The Kentucky Department of Revenue has collected at least $50 million since 2006 from students who owed money to nearly all of Kentucky’s public universities, and gotten millions more in fees.
Much of that money has come from garnishing paychecks and tax refunds, which the revenue department, unlike a regular collections agency, can do without a court order.
A Fayette County judge recently declared illegal UK HealthCare’s use of the revenue department to collect unpaid debts from patients, a decision UK appealed directly to the Kentucky Supreme Court.
The revenue department, though, also serves as the debt collector for every public university in the state, except the University of Louisville. For its services, the department adds a 25 percent collection fee that debtors must pay.
Five of those universities filed a “friend of the court” brief in support of UK’s appeal, asking the court to dismiss the lawsuit because it could have “devastating effects on the schools.”
“This is important because it’s a substantial way of our collecting monies that are owed the commonwealth,” said Jane Fitzpatrick, general counsel at Morehead State University, who authored the motion. “There’s a substantial process that goes on, but it’s a means of the commonwealth collecting its dollars.”
The other four schools are Western Kentucky University, the Kentucky Community and Technical College System, Eastern Kentucky University and Murray State University. The debts are usually related to missing tuition payments.
Fitzpatrick pointed out that after a decade of state funding cuts to higher education, tuition dollars have gone from making up one-third of Morehead State’s budget to two-thirds. “We feel it more and more when people don’t pay,” she said.
According to the brief, KCTCS has referred almost $80 million in debt to the revenue department for collection, and has received $44.8 million back. Thanks to the 25 percent fee, the revenue department has collected another $11 million for itself.
Department spokesman Glenn Waldrop said that money is used to pay for collections efforts.
Critics contend the revenue department is abusing its power and violating debtors’ rights to due process. Private collection agencies have to take debtors to court for a final judgment before property liens and other governmental maneuvers can be applied.
Daniel Mullins, a former UK student, told the Herald-Leader he once received notification that he owed back tuition to UK. While he was disputing the bill, it was referred to the revenue department, which threatened to garnish his wages.
“It’s really sad that a private citizen should have to hire a lawyer and defend themselves against their own state government’s opportunistic contracting out of the mechanisms it created to go after those who owe huge amounts of unpaid taxes, and for private debts that haven’t received any sort of judgment whatsoever,” he said. “How many UK students struggling to get their life started will just start out feeling the full force of a state agency doing its best to crush them?”
Fitzpatrick, though, said students receive numerous notifications about their debts before they are referred to the revenue department. The process also allows students to appeal the process in administrative hearings conducted by the Office of the Attorney General.
Her motion said the five institutions have referred collection receipts of more than $59 million, but it did not break down the amounts for every school.
Morehead State has used the service since 2009, and has received $8.4 million in recovered money.
The motion cites another lawsuit filed against Eastern Kentucky University and the revenue department by Roy Morgan, who was charged for two semesters of out-of-state tuition even though he allegedly lived in Kentucky and didn’t attend school that year. Morgan was in the process of disputing the claim when it was turned over to the Department of Revenue.
His lawyer, Ronald Bowling of Williamsburg, said under Kentucky’s usury laws, the “fee” charged by the department exceeds what a collection agency could collect.
“I think it’s absurd,” he said.
The revenue department began collecting debts for other government entities in 2004, when the General Assembly passed a law expanding the department’s collection powers. Previously, the department collected child support and judicial fees for executive branch agencies.
The department now collects debts for 19 state agencies, said spokesman Glenn Waldrop. Those efforts have generated about $28 million in collection fees, he said.
In the lawsuit under appeal, Lexington attorney Doug Richards sought a ruling against UK HealthCare on behalf of a former patient, whose paychecks were being garnished for bills she should not have received, he said.
Fayette Circuit Judge James Ishmael ruled UK could not refer debts to the revenue department because of recent state Supreme Court decisions that found state universities are not directly part of the executive branch of state government because they are operated by independent governing boards.
Richards has filed another lawsuit requesting class action status for hundreds more UK HealthCare patients affected by the collections.
Who uses the Department of Revenue?
The Kentucky Department of Revenue collects unpaid debts for the following state entities:
▪ Kentucky Community Technical College Systems
▪ University of Kentucky Healthcare
▪ Morehead State University
▪ Northern Kentucky University
▪ Kentucky Higher Education Assistance Authority
▪ Western Kentucky University
▪ University of Kentucky
▪ Eastern Kentucky University
▪ Murray State University
▪ Kentucky State University
▪ Department of Medicaid Services
▪ Kentucky Board of Nursing
▪ Kentucky Labor Cabinet
▪ Office Of Financial Institutions
▪ Crime Victims Compensation Board
▪ Cabinet for Health and Family Services
▪ Office of Legal Services
▪ Department of Insurance
▪ Department of Parks Motor Vehicle Commission