Farm Bill in Trouble, As It Should Be

May, 2018

Lincoln -- Today the U.S. House of Representatives voted down the 2018 Farm Bill, but for the wrong reason: the House Freedom Caucus wanted a vote on immigration first.

Republicans have now gone on record that they would rather play politics on immigration than pass the Farm Bill for rural America. Apparently it is a calculation that Democrats are so weak in rural America that Republicans can neglect heartland voters with impunity, and get by with it. They may be right, as Democrats have shown no savvy in crafting their own version of the legislation that would signal a return to political competitiveness in the heartland.

This particular Farm Bill, let it be noted, deserves to be voted down on its own accord, politics aside. It is a remarkably bad bill. The non-partisan National Sustainable Agriculture Coalition offered this:

“This bill is an insult to the American family farmers and rural communities who are responsible for putting food on our families’ tables each night,” said Greg Fogel, NSAC Policy Director. “For over 30 years, our coalition has been fighting for a stronger, more sustainable and equitable food and farm system – and we’ve seen real progress being made. Congress has advanced many important issues in recent years, including efforts to strengthen working lands conservation and increase support for beginning farmers and ranchers. The farm bill before the House today, however, will go down in history as being one of the most anti-farmer bills ever seen.It is a shame that the bill drafters have thrown away the bipartisan legacy of the farm bill, and instead chosen to provide unlimited subsidies to mega-farms, undermine rural entrepreneurship and make it more difficult for farmers to access new markets, and decimate our natural resources by cutting support for working lands conservation programs and eliminating the Conservation Stewardship Program completely. We sincerely hope that Members will do the right thing this week, and vote on this bill."

NSAC is right, which raises the question of how Nebraska House members Don Bacon, Adrian Smith, and Jeff Fortenberry could have voted for it. It should be an albatross around each of their necks in November.

I expect Kara Eastman, the new Democratic nominee in Nebraska's second congressional district, will be all over Bacon for his vote for this insult to farmers. Bacon beat Brad Ashford in 2016 with strong support in rural areas around Omaha, but is this the Farm Bill those rural voters will support? Not if they know what's in it.* Bacon has no excuse for it, as he is even a member of the committee that brought the bill to the floor.

*H.R. 2 has also been panned by a multitude of conservation and rural-advocacy organizations, including the National Farmers Union and the Nebraska-based Center for Rural Affairs. Organizations on the right of the political spectrum don't like it either: Heritage Action for America, The Club for Growth, and FreedomWorks said in a letter, “The House Agriculture Committee farm bill, which is expected to be debated on the House floor in May, is unacceptable." Religious groups have also weighed in: “Providing food for those suffering from hunger is central to our Christian faith. The United Methodist Church understands this call not simply as a matter of charity, but of responsibility, righteousness, and justice,” said the Rev. Dr. Susan Henry Crowe, general secretary of the United Methodist Church General Board of Church and Society.

Academic Program Cuts at UNL

April, 2018

Lincoln -- The UNL chancellor has announced cuts to several academic programs in response to the Nebraska legislature's reductions in university appropriations. The fact that the reductions could have been much worse should not take attention away from the implications of the new rollbacks.

In a previous post, I suggested that the governor and the legislature should be demanding more from the university to help the state's agriculture sector, as opposed to trying to cut appropriations as a way to prosperity. The UNL college of agriculture should be a particular focus.

It is therefore not a good signal that the chancellor's first cut is to eliminate the Rural Futures Institute, launched in 2012 to considerable fanfare. Unless, of course, the RFI interdisciplinary approach to reviving rural Nebraska has not measured up and indeed should be on the chopping block. My sense of RFI is that it has had an impossible task given national and state trends in agriculture. On top of that, its approach was too much cheerleading and not enough sober assessment of the fundamentals of rural economies as they now exist given failing national agriculture policy.

Another cut that raises eyebrows is the downsizing of the Survey Research and Methodology Program and a concomitant re-arrangement of funding for the department of statistics. At a time when the integrity of academic research is threatened as never before by funding sources who want to skew findings favorable to their interests, universities need strong efforts in research methodology and statistics.*

The other cuts are more understandable. Universities must constantly update, which requires cutting as well as adding. Sometimes funding pressures can actually be good for institutional renewal.

The chancellor doubtless was tempted to cut the English department, as it has been attacked by a few in the Nebraska legislature who do not approve of its curriculum. Commendably, he did not succumb.

I must relate an anecdote about English teachers from two days ago, when I attended the annual Ron Ridenhour awards ceremony at the National Press Club in Washington, sponsored by the Project on Goverment Oversight. Ridenhour was a courageous Vietnam veteran and reporter who first chronicled the My Lai massacre, fifty years ago. His eyewitness source was Army helicopter pilot Hugh Thompson, who stopped the massacre by use of force against his fellow servicemen who were committing it. After Hugh Thompson left the Army he sought guidance about whether he should participate in a cover-up of the massacre. His old Boy Scout leader and his old football coach advised him to stay quiet. His English teacher told him of his moral duty to speak up. We are a better country for that English teacher.

* If any statistics faculty are losing their jobs, they could get a measure of poetic justice on their way out the door by instructing the chairman of the board of regents and the president of the university about how to calculate and describe percentages. Both the chairman and the president, during this year's budget battle with the legislature, claimed that UNL administrative costs were "125% lower" than such costs at peer institutions in other states. Meaning what, exactly? That they were less than zero? The actual numbers, it turns out, are these: UNL, $52 million; peer group, $117 million. The former is not "125% lower" than the latter. Correctly expressed, one can say the peer group is 125% higher than UNL, or UNL is 44% of the peer group. The same error was made in describing UNO against its peer group, claiming that it was "100% lower." Again, meaning what, that UNO had no administrative costs whatsoever? What was meant, apparently, is that UNO costs are 50% of its peer group, or its peer group is 100% higher than UNO; that is, twice as high. UNO is not "100% lower." This is embarrassing for a research university.

Two 'Debficits'

April, 2018

Lincoln -- The Nebraska Legislature is adjourning without providing property tax relief, further stressing the hard-pressed agriculture sector. The state budget simply can't sustain even the paltry amount half-heartedly offered by the governor. Now the state is facing a voter referendum on property taxes that may throw the state into fiscal chaos not seen in decades.

At the federal level, the Congressional Budget Office has just projected this year's federal deficit to exceed one trillion dollars, with many more such deficits projected far into the future. This is a huge reversal in the fiscal condition of the federal government, which in recent years had actually been cutting deficits.

These two dangerous conditions would not have developed had elected officials – one in particular – only abided by basic tenets of fiscal responsibility.

At the state level, when times were momentarily flush for agriculture, and when state revenues were growing nicely in 2011 and 2012, the legislature took a portion of the sales tax base and dedicated it to highway construction. This was a risky move as it violated a commonly accepted principle of public budgeting and finance: user taxes should pay for roads and sales taxes for general government. Rather than raising gas taxes, which for many years had been declining as a percentage of gas prices and construction needs, the legislature took tens of millions of dollars annually away from sales tax revenue, a textbook source of local property tax relief. The predictable happened: the farm economy faltered, land prices did not decline commensurately, and the state became crippled, unable to respond to the property tax crisis squeezing Nebraska's all-important agriculture sector.

At the federal level, Congress passed an unfunded tax bill in December of 2017, followed by a huge spending bill in early 2018. The combination is sending the federal deficit to unprecedented and dangerous levels.

One elected official has been instrumental in all three acts of breathtaking fiscal irresponsibility: Deb Fischer. As a state senator, she led the raid on the state sales tax base, which should have been preserved for property tax relief. As a U.S. senator, she voted for both the tax bill and the spending bill, sending the annual federal deficit over a trillion dollars.

Her name is now synonymous with deficits at both state and federal levels. Henceforth in Nebraska the word "deficit" should be called "Debficit."

It is no wonder that Deb Fischer has many challengers this election year, and that her re-election chances have been declining somewhat. Particularly in the Third District she may be weaker than many people assume. Nebraskans in this district especially want property tax relief and want their candidates to support federal fiscal responsibility, if not outright balanced budgets. Deb Fischer has a terrible record on both.

Demanding More from NU Investment

April, 2018

Lincoln -- The 2018 Nebraska legislative session is over and the University of Nebraska budget escaped with only relatively minor cuts. The governor and several state senators had wanted much deeper reductions, given state government's bleak revenue outlook.

A question was tossed my way when I was in Lincoln during the session: as a person who once worked on such matters for many years, would I cut the NU budget?

The short answer is no, but I would demand more from the university in areas crucial to Nebraska's future. Let me explain.

A case can be made that Nebraska spends more on higher education compared to other states and, therefore, cutbacks might be in order, especially in times of state revenue shortfalls. But a case can also be made that Nebraska ranks high as a good place to live and that its overall educational system is among the top ten in the country.

I'd venture that there is some level of causality at work here, not just fortuitious correlations. Nebraska's investment in higher education may be somewhat high, but so are the returns.

Looking at the Nebraska economy, we see the Omaha and Lincoln urban areas doing well. I think it's reasonable for the university – UNL, UNO, and UNMC – to take a considerable measure of credit for it. The engineering and business colleges, the professional schools of medicine, dentistry, law, and pharmacy, and especially the departments in the arts and sciences that do the heavy intellectual lifting, should be recognized for their roles in this good fortune.

Rural Nebraska is another story, however. The agricultural sector is doing poorly and is responsible for the state's revenue woes. Which raises the question of the responsibility of the state's college of agriculture.

Of course it's not just Nebraska's ag economy that is suffering; the nation's whole farm belt is in crisis. So it's hardly fair to target one college for falling short, let alone single it out for budget cuts.

Rather, I believe, more should be demanded of this college, and of other such colleges of agriculture across the country at land-grant universities. What does it take to get the agricultural economy healthy again? This should be the burning question at both the Nebraska statehouse and at the university.

And is it even appropriate to think in terms of making Nebraska agriculture "healthy again"? The state's rural areas (and its towns and cities) have been depopulating for decades. Some say it is unavoidable and inevitable; others say it is the legacy of the ag economists who were the hand-maidens of those who would turn agriculture from a way of life for many into a business opportunity for few. I lean toward the latter explanation.

There is a way out. At last the spell of Earl Butz ("Get big or get out") is being broken by those who recognize the promise of new, emerging markets. See, for example, Harvesting Opportunity by the Federal Reserve Bank of St. Louis, which sees substantial local and regional market potential. The "feed the world" school of thought has also been dealt a blow by the NYT series on world obesity; to what end has American agriculture's "fencerow to fencerow" production been put? The answer to that does not bode well for the current Nebraska agricultural economy, but it may stimulate moves toward nutrition-based rather than calorie-based production, which would be good for all of us, here and abroad.

At a minimum, Nebraska legislators and taxpayers should be looking to the state's agriculture college and demanding a Plan B based on Nebraska's own comparative advantages of land, water, and human resources. Agronomists trying to squeeze another bushel of yield out of corn or Extension agents instructing farmers in the use of dicamba are not going to solve the sector's problems. In fact, they may worsen them. Bolder thinking is in order.

It's long past time not to slash away at the university's budget indiscriminately, but to demand more from our investment, especially in agriculture-related areas.

Readers' Reactions and Questions

April, 2018

Lincoln and Berlin -- This blog admittedly jumps around with regard both to its geographical perspective ("Three Capitals") and its subject matter. I am often taken by surprise myself at what can pop up as a topic at any given time.

Contacts with readers are important determinants of the varied subjects of these blog posts. For example, several readers have appreciated the recent six-part Iron Triangle series; likely there will be more such.

Today's post takes note of recent, unexpected but welcome reader questions about posts from a few years ago.

One reader, having read my post about Edith Schwartz Clements, wanted more information about her. Several exchanges later, I was delighted to see two new references (here and here) to the pioneer ecologist's remarkable life and work.

This was not the first time I was contacted about Edith Clements, as another reader's curiosity helped lead to an excellent Wikipedia entry about her. This led to yet another short biography of Edith Clements, who is finally getting recognition long overdue.

Another reader, a New York publisher, having read my posts about the books of Gretchen Klotz Dutschke, recently asked for her contact information. Gretchen, a good friend who knows Germany as no one else possibly can, has a new book out that made its appearance last month at the Leipzig book fair. I hope that putting the publisher in touch with her will soon lead to a book in English for an American readership.

As noted in the author profile sidebar (above), I welcome comments and questions from researchers and others with an interest in the subjects covered in this blog. It is especially gratifying to have had questions that led to a wider appreciation of noteworthy people like Edith Schwartz Clements and Gretchen Klotz Dutschke.

Iron Triangles VI

April, 2018

Washington -- Fifty Massachusetts state senators and representatives asked the Massachusetts Education Finance Authority (MEFA) a good question. Why is the state agency MEFA paying dues to the National Council of Higher Education Resouces (NCHER), when NCHER is working in Washington to undermine consumer protections for Massachusetts' student loan borrowers?

MEFA quickly dropped out of NCHER. The state senator who first posed the question was gratified with the response and expressed the hope that MEFA's action would create a cascading effect across the country. Indeed, why are these state-associated agencies, created ostensibly to help students, so intent on undermining state consumer protection efforts?

The letter to MEFA and its attachments have to be read to be believed. Hats off to the teacher organization that defended the interests of former students, now teachers, who are being victimized by sloppy if not fraudulent student grant and loan servicing in the federal TEACH program. I'd not call NCHER a secretive organization of "zombies," as the AFT did, but if that's what it takes to make the point that thousands of teachers' lives and careers are being disrupted, so be it. Click on this report from National Public Radio to get a sense of how teachers have been betrayed. The Washington Post has also noted the problem, with a good explanation of the financial motivations involved.

To observers of Iron Triangle behavior, however, this development is no surprise. See previous Iron Triangle posts, Parts I - V. NCHER is an arm of the student loan industry. Its president, James Bergeron, has been in the revolving door of government and industry for many years, coming to the organization after working in another corner of the triangle, committee staff in the House of Representatives. Bergeron's letter to the Department of Education on behalf of NCHER, proposing to do away with state consumer protection for student loan borrowers, was sent to Kathleen Smith, who has had a career in all three triangle corners.

The Bergeron letter is of special note because it reprises a tactic used once before by its predecessor organization, NCHELP, to great industry advantage. It attempts to leverage the Department's Office of General Counsel into its cause, without actually having any determination that Department counsel agrees with the industry position.

In the 1990s, the Department of Education made a decision that student loans transferred by loan holders from one bond estate to another would retain the same federal taxpayer subsidy it earned when originally funded. This was done to prevent gaming of subsidies by moving loans around among different funding sources. At the time of the determination, interest rates were fairly high. The Department's concern was that lower subsidy loans might be moved to bond issues with higher loan subsidies, resulting in a big windfall for the loan holder if the old subsidy rate didn't accompany the loan. An NCHELP representative, Sheila Ryan, raised a question with OGC about what would happen in a low interest environment if older, higher subsidy loans were moved to new funding sources but retained the same subsidies, and the proceeds of such transactions were used to refill the old, high subsidy funding source and to fund yet more high subsidy loans. She said the Department should write rules anticipating that scenario or, preferably from NCHELP's viewpoint, drop the attempt to stop loan holders from moving loans around among bonds.

The Department did not take such action, because it did not have to. Existing rules already covered the situation: proceeds of such transfers were not qualifying sources under the law for the higher subsidies. Nevertheless, Sheila Ryan took her experience of having merely discussed the issue with OGC as license to advance a scheme to make money at federal taxpayers' expense. When interest rates plunged after 9/11, she teamed with Lawrence O'Toole, a former colleague, to form Aurora Consulting. They offered their consulting services to a for-profit lender in South Dakota, Student Loan Finance Corporation (SLFC), with the condition that if the lender would move loans around among bonds as they prescribed, Aurora Consulting would get a kick-back percentage of the additional taxpayer subsidies.

Sheila Ryan-Macie, under oath in a trial in December, 2017, confirmed that she had no document from the Department of Education indicating that it agreed with her that there was any shortcoming in the regulations. In fact, in 2007, the Department's OIG and OGC had determined that the Aurora Consulting scheme, like that of several other student loan holders, was simply illegal. SLFC repaid some of its ill-gotten gains in 2012 in a settlement, but the re-payment represented only a relatively small percentage of the millions of dollars it took illegally from taxpayers. Aurora Consulting repaid nothing.

Sheila Ryan-Macie is now chief of staff at Navient, a for-profit student loan servicer that has been sued by the U.S. Consumer Financial Protection Bureau for failing to protect the interests of student loan borrowers at every step of the lending and collection process. She is responsible for company strategy.

As for NCHER, it is going back to the same playbook, hoping for another outcome that is not based on law but what it would like the law to be. A 2016 OGC determination, attached to the Massachusetts legislators' letter to MEFA, confirmed the longstanding rule that student loan servicers must comply with state as well as federal law. NCHER's action represents a shameless exploitation of borrowers and taxpayers made possible by the recent emergence of another Iron Triangle at the Department of Education. It may work: the 2016 OGC letter is apparently being ignored or circumvented*, as was the law when Aurora Consulting and others were making their money in the previous decade. When an Iron Triangle is in place, mere law does not stop the victimizing of borrowers and taxpayers.

Two recent lawsuits brought by student loan borrowers have alleged racketeering under RICO, the Racketeer Influenced and Corrupt Organizations act. One was settled without dealing with the racketeering charge, the other was denied for "lack of particularity" as to racketeering.

Someone's not looking hard enough.

* Secretary of Education Betsy DeVos is attempting to preempt state law. See previous posts. Twenty-six state attorneys general, Democrats and Republicans, have challenged the move. Massachusetts Attorney General Maura Healey reacted: “Secretary DeVos can write as many love letters to the loan servicing industry as she wants, I won’t be shutting down my investigations or stand by while these companies rip off students and families."

Couldn't Have Said It Better

March, 2018

Washington -- The New York Times is as perturbed as I am about the Betsy DeVos attempt to preempt state laws on consumer protections for student loan borrowers. The attempt is downright unconstitutional.

At a hearing Tuesday in the House of Representatives, Secretary DeVos was at a loss to explain who made the decision to try to preempt. She could have said "I did," but that would not be true. She is the instrument of the governing Iron Triangle, but that is also not something to admit. See Iron Triangle, Part V, as to how the decision came about.

The Sunday NYT editorial:

Education Secretary Betsy DeVos made clear even before taking office last year that she was more interested in protecting the companies that are paid by the government to collect federal student loan payments than in helping borrowers who have been driven into financial ruin by those same companies.

Ms. DeVos’ eagerness to shill for those corporate interests is apparent in a craven new policy statement from the Education Department. The document claims that the federal government can pre-empt state laws that rein in student loan servicing companies if such a law “undermines uniform administration of’’ the student loan program.

This legally baseless policy statement could easily have been written by the servicers, who will no doubt use it as a smoke screen when they are sued by states for using deceptive practices. The statement clearly is intended to intimidate state legislatures across the country that are considering proposals to curb well-documented abuses by this industry. Curbs are already being applied in California, Connecticut, Illinois and the District of Columbia, where loan servicers are required to have state licenses and submit to state regulation.

The servicers are working on the legislative front, too, pushing a particularly destructive House bill that would pre-empt the right of the states to oversee companies that originate, service or collect student loans — essentially neutralizing reforms that are underway across the country.

The loan servicing industry’s longstanding failures came into sharp focus three years ago when an analysis of consumer complaints by the federal Consumer Financial Protection Bureau found that some companies were pushing struggling borrowers toward default — which essentially ruins their financial lives — by giving them misinformation, by making it difficult for them to refinance their loans and pay lower rates, and by withholding information about affordable payment plans.

Among other things, borrowers reported that servicers sometimes applied a larger portion of a borrower’s monthly payment to a lower-interest loan, so as to leave a higher-interest loan with a larger balance. By keeping the borrower in debt longer, the companies could make more money. Beyond that, student rights advocates argued plausibly that the servicers’ business model relied on getting borrowers off the phone as quickly as possible, leading customer service employees to suggest payment options that could be explained quickly but that were sometimes not in the borrower’s interest.

These findings showed that the servicers were aggravating the student debt crisis, unfairly driving up debts that could dog student borrowers into their retirement years, when they are least able to make good on their debts.

Last year, the Consumer Financial Protection Bureau and the attorneys general of Illinois and Washington State filed lawsuits against Navient, the country’s largest student loan servicer, which handles roughly one in four student borrowers. The federal lawsuit contended that the company had failed borrowers at every step of the repayment process and was particularly remiss when it came to enrolling distressed borrowers in income-based repayment plans, under which monthly payments can fall to zero.

The Massachusetts attorney general has sued another loan servicer, the Pennsylvania Higher Education Assistance Agency, charging that it mismanaged a program under which students were entitled to have their loans forgiven after 10 years in public service occupations like nursing, social work, policing and the military. Earlier this month, a state court in Massachusetts ruled that the case could go forward, despite the Trump Justice Department’s claim that the federal Higher Education Act pre-empted the state’s right to sue the servicer, which is under contract to the federal government.

What’s striking is that the Education Department released the pre-emption statement even after leading regulatory experts had condemned the idea as harmful and legally unsustainable. Earlier this month, the Conference of State Bank Supervisors, which represents regulators in all 50 states, shredded the legal arguments behind the pre-emption idea, pointing out that education officials were not empowered to strip the states of their traditional — and primary — authority over debt collection and other aspects of the financial services industry.

Beyond that, a bipartisan group of 25 state attorneys general warned in a strongly worded letter last fall that the department could not legally abridge powers that the states have long had to protect citizens from fraudulent business practices. Last week, an even larger group of attorneys general warned against the pre-emption bill pending in the House, which they said would block the states from combating fraud and abuse in the student loan industry. At a time when student loan debt has soared to nearly $1.4 trillion, the attorneys general said, the federal government should be working hand in hand with its state partners — instead of trying to sideline them.

The pre-emption statement shows the extent to which the Education Department has been captured by an industry it is meant to regulate. Fortunately, state regulators have made clear that they will continue to prosecute servicers that violate state law — and will challenge the federal government in court if it tries to interfere. Meanwhile, the dangerous pre-emption legislation pending in Congress deserves to die a swift death.

Secrertary DeVos Goes Too Far

March, 2018

Washington -- According to excellent reporting by Michael Stratford at Politico, Secretary Betsy DeVos is trying to stop Department of Education employees from communicating with their counterparts in the legislative branch.

In particular, she is forbidding all communications except those that go through the Office of Legislation and Congressional Affairs (OLCA), and she is breaking up the department's Budget Service by transferring its employees to other units of the department.

Three observations are in order.

First, I can speak from direct personal experience on the matter, as I was once the gatekeeper at OLCA for all communications, in the realm of higher education, between department employees and the Hill. This necessarily included budget and fiscal matters. This did not mean, however, that there couldn't be direct communication between, for example, the Budget Service and the appropriations committees'staffs, or the Congressional Budget Office (CBO). It only meant OLCA would be kept the loop. I always encouraged as much direct communication as possible. If something came up that might be a problem, then OLCA would get involved.

Second, the action by DeVos to move the division responsible for cost estimation and analysis to the Office of Federal Student Aid (OFSA) demonstrates that DeVos wants a tight grip on this particularly sensitive subject area. OFSA, which was established two decades ago to be a "performance based organization" headed by a professional administrator (with a term overlapping political administrations) has now become a political instrument of the Secretary. OFSA is a reliable component of iron triangles controlled by outside interest groups. (See earlier posts on iron triangles, Parts I through V.)

Third, it is important to note that there are limits to what DeVos can do to stop communications between federal employees and the legislative branch. Federal employees have every right under the Lloyd-Lafollette Act to share information without interference. They do not lose their rights as citizens and taxpayers just because they are federal employees. This is particularly true when it comes to matters of mismanagement, waste, fraud, and abuse.

Fourteen years ago, working in the Department's National Center for Education Research (NCER), I observed fraud and abuse taking place in the student loan program and tried to stop it through regular departmental channels. Then, as now, the department was in the grip of an iron triangle and did not want to hear about it. I therefore sought advice from the department's Office of Ethics about how I might bring this to the attention of others outside the department in order to stop it. The answer was the Lloyd-LaFollette Act. Here, from my records, is a notification I gave to NCER that I was working on ending an illegally claimed subsidy in the student loan program:

I am gratified that others beyond the Department have valued my findings. I have continued my work under the guidance of the Office of Ethics, which has advised me that, on my own time as a citizen and taxpayer, I am free to conduct analyses independent from my duties as a federal employee. This office has also advised me that under the Lloyd Lafollette Act (5 USC 7211), "The right of employees, individually or collectively, to petition Congress or a Member of Congress, or to furnish information to either House of Congress, or to a committee or Member thereof, may not be interfered with or denied." Accordingly, I have assisted the Government Accountability Office with their September, 2004, report on 9.5 subsidy abuses as well as Congress on both the Taxpayer Teacher Protection Act of 2004 and the newly introduced Student Loan Abuse Prevention Act of 2005.

Many federal employees, if they read this, will be surprised to know that they have such rights. Secretary DeVos, of course, is not going advise departmental employees that this option is available to them. But it is. And if this attempt at suppressing the flow of information from the department to the Congress in any way involves evidence of mismanagement, program abuse, waste of taxpayer funds, racketeering, and the like, then it is the obligation of federal employees to speak up and to exercise their rights.

Let the information flow.

Iron Triangles, Part V

March, 2018

Washington -- Secretary Betsy DeVos's attempt to claim exclusive federal jurisdiction over student loan servicing has hit more roadblocks. States are not about to back away from consumer protection efforts to assist the legion of aggrieved borrowers who have been wronged by the loan servicers.

• The Conference of State Bank Supervisors has written to oppose the move: "This effort at preemption by regulatory fiat runs counter to the Congressionally mandated state-federal balance in financial regulation and exceeds the Department’s authority."

• In the state of Washington, legislation is moving ahead to create a Student Loan Bill of Rights, modeled after those implemented in other states.

• A state court has permitted the Massachusetts Attorney General to proceed with her lawsuit against a student loan servicer, PHEAA, also known as Fed Loan Servicing and AES. The court, we are gratified to note, cited this case twenty-six times: United States ex rel. Oberg v. Pennsylvania Higher Educ. Asst. Agency, 804 F.3d 646, 676-677 (4th Cir. 2015), cert. denied, 137 S.Ct. 617 (2017).

Twenty-five state attorneys general wrote the Secretary to oppose preemption. The AGs pointed out that the attempted preemption is fundamentally illegal and unconstitutional.

• A legal scholar has called the preemption attempt "not itself a law, it's essentially a glorified press release."

From the standpoint of political science and public policy, this preemption attempt must be viewed as another in the ongoing series of Department of Education's actions consistent with Iron Triangle behavior. See previous posts on Iron Triangles, as found in the right column of these pages, especially Part I, which identified the role of the Education Finance Council. This lobbying organization was instrumental in creating an Iron Triangle in the Department from 2002-2006, and is eager to re-establish another for the benefit of its members.

An EFC letter of June, 2017, suggests the preemption attempt. It not only asks Secretary DeVos to preempt states, but also to preempt "the public" from imposing on federal student loan servicers, an apparent reference to borrower lawsuits and civic organizations that support them.

Note to whom the letter was copied: Department officials Matthew Sessa, Kathleen Smith, and James Manning. Sessa is a former PHEAA employee. Kathleen Smith, a former PHEAA employee and also a former EFC director, took action two months later to terminate the Department's agreement to share information with the Consumer Financial Protection Bureau, which had received tens of thousands of borrower complaints against loan servicing contractors.

James Manning in 2007 relieved PHEAA of having to pay back over $100 million in false claims against taxpayers. Although Manning in the same decision found that these claims were indeed illegal (as determined by the Department's lawyers at OIG and OGC), that finding was treated by PHEAA as inconsequential. A PHEAA official, testifying in November, 2017, said of the Manning 2007 letter, "We got the joke."

Returning now to the department from her several years of work for for-profit colleges (see Part II) is Diane Auer Jones, who was Assistant Secretary for Postsecondary Education at the time of the 2007 Manning letter and would have been in the position to approve what PHEAA called the joke. She will have no trouble fitting once again into the latest Iron Triangle iteration (see Part IV).

So far, Secretary DeVos apparently has been given pause by all the objections, from coast to coast, to her preemption plan, as she has not issued it. But because all the parts of an Iron Triangle are in place, thanks to the revolving door between industry and government, a way to protect the loan servicers from the public and the states will be likely be found, and soon. Iron Triangles are all about the use of power; they are oblivious to matters of federalism, good policy, legality, and in this case, even constitutionality.

Ironic and Misguided Preemption*

March, 2018

Washington -- The Trump Administration's Secretary of Education, Betsy DeVos, is about to attempt federal preemption of laws and regulations pertaining to student loan servicing.

This is at the request of the servicers, who do not want to deal with state consumer rights laws and especially with state attorneys general, who seek to protect their citizens from improper and downright shoddy loan servicing.

The servicing is so bad that several states have taken legal action against Navient and PHEAA, two of the major servicers. So has the federal Consumer Financial Protection Bureau, in the case of Navient. Borrowers individually are losing thousands of dollars (and millions collectively) to servicer incompetence, manipulation of regulations, and sometimes outright deceit about whose interests they represent, not to mention inept Department of Education oversight.

Read the CFPB charge against Navient, to get the flavor of the issues.

There is not much hope that the Department of Education can right the regulatory ship, or is even trying to. For all practical purposes it has been sunk irretrievably into the mud of conflicts of interest and abuse of recusal. The top managers at the Department come right out of the industry the Department is supposed to be regulating.

The irony is that the Trump Administration, and its supporters in Congress, often tout the benefits of state rather than federal administration. This is not one of those cases. This preemption is all about making bucks off the powerless, and taking away borrower remedies.

The reason this preemption attempt is misguided, and should fail when tested in court, is that the states are often trying only to enforce federal laws and regulations on the servicers. Unless there is a conflict between state and federal laws, the supremacy clause of the U.S. Constitution, upon which preemption arguments are based, is not an issue.

The case that has precipitated the DeVos preemption attempt is Massachusetts Attorney General Maura Healey's suit against PHEAA. Massachusetts alleges servicing violations contrary to both Massachusetts law and U.S. law. Inasmuch as the Massachusetts consumer protection standards are somewhat different than federal standards, the U.S. Department of Justice has filed a memorandum in the case taking note. But there is nothing in the memorandum that suggests the Attorney General is prevented from protecting her borrowers from servicing that violates federal law. Indeed, Massachusetts cites violations of the U.S. Code as a basis for the lawsuit.

It would be a mistake to try to justify preemption over the totality of student loan servicing based on an exception rather than the rule.

Even if this misguided attempt at preeption should succeed, there is still a role for state consumer protection offices in student loan servicing. Borrowers themselves have the right to sue all the major student loan servicers, and states can help their consumers navigate the process. A good public policy remedy for borrower abuse would be for state consumer protection agencies to act as clearinghouses and assistance centers for class action and other direct borrower actions.

* Minutes after this was posted, a Massachusetts court ruled that the Healey suit against PHEAA could move forward, citing the reasons expressed above.