Lifting an Exasperating Veil

May, 2024

Washington —  This week Harvard Education Press is publishing Lifting the Veil on Enrollment Management, by Stephen J. Burd, editor.  The provocative subtitle is How a Powerful Industry is Limiting Social Mobility in American Higher Education.   It is a remarkable book, putting a spotlight on little-known college admission and financial aid practices that are devastating to the cause of equal opportunity and to the finances of needy families nationwide. 

My contribution to the effort is a chapter on the role of federal student aid in abetting the worst of the industry's practices, along with identifying expeditious remedies available under current law.  Other authors offer longer-term remedies that I support, but which, unfortunately, are unlikely to be enacted and implemented soon, if ever.  Time is of the essence: many current practices threaten financial ruin for students and families, especially this year with the uncertainty around FAFSA delays.  Moreover, the colleges engaging in these practices may themselves be unable to sustain them, and fail.  

My chapter makes the case for the Secretary of Education to send program review teams to selected institutions, fundamentally to determine if their largely covert enrollment management practices complement the purposes of Title IV of the Higher Education Act, or if they countervail them.  If the latter, the Secretary would use his powers under existing law to limit, suspend, or terminate the schools' participation in Title IV federal student aid. 

Among other issues, program reviewers would look specifically for (1) practices of aid packaging and leveraging that undermine federal aid, (2) deception or coercion of parents to apply for loans, and (3) disproportionately bad outcomes for students and families as viewed by race by income.  Institutions would have an opportunity to modify their practices before Title IV participation is cut off.  

Other remedies are available through consumer litigation.  Some of the practices could (and should) be challenged by class action or false claims lawsuits, especially those that violate the terms of multiyear promissory notes, transparency requirements, and misrepresentation prohibitions.  Violations are rife. 

Three federal agencies need to coordinate their efforts on litigation.  The Department of Education, the Consumer Financial Protection Bureau, and the Department of Justice have often been working at cross purposes.  DOJ has been especially obstructionist in how to address bad practices, seeing the issues only from an antitrust standpoint, rather than in terms of de facto civil rights violations.  Peter Schmidt's and Catherine Bond Hill's chapters should be eye-openers for DOJ.

I hasten to add that recent litigation may offer hope.   A 2022 private class action lawsuit, alleging that enrollment management practices at seventeen institutions violated the Sherman Antitrust Act, was quickly supported by a statement to the court from DOJ, because the practices at these institutions, DOJ agreed, amounted to collusion to increase the net price of college for the lower income.  But that also describes the net effect of the entire enrollment management industry very well.  The lawsuit, now in settlement, even notes the work of Don Hossler in making its case.  Hossler appears with a chapter in Lifting the Veil and his work, among others',  may offer a bridge to close the distance between agency interpretations. 

The need for federal agencies to get on the same page is urgent.  Chapters by Stephen Burd and Beth Zasloff illuminate the issues at the school and family levels.  Their chapters are infuriating to those of us who have been watching the self-inflicted descent of American higher education for too many years, with its attendant hypocrisy regarding race and class.  If anyone is still in doubt about what has been going on, who has been doing it and why, the chapters from Neil Swidey, Jon Marcus, Ozan Jaquette (with Karina Salazar and Patricia Martin), Kevin Carey, and Jerome Lucido spell it all out.  

May this book turn things around, and quickly.


Student Financial Aid Application Woes

May, 2024

Washington — Here is a critical analysis that will seem familiar to those struggling with a FAFSA student financial aid application form:   

Complicated application process

Most are aware that the ... applications are pretty confusing and complicated. The forms try to cover every conceivable case, making them extremely long and complex.

Depending on what the prospective student indicated on the initial forms, supplementary sheets might have to be filled out to provide further information. Because of this, most applicants need an average of 5 hours to complete the ... application and 99% of them arrive incomplete....

[The application] is heavily criticized because the forms can be difficult to understand and ... there are slow processing times due to a large volume of applications. [Emphasis added]

The above quotation is not a critique of FAFSA, however, but of the application for Germany's grant and loan program known as Bafög.  Clearly, the U.S. Department of Education's application form troubles are not unique. 

But our U.S. application system has been further complicated by an attempt to simplify it, without fully appreciating how fraught that might be from both substantive and procedural standpoints.  Simplification introduces inequities.  Procedurally the changes are proving to be a nightmare.  

Some of us have been advocating for years that the whole federal student aid system needs fundamental overhaul, to rethink the role of states and institutions, to build redundancy into higher education access, and to question the very purpose and existence of the FAFSA monster that is now devouring its creators. 


Re-Visiting the Rural Rage Controversy

April, 2024

Lincoln and Washington —  Last month, when I wrote a mixed review of White Rural Rage, an important but flawed book about rural America, I had no idea that so many other readers would likewise find serious shortcomings in it.  

First, there were complaints from scholars who claimed their own works had been distorted by the authors.  Then high-profile publications weighed in with their own critiques, exemplified by The Atlantic's "An Utterly Misleading Book About Rural America." 

Some of the critiques are guilty of piling-on.  The book may be flawed in multiple ways but its subject and message must not be overlooked.  Its subtitle, "The Threat to American Democracy," is only too true.  Critics themselves are often missing the main flaw of the book: the authors are short on solutions.  

Pointing this out, and offering more insights per paragraph than the authors and critics combined, is Farah Stockman, from an unlikely source on rural realities, the New York Times.  She provides new survey data that confirm what many of us know to be true, that there are many rural voters who would be receptive to Democratic candidates, and a return to two-party competition, if only Democrats would show up and engage on rural issues.  

What issues?  She names several.  Those of us with a long presence deep in the heartland know many others, festering unattended from decades of rural abandonment by both political parties.  Going after rural voters would seem to be an obvious Democratic political strategy, given these new survey data.  

Let blinkered disputes about the book subside and more exhilarating work begin, toward real engagement with rural America.


White Rural Rage, Reviewed

March, 2024

Lincoln and Washington —  White Rural Rage: The Threat to American Democracy, a new book by political scientist Thomas Schaller and journalist Paul Waldman, is such worthy documentation of the current state of rural collapse in America that a dozen copies of it should be placed in every rural library across the country. 

That is, if any such libraries are left.  The same goes for other places where people might read it: schools, nursing homes, doctor's offices.  Rural America has been hollowed out.  Some rural denizens, who will see the book as a slur on their character, will instead offer the book as kindling for an American Bebelplatz.  

The book deserves our most solemn attention.  The authors' impressive collection of statistical evidence and anecdotal information is frightening, even if sometimes presented as over-generalization.  Societal dysfunction is leading to authoritarianism and violence across a culture.  Most helpful is a technical note to understand the statistics, "What We Mean When We Talk About 'Rural'."

Also helpful is an up-front acknowledgement that many will dismiss the book as the biased product of two "coastal cosmopolitans."  Indeed, more should have been done to allay such concerns.  The book, for all its strengths, is regrettably weak in citing authoritative and readily available rural sources like the policy-oriented Center for Rural Affairs and the rural journalist nonpareil Art Cullen.

A book like this should likewise not have omitted mention of key moments in the demise of rural America.  Richard Nixon's Secretary of Agriculture Earl Butz told farmers "get big or get out," accelerating depopulation. His blunt directive was representative of decades of federal Farm Bills that wiped out generations of family farms in favor of corporate agriculture.  Later, other countries' reactions to Donald Trump's misguided imposition of tariffs hit rural America hardest.  Trump's plundering of Commodity Credit Corporation funds to send welfare checks to producers to make up for it has turned farm country into a federal vassalage.  Columnist Alan Guebert tells these sad tales from the deep heartland as few others can, and references to his work would have dispelled the book's coastal cosmopolitan bias. 

Another omission is an explanation of how the rural communication networks established by land grant universities have become conduits for the spread of rural rage.  The Cooperative Extension Service, established by the Smith Lever Act to convey university research, never completely cut its former ties to the Farm Bureau, a powerful interest group aligned with corporate agriculture and monopolies.  To many, they are still synonymous, or at least compatible in outlook.  Trump relies heavily on the Farm Bureau to do his business in the heartland.  

The most striking omission in the book becomes apparent as readers surely scream at virtually every page, "So what is anybody doing about this!"  There are few if any anecdotes about Democrats' efforts to counter the authoritarian Republican takeover.  Instead, in chapter after chapter, the disproportionate influence of rural areas in our constitutional system, especially in the Electoral College and the Senate, is highlighted and blamed.  The question of why Democrats don't compete in rural areas, if this is where the most consequential votes exist, is not seriously addressed.  

A reason for this may be that one of the authors once advocated that Democrats could safely give up on winning votes in the South, which in many places heavily overlaps with rural.  It is a strategy that national Democrats have pursued nationwide — essentially giving up on rural voters and trying to rely on identitarianism to win.  Many rural Democrats have fought this abandonment intensely, and lost.  Their anecdotes are sorely missing from this book.  It's long past time to name the names responsible. 

In the final chapter, remedies for white rural rage are offered but they are not convincing.  Nobel laureate Paul Krugman reviewed the book and concluded that the demise of rural America was inevitable and the situation is fundamentally hopeless.  Neither is true, but that is not an erroneous reading of the book, sadly. 

The authors end with hope that a movement with a better vision of the future will be created.  But just who would lead this movement is a big blank.  The authors do not develop a case along the way that a change in Democrats' strategy, or courageous leadership from the nation's land grant universities, or less counterproductive Farm and Food Bills could show the way.  Actually, those three in combination could make a huge difference.  

Maybe a quick second edition could overcome these shortcomings?  That's a scream and a plea.     

Reject the Proposed Price-Fixing Settlement

January, 2024

Washington — Because it is one of the largest, most-consequential higher education lawsuits in recent memory, federal Judge Matthew F. Kennelly should not approve an unbalanced, unfair, and secretive settlement proposed by the plaintiffs and several defendants in Henry et al. v. Brown.  The much-disputed class-action case deals with price-fixing to raise the net price of attendance for the financially-needy at seventeen prominent institutions.*  

The settlement as proposed shortchanges student victims, represents a victory for the "enrollment management" industry at the expense of transparency in higher education finance, and thoughtlessly ignores the interests of taxpayers.   

Consider, for starters, this proposed provision: 

By [DATE], Settlement Class Counsel will move for an award of attorneys’ fees not to exceed 1/3 of the Settlement Fund, plus any accrued interest, reimbursement of litigation costs and expenses not to exceed $12,000,000 and service awards of up to $20,000 for each of the eight Settlement Class Representatives to be paid out of the Settlement Fund. If the Court grants Settlement Class Counsel’s requests, these amounts would be deducted from the Settlement Fund.

Because the proposed settlement fund is now $118 million and growing, attorneys fees will amount to over $39 million, in addition to up to $12 million in costs and expenses, or $51 million.  The victims of price-fixing in the affected class are expected to be awarded only $750 each.  And the eight named settlement class representatives will each get up to $20,000, or about .0004 (less than one-half of one percent) of the amount awarded to counsel.  Although counsel's work is commendable in routing out collusive institutional behavior, the case was notably assisted by a statement of the U.S. Department of Justice and an investigation by the New York Attorney General.   

Those who have followed this case will notice that the named representatives have changed somewhat since its original filing.  This may be the result of standing issues or because the representatives and their families were targeted for investigations themselves by the defendants.  If the latter, the awards do not adequately compensate the representatives.  One can only imagine what plaintiffs' families may have been subjected to, although Judge Kennelly seems to have mitigated the worst of it.   

Consider next the matter of transparency, which is being intentionally abandoned in this proposed settlement.  The defendants will not have to disclose any of their price-fixing methods (behind which there is a large consulting industry) and will be able to claim that they have committed no wrongdoing.  But was there wrongdoing?  What exactly defines price-fixing?  Is the public (let alone the regulators) supposed to guess?  Judge Kennelly, in denying an early motion for summary judgement against the plaintiffs, wrote this about the "enrollment management" methods at the heart of the case: 

The plaintiffs allege that ... the defendants ... purposefully "maintain a shroud of secrecy over" their enrollment management practices to avoid legal scrutiny.  Id. ¶¶ 157–58.  The evidence the plaintiffs cite is more than sufficient....   [Emphasis added]

Discovery in this case was extensive, the result of two years of "hard-fought litigation," according to the settlement proposal.   So what was discovered that is worth $118 million to cover up?  The schools must find something hugely threatening to be willing to pay such amounts to prevent the public from seeing what they (and their consultants) have been doing to drive up net price for those who can least afford it.  The amounts speak for themselves.  "Varsity Blues" pales in comparison.   

But also consider that several of the defendants have not yet agreed to settle and may be willing to go to trial to exonerate themselves.** This is also plausible.  I have spoken with many financial aid administrators at other colleges who have told me of internal struggles over the methods at issue.  (These methods are not limited to seventeen elite institutions but are in play at hundreds if not thousands of other schools.)  Not always have the price-fixers won out.  Among other reasons, the use of these methods often has a disproportionately adverse effect on minority populations, which when employed would give lie to institutional pronouncements supporting racial diversity and equity.  All of which may explain why some schools will go to extremes not to let the public see what is behind their decision-making.  

Consider next the interests of taxpayers in this case and its proposed settlement.  All of the schools involved are non-profit 501(c)3 institutions that encourage and receive tax-deductible contributions.  Such amounts are often referred to as "tax expenditures" in public finance.  If and when these funds are used in a settlement to deprive the public from understanding what goes on in financial aid offices behind closed doors, it is a misuse of the funds.  As a donor, I do not want my contributions paying for cover-ups.  

Additional concern:  does the proposed settlement also involve a supplemental agreement beyond the "merits" settlement, by which the class representatives are prohibited from disclosing any of the discovered materials?  Such non-disclosure agreements should be fully disclosed and the representatives made fully aware of the burdens being put on them.

I hope Judge Kennelly raises all of the above issues and considers what good might come of the case if the public interest is placed front and center.  Among those who need to know what is legal and what is not are financially-needy families and well-meaning counselors and advisors who try to inform them.  Imagine future "college nights" at high schools where families are told honestly what to watch out for in college financial aid packages, and how not to become victims of enrollment management price-fixing at any school they choose to attend, public or private.  

This case will have a good outcome only if it ultimately results in less reliance by the financially-needy on student and parent loans.  It will have a bad outcome if it merely shuffles hundreds of millions of dollars among the educational and professional gilt-edged.  Judge Kennelly can make a good outcome happen by requiring a better settlement.  

______________________________

* Plaintiffs alleged that seventeen universities "violated the antitrust laws by agreeing on a common formula and common principles regarding financial aid, and by exchanging competitively sensitive information concerning financial aid principles, formulas, and pricing."

** Settling defendants: Univ. of Chicago, Vanderbilt, Yale, Columbia, Emory, Duke, Brown, Rice.  Other defendants: Cal Tech, Cornell, M.I.T., Penn, Dartmouth, Georgetown, Notre Dame, Johns Hopkins, Northwestern.  

Civil War Echos in a Puzzling Name Choice

December, 2023

Lincoln — Looking recently into the family tree, I came across the name Abel McClellan Wimer, born 1869, son of John Elias Wimer (1837-1907) and his wife Sarah Margaret Moyers (1847-1937).  They lived in Otoe County, Nebraska, in the 1880s and later homesteaded around Dalton in the Nebraska panhandle.  John Elias Wimer was a former Confederate soldier, a member of a horse artillery unit of the 7th Virginia Cavalry.  He is a first cousin of mine, four generations removed, through his Zicafoose mother. 

So why did he name his first born son with Sarah Moyers, also from a Confederate family, after a Union general, George McClellan?  

The connection could possibly have been through his first wife, Jemima Lamb, daughter of Noah W. Lamb. She had died in 1867; her father was a Union supporter, at least by the end of the war. 

Noah Lamb is also my cousin, three generations removed, through his Simmons mother.   I first came across him in an April, 1865, letter from Union Captain John Boggs to the West Virginia governor asking for the governor's help in returning several head of Noah Lamb's horses to him after they had been stolen by the Elza gang, known as the Dixie Boys.  Boggs attested to Lamb's character and loyalty to the Union.  

This is ironic, because Lamb on his Simmons side descended from slaveowners, while Wimer on his Zicafoose side did not.  

Which is not to say Lamb's whole family was loyalist.  Noah Lamb's son, who bore his father's name, apparently joined the Confederate army, if his 1924 obituary is to be believed.  The obituary cites, in the overblown 'lost cause' language of the time, the son's gallantry as a Confederate cavalryman in the Shenandoah Valley.  Civil War records show a Noah Lamb serving in the 58th Virginia Infantry, which fought there.  

After the war, young Noah married Susannah Wimer, sister of John Elias Wimer, and moved to Coffey County, Kansas.  His neighbor there was Peter John Wimer, another Wimer sibling.  Susannah died in Kansas in 1871.  Noah moved back to West Virginia and married Mary Ann Zicafoose.  Peter moved back to Virginia after being in legal trouble and died in 1908 in a poorhouse in Rockingham County.  John Elias Wimer eventually left Nebraska for Louisiana and then California, where he is buried with a marker indicating his service to the Confederacy.  

Little of this explains the naming of Abel McClellan Wimer (1869-1904).  It could have been a gesture somehow to heal family rifts and to move on from the war.  It could have been out of bitterness towards Abraham Lincoln (McClellan ran against Lincoln for president in 1864).  It could have been for something McClellan did early in the war, such as exchanging and freeing captured Confederates from Pendleton County.  It could have been simply in the tradition of the time to name babies after famous people; a later son was named after Grover Cleveland.  

It's an unsolved mystery; maybe something will turn up that explains the unusual naming.  

Abel McClellan Wimer (1869-1904)

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Correction:  In a previous version of this post, the elder Noah Lamb was identified as having served in the Union Army.  That is likely to have been another person of the same name.  Addition: a reader of this blog from West Virginia writes that other childen of the time were also named after McClellan, as a way to show disapproval of Lincoln.  

FAFSA Delays Are Only Part of the Problem

December, 2023

Washington — A bipartisan group of thirty-seven U.S. senators recently wrote urgently to the Secretary of Education, troubled by a delayed rollout of the latest version of the Free Application for Federal Student Aid (FAFSA).  The new version permits an additional 1.5 million financially-needy students a maximum Pell Grant.  The senators wrote:

While the simplified FAFSA is meant to provide more students with federal student aid, we fear the most vulnerable students will be negatively impacted by these delays.

I asked a score of higher education experts not about the delays, but perhaps more importantly about how much the new FAFSA would actually help the financially needy once it is implemented.  They demurred, knowing that it is one thing to increase grant awards, but it is quite another to know how students' entire financial aid packages will look as a result.  

Many colleges prepare the aid packages behind closed doors.  They often see advantages for themselves in adding loan burdens onto students and parents by shuffling fungible grant aid away from needy students to meet institutional goals of enrolling students at the least possible cost to themselves, and not one dollar more.  Increasingly, this is being done by AI. 

Buyer beware. 

One of the worst "awards" in a financial aid package is a federal Parent Direct PLUS loan.  It is so bad that many colleges will not, on ethical* grounds, include such a loan in an aid package.  But thousands of colleges do.  The application is simple and the warning signs in the loan application are easy to miss.  

Here are three quotations to watch for in the application process if you are a parent and a college encourages you to borrow Parent Direct PLUS.  

• "Loan Amount Requested:  For each academic year, you may borrow up to—but not more than—the school's cost of attendance, minus the amount of other financial assistance received."

Beware:  An alert consumer will recognize that the amount of the loan proceeds to be paid to the college can be raised by the college itself by reducing the amount of "other financial assistance received," much of which is under the college's own control.  Institutional grant aid is often used as a strategic tool for exactly these purposes; federal SEOG and state grant programs may also be fungible.  Note that the college has every reason to maximize parent borrowing because it is the recipient of loan proceeds while bearing none of the risks of default. Parent Direct PLUS loans are a cash-cow for colleges that chose to exploit families for their own benefit.  Too many students drop out under the weight of family debt.

• "To qualify for a Direct PLUS Loan, you must not have an adverse credit history. If the credit check shows that you have an adverse credit history, we will explain how you may still be able to qualify for a Direct PLUS loan."

Beware:  Colleges often advise parents, even if parents believe they will not pass an adverse credit check, that they should apply for Parent Direct PLUS because if they are turned down, their students will be classified as independent and will be eligible to borrow more in their own right.  However, parents should know that the credit check, performed by contractors of the U.S. Department of Education, was weakened in 2014 through negotiated rulemaking under pressure from colleges, so parents may find themselves qualified in spite of believing they cannot afford to repay.  Moreover, even those who fail can qualify if they claim "extenuating circumstances" or get a co-signing sponsor.  Incentives for abuse abound.     
   
• "Before you can receive a Direct PLUS Loan, you must complete a Direct PLUS Loan Master Promissory Note (Direct PLUS Loan MPN), which explains all of the terms and conditions of Direct PLUS Loans and is your legally binding agreement to repay all Direct PLUS Loans you receive under the Direct PLUS Loan MPN."

Beware:  Colleges often congratulate parents on qualifiying for Direct PLUS "awards" before parents understand that the interest rates for such loans are much higher than for other federal student loans and that origination fees are also much higher.  They do not advise parents that they have a right to know, under federal regulation [34 CFR § 668.42 (b)(3) and (4)], if they were targeted behaviorally and demographically by a college's AI algorithm as meeting criteria for Direct PLUS packaging, let alone how that algorithm was developed.  Also, parents are almost surely unaware that the Parent Direct PLUS is the only federal student loan that makes money for the U.S. Treasury, which creates an incentive on the part of policymakers not to look closely at what thousands of colleges are doing to put families into debt from which they may never recover.   

Note to Congress and to parents:  The links below provide a primer on these issues.  After you read them, you may wonder if all this is actually legal.  It's a good question.  Manipulations and deceptions by colleges may violate consumer protection laws; price-fixing may be involved if one subscribes to a recent statement of the Department of Justice about universities that covertly and systematically withhold institutional grants from financially needy students. 

An overview: https://opportunityamericaonline.org/wp-content/uploads/2017/04/THE-U.S.-MAKES-IT-EASY-FOR-PARENTS-TO-GET-COLLEGE-LOANS—REPAYING-THEM-IS-ANOTHER-STORY.pdf 

Defaults: https://www.newsweek.com/2021/07/30/parent-loans-fraught-peril-default-rates-hit-20-30-percent-many-colleges-1610943.html 

*Ethical issues: https://www.nasfaa.org/news-item/26254/Parent_PLUS_Loan_Packaging_Comes_Under_Scrutiny ["And the problems plaguing the program over the years have been well-documented. Numerous reports have identified issues and potential solutions, ranging from a lack of strict federal standards on the loans to the fact that there are no measures in place to hold institutions accountable who encourage parents to borrow beyond their means."]

Algorithms and AI:  https://www.brookings.edu/articles/enrollment-algorithms-are-contributing-to-the-crises-of-higher-education ["The prevailing evidence suggests that these algorithms generally reduce the amount of scholarship funding offered to students. Further, algorithms excel at identifying a student’s exact willingness to pay, meaning they may drive enrollment while also reducing students’ chances to persist and graduate."]

Algorithms and debt:








The Causes of National Student Loan Dysfunction

November, 2023

Washington — Is the nation's long-running student loan imbroglio a failure of program implementation or are its causes more deeply rooted in decades-old structural contradictions and counterproductive incentives that doomed loan programs from the start?  

It is a mistake to attribute too many of the failures to faulty implementation.  Wrong turns in policy choices, especially in 1972 and 1996, created conditions that even the best implementation efforts cannot overcome.

The Higher Education Act of 1965 established federal student aid programs within a structure of cooperative federalism.  College Work Study (CWS), Education Opportunity Grants (EOG), and National Defense Student Loans (Perkins Loans) required state and institutional participation through fiscal federalism mechanisms such as matching and maintenance-of-effort requirements (also known as "skin-in-the-game").  Guaranteed Student Loans (GSL) had no such requirements, but it was envisioned as a minor bridge program to fill gaps in other coverage.  

The Nixon administration upset this approach by proposing two new programs in a unitary government structure, through which the federal government provided all funding and administration with no required state or institutional buy-ins.  Basic Education Opportunity Grants (BEOG) were established in the Education Amendments of 1972, along with a national secondary market (Sallie Mae) to expand the GSL program.  

Unsurprisingly, states and institutions began to prefer the programs that made no demands on them and lobbied Congress accordingly.  However, the Reagan administration soon shifted the balance of student aid funding away from BEOG (renamed Pell Grants in 1980) toward GSL (renamed FFEL in 1992).  By the mid-1990s, FFEL loans became far and away the major source of student financial aid. 

In 1996, Sallie Mae and several state-established FFEL secondary markets proposed for-profit* status for themselves, touting market forces as good for student loan efficiencies.  The Clinton administration and Congress acceded.  The result, however, was to prioritize the interests of stockholders over the interests of borrowers.  

In 2001, the Bush administration appointed lobbyists associated with for-profit secondary markets and for-profit colleges to high positions in the Department of Education.  Lending again exploded in a wild-west atmosphere because both the program structures and incentives were aligned to facilitate it.   

The Great Recession of 2008 required Congress to step in to save student loan secondary markets through ECASLA legislation and in 2010 Congress ended the scandal-plagued FFEL program by originating all new federal student loans through a Direct Loan program, which uses Treasury rather than private capital for the loans.   

These changes, however, did not address underlying structural and incentive issues, nor did various efforts to ease repayment burdens on borrowers, which unfortunately have complicated student loan administration and become tangled in litigation.  Attempts at increased regulation of the programs conceived in the unitary government model have, likewise, been mired in controversy for years. 

Recent headlines suggest that student loan servicing issues — borrowers can't even get through to their servicers — are the result of a failure of the Department of Education and its contractors to apply digital age technology correctly.  That may be true, and a better approach** must be sought.  But even the best technology cannot repair programs structurally misaligned with their goals and riddled with perverse incentives. 

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*Sallie Mae was already for-profit, but as a regulated Government Sponsored Enterprise (GSE). 

**Jennifer Pahlka, in Recoding America: Why Government is Failing in the Digital Age and How We Can Do Better (2023), offers many compelling case studies and much good advice.  Her focus, however, is on program implementation, not on program structures and incentives.  She does not, unfortunately, offer analyses of federal student aid programs.  

Crackdown Welcome, but Decades Too Late

October, 2023

Washington —  Welcome news from the U.S. Department of Education:  it is finally cracking down on student loan servicers that are failing in their responsibility to borrowers.  Federal funds under contract will be withheld from servicer MOHELA for its many serious transgressions.  Other servicers have been put on notice.  

Unfortunately, it comes years and even decades too late.  Had borrowers been better protected from faulty servicing over the years, many would not find themselves in the kinds of repayment crises that now justify billions of dollars of outright loan cancellations.  Which the department is slowly but methodically making.   

I have a hypothesis that I believe is worthy of exploration:  servicers that have somehow been held to account for their behavior over the years have victimized far fewer borrowers than those that have not experienced accountability sanctions.  In the former group are those that either cleaned up their performance or dropped their federal contracts.  In the latter group are those whose bad behaviors were overlooked or even indulged by the Department of Education and the Department of Justice, ultimately at great cost.  

A new report by the CFPB ombudsman included the graphic below (click to enlarge) that appears to support the hypothesis, if read over time.   Navient was eventually held to account by CFPB litigation; PHEAA was held to account by the Massachusetts attorney general.  Both were further undone by U.S. Senate hearings in 2021.  But holding Navient and PHEAA to account came too late for many borrowers.  These two servicers were able to hold off accountability for decades, due in part to the revolving door of personnel who rotated between the servicers, federal offices, and key staff positions in Congress. 

Accountability came earlier for several servicers who had to suffer the consequences of making false claims in their role as lenders in the early 2000s.  In response to qui tam litigation, they either undertook serious reforms to regain credibility (and earn greater servicing volume) or went out of business.   But those consequences were not initiated or administered by the Department of Education, which sent unsubtle messages to servicers like Navient and PHEAA — and MOHELA — that lax oversight would continue as far as it was concerned.  Even false claims against taxpayers did not have to be repaid, under a Bush administration decision carried out by Secretary Margaret Spellings.   






With the new, tougher stance of the Department of Education comes an invitation to those with knowledge of violations to report them. See footnote, below.*  Before praising the department for this initiative, however, it should be pointed out that if more information on these subjects were published by the department, more people could offer insights on servicing problems and solutions.  For example, it would be good to know how much of the federal loan portfolio is principal, interest, capitalized interest, fees, negative amortization, etc.  Even estimates would be helpful.  Nor is it too late to take the long-neglected advice of student loan expert Tom Butts, who has called for the department to open up competition for student loan servicing to include experienced home mortgage and credit card servicers. 

A closer look is also overdue to determine why and how so many borrowers took on so much debt in the first place, particularly those who wouldn't have, and shouldn't have, but for being manipulated into it by postsecondary institutions and their vendors, consultants, and contractors.  A good place to start is with New America's Kevin Carey, whose provocative 2022 article ("The Single Most Important Thing to Know About Financial Aid: It’s a Sham") compares student financial aid packaging at many institutions to airline ticket pricing.

The comparison is apt.  It raises the question of how federal student aid programs, which are supposed to be helping those with financial need, got transformed into life-ruining debt burdens for literally millions of citizens.  Was the Department of Education not aware of this?  Has it done anything to stop the exploitation? Are revenue-maximizing, data-driven algorithms imposed over federal programs even legal?  (I would like to see a case brought against the worst practices.) Are Navient (dba Sallie Mae) and PHEAA now establishing an even wilder private student loan market to make up for their losses of federal servicing revenue?  

The problem is not just with one department that is not up to the job of taking on the nation's student loan behemoths.  The U.S. Supreme Court itself found, last June, that a theoretical loss of federal student loan servicing income at MOHELA, which in turn might somehow affect the state of Missouri, gave Missouri new-found standing to oppose a loan cancellation plan of the Biden administration, and to prevail.  The result:  the very servicer making errors requiring remediation was protected by the high court, not the borrower victims. 

As if this were not convoluted enough (and tragic for many families, including parents who took on heavy debt for their children), Congress is not funding the legitimate needs of the servicers to correct errors and be more responsive to borrower rights under law.  There are some in Congress who apparently want to see the entire loan system collapse, for political reasons.  Despite the accountability measures finally being applied to MOHELA by the Department of Education, the general outlook for borrowers looks bleak.  

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"As part of its ongoing effort to identify and respond to misconduct by institutions in the Title IV programs, the Office of Enforcement, in November 2022, began to invite knowledgeable sources to submit tips and information about potential violations. FSA welcomes information from current or former employees, students, vendors, or contractors of postsecondary institutions; third-party servicers; third-party lead generators; and any other individuals with knowledge of potential violations. Knowledgeable sources may submit relevant tips and information by visiting Ed.gov/FSATips or emailing FSATips@ed.gov."

No One Looks Good in Prison Deal

September, 2023

Lincoln —  Seldom is a public policy deal struck that does not have winners somewhere along the way, but the recent state prison siting agreement on 300 acres north of Lincoln may be one.  No one is looking good; fingers are pointing; conspiracies abound.  

The cause of transparency in government was dealt a blow from both the state and the city.  Citizens had no warnings about what was going on.  Suddenly the state announced a new prison was to be built at North 112th and Adams Streets in northeast Lincoln, and that it had already paid landowners $17 million for 305 acres, or about $56,000 per acre.  When nearby residents revolted, the site was switched to another location north of I-80 that was already owned by the city, but which the city had previously said was not available.  The city gave it up and got the Adams street property in exchange, but with vaguely defined strings that it would pay for improvements at the new alternative  site.  The fait accompli was hastily announced at a press conference.  

The rule of law may also have been dealt a blow.  Statutory procedures are supposed to govern such transactions.  If the state was acting under its eminent domain authority, there should have been public notice and an independent appraisal of the property.  

The cause of affordable housing lost out, too.  Imagine what landowners will think their agriculture-zoned property is worth if the state itself is paying $56,000 per acre.  Will taxpayers now have to subsidize developers even more to increase Lincoln's affordable housing stock? 

Neighborhood comity evaporated quickly, when north Lincoln residents complained that this would never have happened to south Lincoln.  And those near the final site asked why they had no voice at all in the matter. 

Ethnic and racial divides widened as Native Americans watched how quickly the city acted to move the prison away from a location next to a largely white, middle-class neighborhood, compared to their own constantly thwarted attempt — even through the city's board of zoning appeals — to protect an indigenous peoples' spiritual site in an environmentally fragile area near Wilderness Park.

Conservationists watched to see if anyone was aware how the prison site at 112th would degrade Prairie Pines, an important prairie and woodland natural habitat next door.   It was seldom mentioned.  

Penal reform advocates, who wanted to reduce prison populations as a part of prison construction considerations, lost a chance to make their arguments.  

Political analysts of all stripes, especially those with an eye for real or imagined conspiracies, widened already yawning gaps with declarations of who got the better of whom in the land deal.  Some said the state cleverly planned it all beforehand to force the city's hand on the property the state wanted in the first place.  Others said the city got the better deal because it wound up with a property to sell off, probably at a profit of millions at the needless expense of state taxpayers.

Was there a way to avoid all of this?  Questions remain as to why the city, or at least the city's state legislative delegation, did not press the state to explain the authority under which it was acting, and if the authority was eminent domain, to follow public transparency and appraisal requirements. 

Is there a way to move forward to remediate some of the damage done?  Yes.  The situation calls for a review by an outside, independent third party to determine how public transparency was avoided, at what cost.  

The city could recover considerable credibility if it were quickly to commit to an open and transparent process to evaluate options on its newly acquired Adams Street property.  The city's own comprehensive plan calls for a buffer around natural resources like Prairie Pines; so does its climate action plan.  Its new local food plan might be a good fit with some of the property.  Sales of portions of the property could be used to fund conservation easements to protect other natural resources, including remaining parcels near the controversial development near Wilderness Park.  Prompt and proper appraisal of the Adams Street property would put a damper on wild land speculation around Lincoln that hurts the cause of affordable housing.  

Most of all, state and local governments must let citizens have a say.