by Kalena Thomhave
Kentucky again ranks among the worst states for rates of student loan default, according to new data released by the U.S. Department of Education. This latest data is yet another indicator Kentucky students have difficulty paying for college — largely due to public disinvestment in higher education that has a particularly damaging impact on low-income students and students of color.
Kentucky’s 3-year student loan default rate is now 14 percent, which is the 9th worst in the nation. Although this is an improvement over last year’s default rate of 15.5 percent, it is still above the national default rate of 11.5 percent (which is up slightly from 11.3 percent last year).
The three-year cohort default rate is a calculation of the share of students whose loans entered repayment in a particular year (in this case 2014) who, within three years, missed payments for at least nine consecutive months.
The tables below describe the three-year default rates for students, this year and last, that attended Kentucky’s public postsecondary institutions. In keeping with national trends, the highest default rates for public institutions in Kentucky were at the community colleges — where more low-income students enroll — and the lowest were at the universities.
While overall the state’s student loan default rate improved this year over last year, there are several universities that have higher default rates: Kentucky State University, Murray State University, Northern Kentucky University (up just slightly) and University of Kentucky. Among the community colleges just two had higher default rates this year: Big Sandy Community & Technical College and Southeast Kentucky Community & Technical College — both located in the more economically distressed eastern part of the state.
Kentucky’s continued high student loan default rates are the result of many factors that include:
- The state’s continued disinvestment in higher education. A recent report ranked Kentucky in the bottom 10 states in cuts to postsecondary education since 2008.
- Tuition increases at the state’s public universities and community colleges that have largely resulted from state funding cuts.
- Low graduation rates, especially for low-income students and students of color who are more likely to leave before graduating. Students who graduate from college are more likely to be current on their student loans.
- Inadequate need-based financial aid. Many Kentucky students who qualify for state scholarships based on financial need do not receive them due to lack of state funds, and scholarship amounts are very small and have changed very little at the same time that costs have continued to increase. In addition, the new Work Ready Kentucky Scholarship program is very limited and most low-income students will not end up benefiting.
- An economy that, though improving, still has a long way to go to recovery — with too few jobs and weak wage growth.
It should be noted that borrowing very large amounts of money is not generally a driver of student loan default. In fact, those who owe the most — often due to the high costs of professional degrees, for instance in medicine or law, that lead to jobs that pay well — are less likely to default. While student loan balances are often lower for those who default, the cost of repayment is often not manageable for those who cannot afford to complete a degree, for instance.
According to a 2016 report from the Council on Postsecondary Education, a key way to improve Kentucky’s high student loan default rates is to address the state’s higher education achievement gaps. The clearest way to do so is for the state to increase its investments in higher education.
by Lisa Gillespie
by Josh James
by Ronnie Ellis
Calls to end Kentucky’s defined benefit (DB) public pension plans often refer to the move away from DB plans in the private sector and suggest the public sector should follow suit and become more “modern.” But along with the harm to private employees that has accompanied this trend, industry and government are apples and oranges when it comes to pensions. The decline in private sector plans results from increased regulation as well as economic changes and other differences that do not apply to public sector plans.
Decline hasn’t spread to public sector pensions
It is certainly true there has been a steep decline in the share of private sector workers covered by DB plans over the last few decades. According to one estimate, 88 percent of private workers had a DB plan in 1975 compared to 33 percent in 2005. Another estimate put private sector DB coverage at only 18 percent in 2011.
However, that same decrease has not happened in government. According to the Center for Retirement Research, 98 percent of state and local public employees were covered by a DB plan in 1975 and 92 percent in 2005. Just three states now provide only a 401k-type defined contribution (DC) plan to some of their employees: Alaska, Oklahoma and Michigan.
Rise in regulatory burdens for private sector DB plans drove decline
Growing overregulation of private sector DB plans is a main cause of these diverging paths. During the 1980s, Congress passed three laws that increased the volatility of cost and the administrative burden facing private employers that operate DB plans (another law passed in 2006 added to the strain). Among other changes, the rules required unfunded liabilities to be paid off over 7 years rather than the standard 30 years seen in public DB plans, mandated plans recognize fluctuations in financial markets rapidly rather than the smoothing over time typically used, and unnecessarily raised requirements for the funding levels of plans. Congress also increased the premiums private plans must contribute to a fund that pays benefits when DB plans go under.
These strict regulations made private employers less likely to choose defined benefit plans, but none of the rules apply to plans in the public sector.
Shifts in the private economy and other differences with government also play role
At the same time regulatory burdens were growing for private DB plans, changes to the economy and employer-employee relations accelerated the decline of private pensions. Much of the decrease in private sector DB plans came from the waning of sectors that had higher levels of DB coverage, particularly manufacturing, and the growth of the service sector. That shift corresponded with a decline in unionization, which is associated with higher levels of DB coverage, and the replacement of middle-income jobs with low wage employment providing few benefits. Newer service sector employers were more likely to offer only DC benefits, if they provided any benefits at all.
Other differences between the private and public sector help explain their separate trends. Large employers in the private sector are still much more likely to offer DB plans than small businesses because of the lower administrative costs and higher investment returns from creating a large pool of funds. Governments are also very large employers (and small ones often band together to provide pensions), making it sensible for them to take advantage of the greater efficiencies of DB plans. Private sector businesses also have an uncertain future and lifespan, and are increasingly focused on short-term, even quarterly earnings. Governments are permanent and can therefore invest and manage pension plans for long time horizons.
Contribution patterns are also different in private and public DB plans. Almost all of the contributions in private sector plans come from the employers. Public sector DB plans, in contrast, receive significant contributions from the employees themselves. In fact, for Kentucky’s public DB plans the employee contributes a larger share of the normal costs of the plan than does the employer. That shared responsibility helps sustain public sector plans.
There are also differences between private and public sector workforces. Public sector workers tend to be older, and older workers are more stable and concerned about retirement benefits. Government employees tend to stay in their jobs longer, with some evidence suggesting average tenure has been increasing, not decreasing. That characteristic aligns well with DB plans, which are especially beneficial for career employees. Public employment also has higher rates of unionization and its rate has not declined like the private sector.
Need better retirement for all, not more retirees in poverty
On top of the differences between industry and government, the decline of DB plans in the private sector has come at the cost of retirement security for many workers. In Kentucky, the average 401k account had only $32,499 in 2012, far less than needed to provide a decent standard of living.
We should be talking about new ways to increase the retirement security of all Kentuckians, including those in the private sector overly reliant on 401ks or receiving no benefit at all, and not adding to the problem by worsening the retirement prospects for many thousands of Kentucky public employees.
This column originally ran in the Lexington Herald-Leader on Sept. 19, 2017.
The latest attempt to repeal the Affordable Care Act (ACA) is known as Cassidy-Graham, and it very well may be the greatest threat to Kentucky’s health care we’ve seen. The state’s recent success in getting people coverage, and even health care gains achieved decades ago, are at risk of being undone with this legislation.
The bill, sponsored by Senators Bill Cassidy and Lindsey Graham, is perhaps the final attempt at tearing up the ACA and doing permanent damage to Medicaid. It’s being rushed through before policymakers and the public can understand its implications. That’s because after September 30, the Senate can no longer pass a partisan repeal bill with only 51 votes due to chamber rules.
The Cassidy-Graham bill, like all previous ACA repeal bills, would undermine Kentucky’s historic gains in coverage and health. It would cause hundreds of thousands of Kentuckians to lose coverage, while undermining insurance protections for millions more.
Medicaid expansion, which has extended coverage to 475,000 Kentuckians, would be eliminated.
The ACA’s marketplace subsidies, which help over 81,000 afford coverage, would be gone.
Instead, states would get a much smaller, temporary “block grant” of money. Because the amount of money would be fixed each year, Kentucky would be on the hook for any and all unexpected costs from recessions, public health emergencies like the opioid epidemic or a Hepatitis C outbreak and prescription drug price spikes. What is truly devastating is that after 2026, this money would disappear altogether.
In addition, the core Medicaid program — not just the expansion of Medicaid under the ACA — would be radically restructured and cut, putting at risk care for seniors, people with disabilities and families with children, including services such as long-term, home and community-based care for especially vulnerable Kentuckians.
The bill would slash federal funding for health coverage in Kentucky by nearly $7 billion in 2027 alone as a result of these changes. This is a massive cut: by comparison, the entire state of Kentucky’s 2017 General Fund was $10.5 billion.
Protections for people with pre-existing conditions would be left to the whims of each state. In fact, Kentucky lawmakers could let insurers charge people with health conditions exorbitant, unaffordable premiums and sell plans that leave out essential benefits like maternity care and mental health care. The bill would also mean annual and lifetime caps on what an insurer will spend on your care could make a comeback, reviving the risk of medical bankruptcy from an illness or injury.
This threat is happening even while real health care issues loom that need to be addressed. The Children’s Health Insurance Program is about to run out of money. Community health centers that provide a large share of the health care in the commonwealth need congress to reauthorize their funding, too. Senators Alexander and Murray have a serious bipartisan proposal to help give insurers the confidence they need to reduce the cost of quality coverage. But all of these are being pushed to the side for a bill that would fundamentally harm a $3 trillion slice of the American economy.
Senator McConnell and Senator Paul need to ensure we don’t turn back the clock with this bill, and instead focus on ways to continue moving our health forward.
One repeal bill is left standing. Let’s make sure it’s the last.