whistles and regardless of ideology. Emblematic of Kynect’s approach is its website, which works because it emphasizes simplicity and functionality over flash. The broader law cuts against the ideological grain by asserting government’s role in rooting out inefficiencies in the health market like the lack of care coordination and excessive insurance company administrative costs. What if the state were more committed to practical problem solving on other emotionally charged issues like energy policy or economic development in the coalfields?
There are political lessons here too: Governor Beshear’s determination and outspokenness on behalf of Kynect challenge common assumptions about what political leaders can and cannot do and say. That kind of leadership does what’s right for the majority of the state’s people and trusts that support will follow.
Granted, it’s still way too early in Kynect’s history to declare victory. There’s no question we’ll need further changes and improvements in our health care system to make it more affordable, efficient and effective. But that’s what government at its best does on all issues—takes actions to make progress based on a clear vision of a better future.
Jason Bailey is director of the Kentucky Center for Economic Policy (KCEP), a nonprofit, nonpartisan institute that conducts research, analysis and education on important issues facing the Commonwealth. See more at www.kypolicy.org.
By Jason Bailey
The new power plant rules proposed this week will make coal less competitive in the coming decades. It’s just one factor pointing toward continued decline in eastern Kentucky coal production, the main causes of which are the rising cost of Central Appalachian coal as the dwindling resource is harder to access and the drop in natural gas prices due to fracking.
Coal’s further decline in the region spells more economic trouble for eastern Kentucky. That’s on top of being one of the nation’s poorest regions even when coal was booming.
When policies and other factors cause serious economic problems for a region or group of Americans, there is precedent for federal investments to help workers and communities adjust and transition. There’s even precedent in eastern Kentucky–the Appalachian Regional Commission was created in 1963 as a response to the region’s persistent poverty in a nation of growing abundance.
But the ARC’s non-highway budget has declined dramatically from its peak of over $1.2 billion in today’s dollars in the mid-1970s to well south of $100 million today, money which it spreads over 13 states.
Some small new federal investments have been announced for eastern Kentucky since the Shaping Our Appalachian Region (SOAR) initiative was launched, but much more is needed to transition an economy that has seen its coal jobs reduced by half in the last three years.
Other precedents for federal investments to support economic transition include:
- The Trade Adjustment Assistance program, established in 1962, which provides services and supports to workers negatively impacted by U. S. trade policies.
- The Job Training Partnership Act Title III, established (under a different name originally) at the same time and intended to provide employment and training services to workers replaced by automation and other shifts in the domestic economy.
- The Base Realignment and Closure Commission, which helps communities harmed by the shuttering of U. S. military bases transition their local economies.
- The Clean Air Employment Transition Assistance program, created as part of 1990 amendments to the Clean Air Act, which provided payments for training and other assistance for workers affected by Clean Air Act compliance.
- The Regional Rail Reorganization Act, created in 1973, which helped workers impacted by the widespread financial failure of Northeast and Midwest Railroads.
- The Redwood Employee Protection Plan and Northwest Economic Adjustment Initiative, worker and economic assistance programs targeted to particular regions of the Pacific Northwest where timber harvest was reduced by federal environmental regulations including protection of the spotted owl habitat.
- The U. S. Community Adjustment and Investment Program, which provided economic development assistance for communities affected by NAFTA including U. S. border areas.
There are lessons to learn from these and other examples about what works and what doesn’t in transition assistance. Any help must be well-funded, combine support for individual workers with economic development support for communities, be driven by local people and have clear avenues for broad democratic participation in planning.
Details can be worked out. But the important part now is for the nation to recognize the debt it owes the region for providing the cheap power that grew the U. S. industrial economy, and for Kentucky and regional leaders to speak to the inevitability of what lies ahead.