New Shelby County Schools employees would be eligible for student loan assistance next summer instead of retiree medical benefits, under a district proposal.

The switch was pitched to school board members and county commissioners Wednesday primarily as a way to stem the increase in retiree medical benefits costs, which are partly paid for by the district. Pensions, or income paid to retirees, are paid for by the state.

The district believes the change would be attractive to millennials who are “piled with debt,” said Lin Johnson, the deputy superintendent of finance and operations.

Johnson said if the district can’t get its costs for retiree benefits under control, the Memphis district could eventually see severe budget cuts similar to what Chicago schools experienced before closing 50 schools in one year. Mounting pension costs contributed to Chicago’s financial instability in the past decade, but was not the sole factor in a city with plummeting student population.

“A lot of school districts have been seriously impacted by,” retirement debt, Johnson said. Chicago “really had to go at this with an ax to achieve the level of savings that they needed. I think what we’re doing right now is being proactive so our liability doesn’t grow.”

Teachers face lower salaries than other college-educated professionals, making it difficult for them to pay back college loans. Teachers earn about 23% less than other college-educated workers, and the average college graduate owes about $29,000, according to national reports by the Economic Policy Institute, a union-backed think tank, and the Institute for College Access & Success.

If approved, the change would only affect new hires as of July 1, 2020. Nothing would change for the district’s 9,500 retirees and 10,700 employees who are receiving or were promised those benefits, Johnson said. As of last summer, the district’s estimated future retiree costs totaled about $991 million, down about 29% since 2013.

PHOTO: Kayleigh Skinner
Retired educators attend a 2015 forum to discuss a cost-cutting plan that later was tabled.

This is at least the third time the district has suggested eliminating retiree benefits for new employees, but this is the first time it has suggested paying for student loan assistance instead.

Stephanie Fitzgerald, president of Memphis and Shelby County Retired Teachers’ Association, said the replacement is “not comparable.”

“People just graduating from college don’t know what makes sense in terms of planning for retirement,” she told Chalkbeat. “When you get a job out of college you’re just so happy to get a job and sign on the dotted line.”

Johnson did not provide specifics on how much the district would provide to the student loan assistance program, and a spokeswoman declined further questions after the meeting Wednesday.

The federal and state governments already offer teachers several student debt forgiveness programs. Tennessee offers an advanced degree loan forgiveness program for math and science teachers if they teach in the state for twice as long as they were enrolled in the graduate program. The U.S. Department of Education also offers several loan forgiveness programs for teachers in exchange for years of teaching in the classroom.

The proposed policy would mean new employees would not receive medical and life insurance that is partially paid for by the district. The former superintendent described those payments as a liability and “a huge gorilla around our neck.”

The cost became even more of a concern after the district’s liability ballooned to $1.4 billion when the former city school district merged with the neighboring suburban school system in 2013. The following year, six suburbs formed their own school districts and left their portion of retiree benefit costs to the newly formed Shelby County Schools.

For the first time ever, the six-year-old district’s liability dipped below $1 billion last year. Most of that decline came from contributing more to an investment fund with other Tennessee districts to earn interest for future retiree benefit costs and shifting more retirement costs to retirees.

For example, to get life insurance, retirees must now either pay one-fourth of their premium, or reduce their coverage to $10,000 before the district the district pays for the full premium. For medical insurance, the district now pays half of the premium for retirees younger than 65, down from two-thirds in previous years.

That has angered former employees who entered retirement under more robust plans.

“They’ve already messed with teacher retirement,” said Fitzgerald, the retired teachers association president. “We never have been working for princely sums… The people that work for you loyally, you owe some loyalty in return.”

Johnson said the board is scheduled to hear more at a policy meeting next month.