December, 2017
Washington -- It's time once again to visit the subject of "iron triangles," self-serving arrangements among lobbying groups, legislative staff, and government agency administrators that lead to waste, fraud, abuse, and corruption in government.
A previous post identified an iron triangle that was created in 2002 involving officials at the U.S. Department of Education, the lobbying organization Education Finance Council (EFC), and Congressional staff. It resulted in illegal payments in the hundreds of millions of dollars to student-loan lenders; it compromised the integrity of loan servicers, which continues to this day. Current lawsuits by state attorneys general and the Consumer Financial Protection Bureau against two of the nation's largest servicers, Navient (formerly Sallie Mae) and PHEAA (also known as American Education Services or Fed Loan Servicing), are part of this dubious heritage.
Another iron triangle has formed in 2017 between the for-profit college lobby group Career Education Colleges and Universities (CECU), officials at the U.S. Department of Education, and Congressional staff in both the House and Senate. Its goal is to increase the flow of federal dollars to for-profit colleges, institutions with often dismal records when it comes to students but wonderful institutions when it comes to making money for owners, administrators, and stock-holders at the expense of federal taxpayers.
The goal is being achieved by repealing regulations on the for-profit colleges that require them to provide training that leads to gainful employment; by making GI Bill recipients (veterans) special recruiting targets for such schools despite their poor records with veterans; and by moving student-loan fee money through non-profit organizations to support the for-profit purposes of the colleges. Accomplishment of the goal will be abusive of taxpayers and tragic for students and families whose lives may be ruined by excessive and unpayable student loans.
As is customary with iron triangles, there is a revolving door between the industry, the government agency, and the legislative staff. In the latest case, upon being named Secretary of Education, Betsy DeVos* soon employed advisors and administrators from the for-profit colleges.
Three in particular stand out: Taylor Hansen (directly from CECU), Robert Eitel (directly from troubled Bridgepoint Education and before that from Career Education Corporation, a school chain repeatedly under investigation from the FTC, SEC, and multiple state attorneys general for defrauding students), and Julian Schmoke (formerly of DeVry University, which in 2016 paid $100 million in fines for cheating students and taxpayers).
Congressional staff with 2017 oversight responsibility over the Department of Education are employed by Congresswoman Virginia Foxx of North Carolina and Senator Lamar Alexander of Tennessee, both of whom have been supported in election contests by large political contributions from the for-profit college sector. Key staff have been in the revolving door for years, having served in the Department of Education previously as well as in the college interest groups. The head of the lobbying organization CECU, Steve Gunderson, is himself a former congressman who served on the House committee with oversight responsibility.
Especially noteworthy are the connections between the 2017 iron triangle and its 2002 predecessor, which broke up in 2005 (with considerable help from the Inspector General):
• Bill Hansen, Deputy Secretary of Education from 2001 to 2002 and a key revolving door figure in the creation of the earlier iron triangle, was also instrumental in setting up the right conditions for creation of the 2017 triangle. In 2002, he led an effort to relax regulations on for-profit colleges through the creation of so-called safe-harbors. The safe-harbors were ways that for-profit colleges could get around the probibition against paying recruiters based on how many students they enrolled (college-ready or not) and how the colleges could avoid being kicked out of federal programs by paying small fines for any transgressions (creating a moral hazard in favor of wrongdoing by minimizing the consequences).
• Sally Stroup, a key figure in the 2002 iron triangle, was employed for several years by ex-Congressman Gunderson at the for-profit school lobbying association. In between, she returned to the House Committee staff after leaving the Department of Education as Assistant Secretary, then worked for Bill Hansen as counsel for a company he headed, Scantron.
• Taylor Hansen, brought on quickly to advise Secretary DeVos in her transition to Secretary, is the son of Bill Hansen. The elder Hansen, by 2016 the head of a student-loan guaranty agency known as Strada (formerly USA Funds), had recently lost a Supreme Court decision** over the issue of charging borrowers excessive fees. Coincidently with the son's being hired by DeVos, the new Secretary reinterpreted the regulation offensive to the father, mooting the Supreme Court decision. Although several Senators quickly demanded an explanation from DeVos about the Hansen connection, the son just as quickly left his Department of Education post after the deed was done.
The connections don't stop there. The excess fees collected at Strada, a non-profit, were used in part to fund contributions over the years to other "non-profit" entities, like Steve Gunderson's lobbying organization, an association working to enhance the fortunes of those operating for-profit schools. Strada's very highly paid executives are in a revolving door with for-profit institutions, Senate staff, and the Department of Education.
The 2002 iron triangle resulted in illegal payments of federal taxpayer dollars to student-loan lenders. It was finally brought under control after many years with a net loss to taxpayers of around $600 million. But are any of the activities of the 2017 triangle actually illegal, as were those of the 2002 triangle? The 2017 triangle may smell rotten, with an ugly provenance, and it certainly looks corrupt, but so far no one has done anything about challenging the legality of the 2017 triangle's activities.
(In the case of the class action suit against USA Funds, the plaintiff charged racketeering under RICO, the Racketeer Influenced and Corrupt Organizations Act. She and other were awarded $23 million in a 2016 settlement, but USA Funds has maintained that there was no wrongdoing on its part and the racketeering charge has disappeared.)
Breaking up the 2017 iron triangle should be an objective for the reauthorization of the Higher Education Act in 2018. Congress could move student loan servicing out of the triangle-vulnerable Department of Education, which cares little about borrower abuse, in favor of collecting loan repayments through the IRS at Treasury, following the successful model of several other countries. Congress could also recall funds from loan guaranty agencies, as it did in the reauthorization of 1998, to prevent them from being misused as in the Strada example. By all means, Congress must eliminate the fiction that GI Bill funds are not federal funds under the so-called 90-10 rule, so as to protect veterans from exploitation by sub-par schools. Congress should also put more of its student financial aid resouces into "cooperative federalism" programs, where states and institutions have more of an interest in policing student financial aid, because it is partly their money. Some in Congress talk boldly about requiring states and institutions to have more "skin in the game," but the action Congress has taken so far is in the other direction, killing Perkins Loans and threatening to kill SEOG, both cooperative federalism programs that require skin in the game.
In view of the fact that twice in this century the Department of Education has been captured by interest groups it is supposed to regulate, Congress needs to rethink its student financial aid programs to make it more difficult to establish iron triangles. There are many ways to do this if Congress has the will, and if voters are paying sufficient attention to what its elected officials are up to.
________________________________________
* Not coincidentally, stock prices of for-profit colleges went up with the naming of Betsy DeVos as Secretary.
**On May 16, 2017,the Supreme Court denied certiorari.
UNL, Conservatism, and the Alt-Right
December, 2017
Lincoln -- Many years ago our family had a pet dog. My wife found him as a puppy in Arizona on an Indian reservation while she was attending a community college there as a German foreign student. We thought of him as an "Urhund," with lines perhaps going back to coyotes and dingos.
When people asked what kind of dog he was, suspecting a mongrel, I answered definitely not, that he was a special dog, incorporating the very best traits of several different breeds. He lived a long, healthy, happy life.
So it is with many, if not most, people's political views. People often are not pure-bred liberals or conservatives, but can be conservative on some issues and liberal on others. And even proud of it. It makes for a healthy body politic.
Which is why the current, right-wing and alt-right effort to describe the University of Nebraska-Lincoln as a place hostile to conservatives is misguided. Just as there are individuals who comfortably hold both conservative and liberal views, so too do institutions have departments with faculty of both persuasions. Many of those faculty are themselves reconciled to holding competing ideological views internally, being human like everyone else.
Moreover, anyone who knows UNL well, knows that conservatism is deeply embedded in the institution.
• The Board of Regents is customarily dominated by conservatives; presidents and chancellors are picked for their compatibility with conservatism, if they are not always outright conservatives themselves.
• The institution is a land-grant university with a long tradition of close ties to agri-business interests. The Cooperative Extension Service of the university has never totally broken off from the Farm Bureau, the most conservative of agricultural interest groups.
• The UNL East Campus layout is now oriented around large, imposing, well-executed statues paying homage to four conservatives who served as U.S. Secretaries of Agriculture: Clayton Yeutter, Mike Johanns, Clifford Hardin, and J. Sterling Morton. Yeutter was also chairman of the Republican Party; Hardin served in the Nixon Administration; Johanns was a Republican governor and senator. Morton, famous tree-planter, was a Bourbon Democrat and, truth be told, a Copperhead-sympathizer and racist. He published The Conservative magazine for four years in an ideological battle with William Jennings Bryan's The Commoner, which was unabashedly progressive.
• On the UNL City Campus, the social science departments are engaged in battles over the epistomological virtues of quantitative versus qualitative methodologies, which are argued with more passion than old-hat liberalism versus conservativism. The English department makes an effort at so-called Social Justice studies, associated by some* with a liberal, progressive outlook, but there is no statue of Weldon Kees or Grace Abbott in front of Andrews Hall.
• The English department is best known for being the home of the literary journal Prairie Schooner and having a pre-eminent Cather Studies faculty. That would be Willa Cather, Republican, although doubtless her art transcends politics and ideologies. (Now would be a good time to re-read The Professor's House, better to understad the faculty mind.) Not long ago I was in the basement archives of Love Library where my only fellow researcher was mining a rich trove of Cather documents.
• The last time I was in the UNL College of Business, before it moved to its new building, I was approached by young representatives of Koch Industries, who were handing out green popcorn balls and literature extolling the virtues of the Koch company. If I were a conservative student, perhaps I would feel at home or maybe even a little uneasy about the presence of not just conservatives, but the very source of funding for so much of the alt-right agenda.
The university president, Hank Bounds, and the UNL chancellor, Ronnie Green, deserve commendation for their strong words in defense of the university, replying to the right-wing and alt-right attacks against it for supposedly being hostile to conservatives. Chancellor Green especially has been put in an untenable position for having tried to placate three right-wing state senators who demanded the firing of an English department instructor, a graduate student herself who called another student, in an open forum area, a "neo-fascist" for passing out buttons and shirts with the message "Big Government Sucks." Such language. Makes one long for the days when the Dean of Women would intervene, not members of the Nebraska legislature.
But fire her he did, and now the chancellor is in trouble with the American Association of University Professors and a new right-wing group, FIRE, whose mission is to make campuses safe for free speech, especially alt-right speech. His dilemma and picture are national news, on the front page of The Chronicle of Higher Education.
One sympathizes with the president and chancellor for not being able to speak what must really be on their minds, and that is to tell the three state senators that their talents are badly needed elsewhere. Courage is needed to fix Nebraska's broken correctional system, along with other messes in state code departments directly under their control. And help is especially necessary to get Nebraska out of the cellar economically, Nebraska currently having the nation's worst performing economy. Do they understand that the agricultural sector is failing, and Nebraska state government may be in a revenue crisis for years to come? Or is that happily part of the alt-right plan to starve the beast, the university?
The president and chancellor can't say or ask such things, but how about the UNL faculty? If there was ever a time for faculty to step up, it is now.
________________________
*Social Justice studies, with their attention to identity politics, are not so popular anymore with Democrats and Progressives who lament losing a presidential election, fought in part on identity issues. Others, like me, do not hold justice so high in the heirarchy of values. See earlier post on Justice and Mercy.
Lincoln -- Many years ago our family had a pet dog. My wife found him as a puppy in Arizona on an Indian reservation while she was attending a community college there as a German foreign student. We thought of him as an "Urhund," with lines perhaps going back to coyotes and dingos.
When people asked what kind of dog he was, suspecting a mongrel, I answered definitely not, that he was a special dog, incorporating the very best traits of several different breeds. He lived a long, healthy, happy life.
So it is with many, if not most, people's political views. People often are not pure-bred liberals or conservatives, but can be conservative on some issues and liberal on others. And even proud of it. It makes for a healthy body politic.
Which is why the current, right-wing and alt-right effort to describe the University of Nebraska-Lincoln as a place hostile to conservatives is misguided. Just as there are individuals who comfortably hold both conservative and liberal views, so too do institutions have departments with faculty of both persuasions. Many of those faculty are themselves reconciled to holding competing ideological views internally, being human like everyone else.
Moreover, anyone who knows UNL well, knows that conservatism is deeply embedded in the institution.
• The Board of Regents is customarily dominated by conservatives; presidents and chancellors are picked for their compatibility with conservatism, if they are not always outright conservatives themselves.
• The institution is a land-grant university with a long tradition of close ties to agri-business interests. The Cooperative Extension Service of the university has never totally broken off from the Farm Bureau, the most conservative of agricultural interest groups.
• The UNL East Campus layout is now oriented around large, imposing, well-executed statues paying homage to four conservatives who served as U.S. Secretaries of Agriculture: Clayton Yeutter, Mike Johanns, Clifford Hardin, and J. Sterling Morton. Yeutter was also chairman of the Republican Party; Hardin served in the Nixon Administration; Johanns was a Republican governor and senator. Morton, famous tree-planter, was a Bourbon Democrat and, truth be told, a Copperhead-sympathizer and racist. He published The Conservative magazine for four years in an ideological battle with William Jennings Bryan's The Commoner, which was unabashedly progressive.
• On the UNL City Campus, the social science departments are engaged in battles over the epistomological virtues of quantitative versus qualitative methodologies, which are argued with more passion than old-hat liberalism versus conservativism. The English department makes an effort at so-called Social Justice studies, associated by some* with a liberal, progressive outlook, but there is no statue of Weldon Kees or Grace Abbott in front of Andrews Hall.
• The English department is best known for being the home of the literary journal Prairie Schooner and having a pre-eminent Cather Studies faculty. That would be Willa Cather, Republican, although doubtless her art transcends politics and ideologies. (Now would be a good time to re-read The Professor's House, better to understad the faculty mind.) Not long ago I was in the basement archives of Love Library where my only fellow researcher was mining a rich trove of Cather documents.
• The last time I was in the UNL College of Business, before it moved to its new building, I was approached by young representatives of Koch Industries, who were handing out green popcorn balls and literature extolling the virtues of the Koch company. If I were a conservative student, perhaps I would feel at home or maybe even a little uneasy about the presence of not just conservatives, but the very source of funding for so much of the alt-right agenda.
The university president, Hank Bounds, and the UNL chancellor, Ronnie Green, deserve commendation for their strong words in defense of the university, replying to the right-wing and alt-right attacks against it for supposedly being hostile to conservatives. Chancellor Green especially has been put in an untenable position for having tried to placate three right-wing state senators who demanded the firing of an English department instructor, a graduate student herself who called another student, in an open forum area, a "neo-fascist" for passing out buttons and shirts with the message "Big Government Sucks." Such language. Makes one long for the days when the Dean of Women would intervene, not members of the Nebraska legislature.
But fire her he did, and now the chancellor is in trouble with the American Association of University Professors and a new right-wing group, FIRE, whose mission is to make campuses safe for free speech, especially alt-right speech. His dilemma and picture are national news, on the front page of The Chronicle of Higher Education.
One sympathizes with the president and chancellor for not being able to speak what must really be on their minds, and that is to tell the three state senators that their talents are badly needed elsewhere. Courage is needed to fix Nebraska's broken correctional system, along with other messes in state code departments directly under their control. And help is especially necessary to get Nebraska out of the cellar economically, Nebraska currently having the nation's worst performing economy. Do they understand that the agricultural sector is failing, and Nebraska state government may be in a revenue crisis for years to come? Or is that happily part of the alt-right plan to starve the beast, the university?
The president and chancellor can't say or ask such things, but how about the UNL faculty? If there was ever a time for faculty to step up, it is now.
________________________
*Social Justice studies, with their attention to identity politics, are not so popular anymore with Democrats and Progressives who lament losing a presidential election, fought in part on identity issues. Others, like me, do not hold justice so high in the heirarchy of values. See earlier post on Justice and Mercy.
Oyster Stew at Christmas
December, 2017
Lincoln -- Merry Christmas to all who read this blog. Here outside of Lincoln, Nebraska, four inches of snow cover the native and restored tallgrass prairie. Deer peer into the barn, where I am ensconced, to see a lighted Christmas tree. A fox tries unsuccessfully to get into the barn and out of the cold.
Today some of our family will soon gather at the house, up the hill, for traditional oyster stew. Oysters in Nebraska? Yes, demand for oysters dates back many decades, when barrels of oysters were shipped into the state as much for their shells as anything. Every farmer who raised poultry needed oyster shell. Chickens have no teeth, but must ingest sharp shells or grit stones into their gizzards to grind up food. Oyster shell also supplied calcium for stronger egg shells. Every chicken house worthy of its name had a special trough for oyster shell.
Long ago the family operated Oberg Hatcheries, a small chain of businesses around the state. "Quality Chix since '26" was the motto. The patriarch of that part of the family was George Oberg, now honored in the Nebraska Poultry Hall of Fame.
Happy New Year to all, 2018.
Lincoln -- Merry Christmas to all who read this blog. Here outside of Lincoln, Nebraska, four inches of snow cover the native and restored tallgrass prairie. Deer peer into the barn, where I am ensconced, to see a lighted Christmas tree. A fox tries unsuccessfully to get into the barn and out of the cold.
Today some of our family will soon gather at the house, up the hill, for traditional oyster stew. Oysters in Nebraska? Yes, demand for oysters dates back many decades, when barrels of oysters were shipped into the state as much for their shells as anything. Every farmer who raised poultry needed oyster shell. Chickens have no teeth, but must ingest sharp shells or grit stones into their gizzards to grind up food. Oyster shell also supplied calcium for stronger egg shells. Every chicken house worthy of its name had a special trough for oyster shell.
Long ago the family operated Oberg Hatcheries, a small chain of businesses around the state. "Quality Chix since '26" was the motto. The patriarch of that part of the family was George Oberg, now honored in the Nebraska Poultry Hall of Fame.
Happy New Year to all, 2018.
Breakthrough Against Mercenary Science?
December, 2017
Washington -- The U.S. Senate's refusal to confirm the appointment of Michael Dourson to a post regulating the chemical industry could be a milestone in the effort to deal with mercenary science in academia. Senators on both sides of the aisle could not abide his academic research papers, riddled with conflicts of interest. Much of his research was funded by companies like Monsanto, DowAgroScience, ConAgra, Cargill, and many food processing companies. His research was published in a supposedly peer-reviewed journal, but that journal's credibility has also been in doubt.
TERA was the research center through which much of this activity was funded. It is located at the University of Cincinnati, where Michael Dourson was a professor. Dourson's work is displayed on a university web page. The University of Cincinnati is a public research institution.
One of the most serious problems with Dourson's appointment was his practice of submitting research papers to the industy that paid for them, to allow the industry to review and edit them before they went to a journal for publication.
This is not how academic science is supposed to work. There are theoretically stiff penalties for mercenary science. We'll see what, if anything, happens in this case. Will academe clean house, or have the forces behind mercenary science become so powerful that even universities may not challenge them?
It is not as if this is just an academic dispute. The agricultural chemicals in question are known to cause severe health problems in male agricultural workers; some are sources of groundwater contamination affecting children's brain development.
This is not a new topic for this blog. At my own alma mater, questions about the safety of a herbicide were once inappropriately referred to the manufacturer, Bayer Crop Science. The "Nebguide" in question is no longer posted; I hope my complaint in 2013 had something to do with it being taken down.
Meanwhile, the House Agriculture Committee has posted a new, slick video about the 2018 Farm Bill. It says the bill is all about sustainability in farming and good nutrition, feel-good topics offered to mislead and distract the viewer from the reality of the bill. The House bill is unfortunately more of the same bad policy that has been de-populating rural America for years and has taken a huge toll on Americans' health. The House bill is also oblivious to the mercenary science that has been a part of the problem underlying bad policy. Perhaps the Senate bill can do better by restoring agricultural research* to universities that do legitimate science, presuming some are still in existence.
________________________
* Two issues need urgent, legitimate research, which can be funded in the Farm Bill. One is profoundly frightening, the other potentially a save-the-planet hope. The first is the threat of our food becoming less nutritious as CO2 levels rise. The second is the hope that improving soil health can be a carbon sink like no other previously considered strategy to slow or stop the bad effects of climate change.
Washington -- The U.S. Senate's refusal to confirm the appointment of Michael Dourson to a post regulating the chemical industry could be a milestone in the effort to deal with mercenary science in academia. Senators on both sides of the aisle could not abide his academic research papers, riddled with conflicts of interest. Much of his research was funded by companies like Monsanto, DowAgroScience, ConAgra, Cargill, and many food processing companies. His research was published in a supposedly peer-reviewed journal, but that journal's credibility has also been in doubt.
TERA was the research center through which much of this activity was funded. It is located at the University of Cincinnati, where Michael Dourson was a professor. Dourson's work is displayed on a university web page. The University of Cincinnati is a public research institution.
One of the most serious problems with Dourson's appointment was his practice of submitting research papers to the industy that paid for them, to allow the industry to review and edit them before they went to a journal for publication.
This is not how academic science is supposed to work. There are theoretically stiff penalties for mercenary science. We'll see what, if anything, happens in this case. Will academe clean house, or have the forces behind mercenary science become so powerful that even universities may not challenge them?
It is not as if this is just an academic dispute. The agricultural chemicals in question are known to cause severe health problems in male agricultural workers; some are sources of groundwater contamination affecting children's brain development.
This is not a new topic for this blog. At my own alma mater, questions about the safety of a herbicide were once inappropriately referred to the manufacturer, Bayer Crop Science. The "Nebguide" in question is no longer posted; I hope my complaint in 2013 had something to do with it being taken down.
Meanwhile, the House Agriculture Committee has posted a new, slick video about the 2018 Farm Bill. It says the bill is all about sustainability in farming and good nutrition, feel-good topics offered to mislead and distract the viewer from the reality of the bill. The House bill is unfortunately more of the same bad policy that has been de-populating rural America for years and has taken a huge toll on Americans' health. The House bill is also oblivious to the mercenary science that has been a part of the problem underlying bad policy. Perhaps the Senate bill can do better by restoring agricultural research* to universities that do legitimate science, presuming some are still in existence.
________________________
* Two issues need urgent, legitimate research, which can be funded in the Farm Bill. One is profoundly frightening, the other potentially a save-the-planet hope. The first is the threat of our food becoming less nutritious as CO2 levels rise. The second is the hope that improving soil health can be a carbon sink like no other previously considered strategy to slow or stop the bad effects of climate change.
One Last Post on Student Loans, Then...
December, 2017
Washington -- There have been many questions asked of me about how I knew PHEAA's claims were false in the recent case U.S. ex rel. Oberg v. PHEAA. Rather than answer each person individually, I'll post a response to all and hope it suffices before moving on to other topics.
In the spring of 2003, while employed at the U.S. Department of Education's Institute of Education Sciences, I noticed PHEAA's claims for government funds were growing in one particular category: subsidies for student loans funded by tax-exempt bonds created prior to 1993. The total principal balances of these loans were growing when they should have been declining as loans were paid off and the bonds retired or defeased. Ten years earlier, Congress had cut off its special subsidies for such loans (guaranteeing loan holders a 9.5% annual return), grandfathering in only loans from bond estates created before 1993. These balances should not have been growing as they were; the grandfathers were not supposed to have progeny.
I checked the 1993 statue; nothing there explained it. I checked the applicable regulations and found nothing there, either. Loans eligible for the 9.5% return could be created only from a short list of qualifing funding sources, none of which applied to what I was observing. I asked around the Department of Education if anyone could explain PHEAA's growing balances and claims. No one could.
In over four decades of budget and fiscal administration, I had seen my share of money-laundering scams and schemes, so I became suspicious that PHEAA's claims were illegal. It would not be that hard simply to move loans around among new and old bond estates, essentially "washing" loans made with post-1993 money by putting them however temporarily into pre-1993 estates. Or transferring old loans into new estates where they would retain their 9.5 return characteristics, taking the proceeds from that transaction and putting it back into the old estate, then issuing a new loan and claiming it came from an old estate and was also eligible for the 9.5% return.
That, it turns out, is what PHEAA was doing as it grew its portfolio of 9.5% guaranteed loans from under $900 million to over $2.1 billion.
This was hugely lucrative for PHEAA. In the low-interest rate environment of 2002-2005, student borrowers paid rates sufficiently high on the loans that the government paid little or no subsidy on loans that were not guaranteed a 9.5% return.
PHEAA was not the only student-loan entity making false claims through loan and bond manipulations. Others started to emulate PHEAA. One lender's new bond issue was analyzed by a Wall Street rating agency, which made reference to the lender's 9.5% loans. I took off a day from work and called the agency from my home to get more information. The person who answered the phone said it was a coincidence that I called, as she had just been talking to their legal department about where all these loans were coming from. Their conclusion was that lenders would have to escrow funds made from false claims from illegally created loans, in preparation for soon paying the claims back to the government. That solidified my view that I knew what PHEAA was doing.
Of course I had emailed PHEAA earlier for an explanation of what they were doing. They dissembled twice and didn't answer the third time.
When a PHEAA official took the stand in the recent trial, he could not identify which of the five qualifying sources of funds PHEAA used to create new 9.5% loans. He looked at the applicable regulation and wrongly offered "all of the above." He finally took a stab at the fourth qualifying source (proceeds of pre-1993 loan sales) but that was a wrong answer because PHEAA itself did not consider the transfers to be sales and had said so in sworn depositions. The correct answer was "none of the above" but PHEAA instead fell back on half an answer, that a Department letter from 1996 provided that transfers of loans from old money estates to new money estates carried the 9.5% guarantee with them. But the letter said absolutely nothing about using the proceeds from the transaction to create yet another 9.5% loan. Any loans created with such proceeds would necessarily be subject to the usual subsidy provisions and have no 9.5% guarantee.
Department of Education officials who paid the false claims were asleep, or thought better of rocking the boat, because former PHEAA people in the Department were their bosses. (Or other bosses illegally holding stock in banks.) They may have been aware of what happened to me when I raised the matter in late 2003: I was told not to look into it, in a decidedly threatening reply. More than once colleagues told me, "Got to put food on the table," meaning job security was more important than stopping a money-laundering scheme, even as the scheme grew enormously, into the billions of dollars. Only when the Inspector General got around to looking at the whole mess were PHEAA claims finally exposed as false.
Part of the problem at the Department of Education is that few people there have sufficient experience in public finance. I could count them on the fingers of one hand. When I retired in 2005, the director of the National Center for Education Research pleaded with me to stay on because no one there knew anything about postsecodary finance. So hire someone else, I said, but that never happened.
That's the story of how I knew PHEAA's claims were false. In retrospect, I would say it was right out of Money Laundering 101.
Now, on to other topics, such as how the 2018 Farm Bill, unless greatly revised, will hurt rural America as it contributes to the national epidemic of obesity, diabetes, and drug abuse. That may be an even bigger issue than a lost generation of student-loan borrowers, which I bequeath to anyone who wants to take it up, at least for now.
Washington -- There have been many questions asked of me about how I knew PHEAA's claims were false in the recent case U.S. ex rel. Oberg v. PHEAA. Rather than answer each person individually, I'll post a response to all and hope it suffices before moving on to other topics.
In the spring of 2003, while employed at the U.S. Department of Education's Institute of Education Sciences, I noticed PHEAA's claims for government funds were growing in one particular category: subsidies for student loans funded by tax-exempt bonds created prior to 1993. The total principal balances of these loans were growing when they should have been declining as loans were paid off and the bonds retired or defeased. Ten years earlier, Congress had cut off its special subsidies for such loans (guaranteeing loan holders a 9.5% annual return), grandfathering in only loans from bond estates created before 1993. These balances should not have been growing as they were; the grandfathers were not supposed to have progeny.
I checked the 1993 statue; nothing there explained it. I checked the applicable regulations and found nothing there, either. Loans eligible for the 9.5% return could be created only from a short list of qualifing funding sources, none of which applied to what I was observing. I asked around the Department of Education if anyone could explain PHEAA's growing balances and claims. No one could.
In over four decades of budget and fiscal administration, I had seen my share of money-laundering scams and schemes, so I became suspicious that PHEAA's claims were illegal. It would not be that hard simply to move loans around among new and old bond estates, essentially "washing" loans made with post-1993 money by putting them however temporarily into pre-1993 estates. Or transferring old loans into new estates where they would retain their 9.5 return characteristics, taking the proceeds from that transaction and putting it back into the old estate, then issuing a new loan and claiming it came from an old estate and was also eligible for the 9.5% return.
That, it turns out, is what PHEAA was doing as it grew its portfolio of 9.5% guaranteed loans from under $900 million to over $2.1 billion.
This was hugely lucrative for PHEAA. In the low-interest rate environment of 2002-2005, student borrowers paid rates sufficiently high on the loans that the government paid little or no subsidy on loans that were not guaranteed a 9.5% return.
PHEAA was not the only student-loan entity making false claims through loan and bond manipulations. Others started to emulate PHEAA. One lender's new bond issue was analyzed by a Wall Street rating agency, which made reference to the lender's 9.5% loans. I took off a day from work and called the agency from my home to get more information. The person who answered the phone said it was a coincidence that I called, as she had just been talking to their legal department about where all these loans were coming from. Their conclusion was that lenders would have to escrow funds made from false claims from illegally created loans, in preparation for soon paying the claims back to the government. That solidified my view that I knew what PHEAA was doing.
Of course I had emailed PHEAA earlier for an explanation of what they were doing. They dissembled twice and didn't answer the third time.
When a PHEAA official took the stand in the recent trial, he could not identify which of the five qualifying sources of funds PHEAA used to create new 9.5% loans. He looked at the applicable regulation and wrongly offered "all of the above." He finally took a stab at the fourth qualifying source (proceeds of pre-1993 loan sales) but that was a wrong answer because PHEAA itself did not consider the transfers to be sales and had said so in sworn depositions. The correct answer was "none of the above" but PHEAA instead fell back on half an answer, that a Department letter from 1996 provided that transfers of loans from old money estates to new money estates carried the 9.5% guarantee with them. But the letter said absolutely nothing about using the proceeds from the transaction to create yet another 9.5% loan. Any loans created with such proceeds would necessarily be subject to the usual subsidy provisions and have no 9.5% guarantee.
Department of Education officials who paid the false claims were asleep, or thought better of rocking the boat, because former PHEAA people in the Department were their bosses. (Or other bosses illegally holding stock in banks.) They may have been aware of what happened to me when I raised the matter in late 2003: I was told not to look into it, in a decidedly threatening reply. More than once colleagues told me, "Got to put food on the table," meaning job security was more important than stopping a money-laundering scheme, even as the scheme grew enormously, into the billions of dollars. Only when the Inspector General got around to looking at the whole mess were PHEAA claims finally exposed as false.
Part of the problem at the Department of Education is that few people there have sufficient experience in public finance. I could count them on the fingers of one hand. When I retired in 2005, the director of the National Center for Education Research pleaded with me to stay on because no one there knew anything about postsecodary finance. So hire someone else, I said, but that never happened.
That's the story of how I knew PHEAA's claims were false. In retrospect, I would say it was right out of Money Laundering 101.
Now, on to other topics, such as how the 2018 Farm Bill, unless greatly revised, will hurt rural America as it contributes to the national epidemic of obesity, diabetes, and drug abuse. That may be an even bigger issue than a lost generation of student-loan borrowers, which I bequeath to anyone who wants to take it up, at least for now.
Justice and Mercy
December, 2017
Washington -- A few years ago I attended a speech given in a small Washington auditorium by Nobel laureate Wole Soyinka, who won the great prize in 1986 for literature. After his speech he remained by the podium. Seeing no one else approaching him, I went up to chat and we exchanged a few pleasantries. He asked me what I thought of his speech. Politely I said it was a fine speech, but perhaps there were too many references to "justice." How could that be, he asked. I offered that one person's justice is often another's revenge, in an endless cycle. But if not justice, he asked, what? Mercy, I suggested. We can only strive for justice, but we can grant mercy. He smiled and assured me he would think about that for future speeches.
Whether or not he did, I don't know. But for me the exchange has always been memorable, because I truly am not much of a believer in justice. Look around; too often it doesn't happen. Always be prepared to live with injustice. Think instead of mercy.
So I have gone into ten years worth of lawsuits not optimistic that justice would prevail. The fact that we came out with a 7-1-1 record was a big surprise to me.
Justice in the final case would have resulted in getting back, for taxpayers, the student-loan lender PHEAA's false claims plus damages. I would have received a fraction for my time and expenses and trouble (all significant, I assure you). Anything left over would have gone anonymously to charities, as did quite large sums from earlier settlement victories.
I have permission to mention one of the charities: Veterans Education Success (VES) a charity I have been associated with since its beginning. It does wonderful work to protect veterans and military members from becoming victims of shoddy for-profit schools that target veterans to squeeze their GI Bill benefits from them, often leaving the veterans in debt with no education to show for it. VES does its work on a bi-partisan basis and has several legislative and regulatory victories to show for its hard work. I am a veteran, as readers of this blog likely know, and have taught active duty personnel for many years through public university programs.
Unfortunately, we did not prevail in the final case and there will be fewer funds from my charity for VES and other such organizations in the future. Had we done better in the final case, I was also looking forward to paying off the student loans of three borrowers who, trapped in student-loan hell, had turned to me for help in resolving their intractable paperwork problems. When I was at the U.S. Department of Education many years ago, I was able often to solve such problems with a phone call or two. In retirement, I'm not able to do that. In the end, as it turns out, these borrowers will just remain in hell, probably forever, along with thousands of others. Nothing is coming back from PHEAA.
Of course I knew going into the lawsuits that I would personally be targeted by those I sued, and if we got any lenders to trial, their attacks on me would be made publicly to a jury. I was not disappointed; PHEAA told the jury that I brought the case against them because of personal greed. I was not satisfied, PHEAA told the jury, with having success in getting Congress to shut off PHEAA's false claims prospectively, because I did not get a share of that victory. So, according to PHEAA, I filed a false claims suit because that was the only way I could get a share of the proceeds.
That was PHEAA's closing statement to the jury. Earlier in the trial, PHEAA was successful in keeping out evidence of its documented record of self-reward at the expense of its mission to aid students. The jury never saw Pennsylvania Auditor General Jack Wagner's condemnation of PHEAA for the way it used its revenues for extravagent bonuses and executive retirement packages. Those revenues came from the very false claims I had attempted to stop.
Many whistleblowers go into their good causes with the expectation that there will be justice somewhere down the line. Maybe, maybe not. What is almost a certainty in the process is that the whistleblower, sooner or later, will become the defendant. That's the way the world works. Justice is elusive. Whistleblowers, do what you have to do as citizens and patriots. I am with you, but don't expect justice. Think instead of mercy, if it is ever in your power to grant.
Washington -- A few years ago I attended a speech given in a small Washington auditorium by Nobel laureate Wole Soyinka, who won the great prize in 1986 for literature. After his speech he remained by the podium. Seeing no one else approaching him, I went up to chat and we exchanged a few pleasantries. He asked me what I thought of his speech. Politely I said it was a fine speech, but perhaps there were too many references to "justice." How could that be, he asked. I offered that one person's justice is often another's revenge, in an endless cycle. But if not justice, he asked, what? Mercy, I suggested. We can only strive for justice, but we can grant mercy. He smiled and assured me he would think about that for future speeches.
Whether or not he did, I don't know. But for me the exchange has always been memorable, because I truly am not much of a believer in justice. Look around; too often it doesn't happen. Always be prepared to live with injustice. Think instead of mercy.
So I have gone into ten years worth of lawsuits not optimistic that justice would prevail. The fact that we came out with a 7-1-1 record was a big surprise to me.
Justice in the final case would have resulted in getting back, for taxpayers, the student-loan lender PHEAA's false claims plus damages. I would have received a fraction for my time and expenses and trouble (all significant, I assure you). Anything left over would have gone anonymously to charities, as did quite large sums from earlier settlement victories.
I have permission to mention one of the charities: Veterans Education Success (VES) a charity I have been associated with since its beginning. It does wonderful work to protect veterans and military members from becoming victims of shoddy for-profit schools that target veterans to squeeze their GI Bill benefits from them, often leaving the veterans in debt with no education to show for it. VES does its work on a bi-partisan basis and has several legislative and regulatory victories to show for its hard work. I am a veteran, as readers of this blog likely know, and have taught active duty personnel for many years through public university programs.
Unfortunately, we did not prevail in the final case and there will be fewer funds from my charity for VES and other such organizations in the future. Had we done better in the final case, I was also looking forward to paying off the student loans of three borrowers who, trapped in student-loan hell, had turned to me for help in resolving their intractable paperwork problems. When I was at the U.S. Department of Education many years ago, I was able often to solve such problems with a phone call or two. In retirement, I'm not able to do that. In the end, as it turns out, these borrowers will just remain in hell, probably forever, along with thousands of others. Nothing is coming back from PHEAA.
Of course I knew going into the lawsuits that I would personally be targeted by those I sued, and if we got any lenders to trial, their attacks on me would be made publicly to a jury. I was not disappointed; PHEAA told the jury that I brought the case against them because of personal greed. I was not satisfied, PHEAA told the jury, with having success in getting Congress to shut off PHEAA's false claims prospectively, because I did not get a share of that victory. So, according to PHEAA, I filed a false claims suit because that was the only way I could get a share of the proceeds.
That was PHEAA's closing statement to the jury. Earlier in the trial, PHEAA was successful in keeping out evidence of its documented record of self-reward at the expense of its mission to aid students. The jury never saw Pennsylvania Auditor General Jack Wagner's condemnation of PHEAA for the way it used its revenues for extravagent bonuses and executive retirement packages. Those revenues came from the very false claims I had attempted to stop.
Many whistleblowers go into their good causes with the expectation that there will be justice somewhere down the line. Maybe, maybe not. What is almost a certainty in the process is that the whistleblower, sooner or later, will become the defendant. That's the way the world works. Justice is elusive. Whistleblowers, do what you have to do as citizens and patriots. I am with you, but don't expect justice. Think instead of mercy, if it is ever in your power to grant.
Peril, Perjury, and Moral Hazard
December, 2017
Washington -- One of the purposes of the federal False Claims Act is to deter wrong-doing by any entity tempted to make an illegal claim against the U.S. Government. Under the law, if someone discovers that a claim is false, not only does the entity have to pay the amount of the claim back, but also pay damages. False claims against the federal government are a matter of civil fraud, committed at the peril of those making them.
If an individual lies under oath to deny the existence of a plan at his organization to make the claims in question, whether or not the claims were later determined to be false, it is perjury. The individual lied about the existence of the plan, under oath. Perjury.
If the claims turn out to be false, that is civil fraud on top of perjury.
If the claims turn out to be false but the entity says it did not believe they were false when made, then the entity can argue that the False Claims Act does not apply, and indeed it might not. But the False Claims Act does not allow the entity to escape via this argument if the making of the claims was "reckless."
So the issue can boil down to a determination of a jury as to what is reckless. In the recent case against the student loan lender PHEAA (U.S. ex rel. Oberg v. PHEAA), we argued that claims of $116 million without benefit of opinion of counsel as to their legality, claims made without even asking the Department of Education whether they were legal, and hiding the plan (!) to make the claims from the Inspector General during an audit was recklessness, three times over. Not to mention that the claims were indeed false, as determined by the Inspector General's audit. Coupled with the false testimony under oath about the existence of a plan to make the claims – perjury – the preponderance of the evidence clearly pointed to "reckless disregard" of the law (that's the language of the False Claims Act) in making the claims, we argued.
Not so, a jury decided this month, without explanation. We'll never know the jury's thinking. During the trial, PHEAA tried to divert attention away from its own behavior toward that of the Department of Education, which it called "pathetic" and "weak-minded." It even called the Department's decision to cut off PHEAA's false claims a "joke." Perhaps the jury agreed that the government was so incompetent in paying the claims before eventually cutting them off that it didn't deserve to get the money back.* The jury wasn't saying.
But we know that this decision creates a moral hazard for dealings between contractors and the U.S. government, as it undermines the False Claims Act, the primary law combating fraud against the government. A moral hazard is defined as a lack of incentive to protect against risk of consequences. Contractors may learn from this case that the risk bar is so low that there is no peril in making false claims. Why not make false claims if the only risk is to have the claims cut off going forward if the contractor is ever caught, with no requirement to repay the false claims and no damages ever to be paid? Should false claims be integrated into a company's business plan? Why not? How about perjury in business plans? No consequences for that either.
Is the threat of a whistle-blower putting a contractor through a trial the only thing standing in the way of false claims? It's an unreasonable expectation for the government to rely on whistle-blowers to bear such burdens. Whistle-blowers invariably become the target of counter-attacks against their person; many if not most are ruined as a part of defendants' plans to discredit them and their motives. All whistle-blowers I know personally are good, patriotic citizens. Many have lost everything for their efforts. The government itself needs to clean up its own act with vigorous prosecutions of false claims.
_________________
* My explanation for the Department's behavior is less about incompetence and more about corruption. See a previous post about how PHEAA created an "iron triangle" and exploited it to generate an undisputed illegal windfall of $116 million.
Washington -- One of the purposes of the federal False Claims Act is to deter wrong-doing by any entity tempted to make an illegal claim against the U.S. Government. Under the law, if someone discovers that a claim is false, not only does the entity have to pay the amount of the claim back, but also pay damages. False claims against the federal government are a matter of civil fraud, committed at the peril of those making them.
If an individual lies under oath to deny the existence of a plan at his organization to make the claims in question, whether or not the claims were later determined to be false, it is perjury. The individual lied about the existence of the plan, under oath. Perjury.
If the claims turn out to be false, that is civil fraud on top of perjury.
If the claims turn out to be false but the entity says it did not believe they were false when made, then the entity can argue that the False Claims Act does not apply, and indeed it might not. But the False Claims Act does not allow the entity to escape via this argument if the making of the claims was "reckless."
So the issue can boil down to a determination of a jury as to what is reckless. In the recent case against the student loan lender PHEAA (U.S. ex rel. Oberg v. PHEAA), we argued that claims of $116 million without benefit of opinion of counsel as to their legality, claims made without even asking the Department of Education whether they were legal, and hiding the plan (!) to make the claims from the Inspector General during an audit was recklessness, three times over. Not to mention that the claims were indeed false, as determined by the Inspector General's audit. Coupled with the false testimony under oath about the existence of a plan to make the claims – perjury – the preponderance of the evidence clearly pointed to "reckless disregard" of the law (that's the language of the False Claims Act) in making the claims, we argued.
Not so, a jury decided this month, without explanation. We'll never know the jury's thinking. During the trial, PHEAA tried to divert attention away from its own behavior toward that of the Department of Education, which it called "pathetic" and "weak-minded." It even called the Department's decision to cut off PHEAA's false claims a "joke." Perhaps the jury agreed that the government was so incompetent in paying the claims before eventually cutting them off that it didn't deserve to get the money back.* The jury wasn't saying.
But we know that this decision creates a moral hazard for dealings between contractors and the U.S. government, as it undermines the False Claims Act, the primary law combating fraud against the government. A moral hazard is defined as a lack of incentive to protect against risk of consequences. Contractors may learn from this case that the risk bar is so low that there is no peril in making false claims. Why not make false claims if the only risk is to have the claims cut off going forward if the contractor is ever caught, with no requirement to repay the false claims and no damages ever to be paid? Should false claims be integrated into a company's business plan? Why not? How about perjury in business plans? No consequences for that either.
Is the threat of a whistle-blower putting a contractor through a trial the only thing standing in the way of false claims? It's an unreasonable expectation for the government to rely on whistle-blowers to bear such burdens. Whistle-blowers invariably become the target of counter-attacks against their person; many if not most are ruined as a part of defendants' plans to discredit them and their motives. All whistle-blowers I know personally are good, patriotic citizens. Many have lost everything for their efforts. The government itself needs to clean up its own act with vigorous prosecutions of false claims.
_________________
* My explanation for the Department's behavior is less about incompetence and more about corruption. See a previous post about how PHEAA created an "iron triangle" and exploited it to generate an undisputed illegal windfall of $116 million.
The "Portal" Contract Competition
December, 2017
Washington -- Tbe U.S. Department of Education has been holding an on-again, off-again competition for an outside contractor to create a single "portal" for all federal student loan servicing. Whether the contract will be for a portal only, or if the winner will also get to determine who does the servicing, is one of the major questions surrounding the way the competition is being conducted. Congress has weighed in more than once on the competition. The contract at stake is one of the largest in the federal government outside the Department of Defense.
From a public policy standpoint, there are difficult questions that arise about contractor selection. Of the three remaining competitors, two are troubled to the extent that they might not be considered responsive and responsible bidders, if the Department of Education is paying attention.
Navient has been sued by the Consumer Financial Protection Bureau for "failing borrowers at every stage of repayment," and by several state attorneys general as well. Under these conditions, can the contract be given to Navient?
PHEAA has been sued by the Massachusetts attorney general and by many other parties for the same kinds of offenses. The Pennsylvania auditor general once described PHEAA as losing sight of its mission in favor of self-reward.
Additionally, PHEAA holds contempt for the U.S. Department of Education, which it has called "pathetic" and "weak-minded." Just this month one of its top officials, in open court, called Department efforts to curb PHEAA's past illegal claims a "joke." Who could blame the Department of Education from disqualifying this company from the competition?
Perhaps the only responsive and responsible bidder left in the competition is the combined bid of Great Lakes Student Loan Servicing and Nelnet. Great Lakes is a nonprofit servicer with a good reputation, which has not been tainted over the years like other servicers. The addition of Great Lakes to Nelnet's portal bid is a significant plus.
From a public policy standpoint, it might be better for the Department of Education to cancel the whole thing and start over, to allow other bidders with experience in loan servicing in areas such as credit cards and mortgages. Or even to move ahead quickly with a re-design of student loan servicing to emulate other countries' systems, which employ existing tax withholding and payment mechanisms.
Washington -- Tbe U.S. Department of Education has been holding an on-again, off-again competition for an outside contractor to create a single "portal" for all federal student loan servicing. Whether the contract will be for a portal only, or if the winner will also get to determine who does the servicing, is one of the major questions surrounding the way the competition is being conducted. Congress has weighed in more than once on the competition. The contract at stake is one of the largest in the federal government outside the Department of Defense.
From a public policy standpoint, there are difficult questions that arise about contractor selection. Of the three remaining competitors, two are troubled to the extent that they might not be considered responsive and responsible bidders, if the Department of Education is paying attention.
Navient has been sued by the Consumer Financial Protection Bureau for "failing borrowers at every stage of repayment," and by several state attorneys general as well. Under these conditions, can the contract be given to Navient?
PHEAA has been sued by the Massachusetts attorney general and by many other parties for the same kinds of offenses. The Pennsylvania auditor general once described PHEAA as losing sight of its mission in favor of self-reward.
Additionally, PHEAA holds contempt for the U.S. Department of Education, which it has called "pathetic" and "weak-minded." Just this month one of its top officials, in open court, called Department efforts to curb PHEAA's past illegal claims a "joke." Who could blame the Department of Education from disqualifying this company from the competition?
Perhaps the only responsive and responsible bidder left in the competition is the combined bid of Great Lakes Student Loan Servicing and Nelnet. Great Lakes is a nonprofit servicer with a good reputation, which has not been tainted over the years like other servicers. The addition of Great Lakes to Nelnet's portal bid is a significant plus.
From a public policy standpoint, it might be better for the Department of Education to cancel the whole thing and start over, to allow other bidders with experience in loan servicing in areas such as credit cards and mortgages. Or even to move ahead quickly with a re-design of student loan servicing to emulate other countries' systems, which employ existing tax withholding and payment mechanisms.
Questions on Student Loan Servicing
December, 2017
Washington -- Several times recently I've been asked what I think of the proposed merger between the for-profit student loan servicer Nelnet and its non-profit competitor, Great Lakes Student Loan Servicing. Rather than repeating myself, I'll address the matter in this post for all to see.
I've always thought highly of the Great Lakes leadership; they're among the best around. I have a settlement agreement with Nelnet so I can't say too much about them. It's a standard type of agreement in which Nelnet paid back funds to the Treasury and I dropped my federal False Claims case against them; each side going forward does not discuss or reveal the details of discovery in the case. That's what the federal judge in the case wanted, to avoid a trial in 2010, so that was the outcome. There's nothing in the agreement that precludes me from discussing public policy about student loan servicing, however, so I can say relatively good things about Nelnet regarding its record over the years since the settlement. Nelnet has added good people to its board; it diversified; it has fewer borrower complaints than Navient or PHEAA, servicers with records so bad several state attorneys general are taking legal action against them to protect their citizens. The Consumer Financial Protection Bureau has also taken legal action against Navient (formerly known as Sallie Mae). Of the nation's "big four" student loan servicers, Great Lakes and Nelnet are clearly better than the other two. But the bar for comparison is low.
The question of a merger (actually an acquisition of Great Lakes by Nelnet) has at least two aspects. First, is it wise to continue the movement toward for-profit servicers, as opposed to nonprofits? Second, inasmuch as the servicers are supposed to compete with each other as federal contractors, would this merger lessen the competition to the disadvantage of federal taxpayers, who pay the bills?
The move to for-profit servicers and secondary markets dates to the mid-1990s. Back then, nonprofit Boston-based Nellie Mae persuaded Senator Ted Kennedy that it should be allowed to go for-profit, at which time it would set up a charitable foundation worth tens of millions, representing the value of the tax exemptions and concessions it received as a nonprofit over the years. The new foundation would make grants to education charities. This conversion, however, required a change to the Higher Education Act. Senator Kennedy successfully got an amendment to make the conversion possible, albeit through an unrelated bill that went unnoticed until the next morning when the deed had been done. Secretary of Education Richard Riley opposed the change, as did Donald Feuerstein and the late Tom Wolanin of the Education Department, who understood that the amendment applied not only to Nellie Mae, but to all nonprofits that might want to convert to for-profit. This led to a chain reaction of conversions over the ensuing years on terms favorable to the new for-profits, including the grandfathering of their tax-exempt bond estates for years into the future.
Likewise in the mid-1990s, the government sponsored enterprise (GSE) known as Sallie Mae, the largest student loan servicer and secondary market in the country, also petitioned Congress to allow it to go for-profit. The Clinton Administration did not oppose it, the idea coming in part out of Vice President Gore's "re-inventing government" initiative. The legendary Secretary Riley, named by Time magazine as one of the top ten cabinet members of the post-WWII era, opposed the change unless Sallie Mae made concessions back to the government in recognition of all the benefits that had been bestowed on it as a GSE. Deputy Assistant Secretary Tom Wolanin also opposed the conversion on the basis that the government was getting an extremely bad deal. He resigned in frustration.
We have now seen the results of the conversions. The ability of for-profits to move loans around among taxable and tax-exempt bond estates was a factor in the mischief known as the 9.5% loan scandal. Worse, for-profit Sallie Mae (newly Navient), now boldly states that its operations are to benefit its stockholders, and that it has no obligation to borrowers to provide them with information about what repayment programs might be best for them. This is a federal contractor being paid with taxpayer money, out only for itself with no real regard for the obligations it has to give borrowers correct information and get them into programs appropriate to their situation. It's not really a surprise that the CFPB has sued Navient.
As to the matter of competition between servicers, it is again necessary to look back to the 1990s when Congress created the so-called Direct Loan program. It was an alternative to the bank-based student loan program known as FFEL. Rather than using private bank capital to originate student loans, requiring a subsidy set by Congress to make the loans and their servicing profitable, the DL program used Treasury capital to make the loans and set up a competitive bidding process to hold down the cost of servicing. In 2010, Congress killed the wasteful, fraud-riddled FFEL program (see previous posts) in favor of the DL program going forward. But for the DL program to be successful, there would have to be adequate competition among servicers to let the free market help hold down taxpayer costs.*
So one of the questions now is whether a merger between the two top servicers is in taxpayers' interests. I would be more comfortable with the merger if the other competitors, Navient and PHEAA, were worthy of federal contracts. As long as they are not, a merger does not seem like a good idea. Will a charitable foundation be spun off from Great Lakes, as has been the case with other conversions to for-profit? There is a waiting period required by law before the merger-acquisition takes place. Consumer and taxpayer advocates, take note.
You may ask why the Department of Education limits servicer contract competition only to those with student loan servicing experience. What about companies that do credit card servicing, or mortgage servicing? Good question. The merger would be more palatable if the competition were opened up further.
Then there is the possibility of handling student loan repayments as other countries do, through the tax payment and withholding system. That could make the question of the merger moot.
________________________
* Savings from killing the costly FFEL program have been redirected into the Pell Grant program, to benefit low-income students.
Washington -- Several times recently I've been asked what I think of the proposed merger between the for-profit student loan servicer Nelnet and its non-profit competitor, Great Lakes Student Loan Servicing. Rather than repeating myself, I'll address the matter in this post for all to see.
I've always thought highly of the Great Lakes leadership; they're among the best around. I have a settlement agreement with Nelnet so I can't say too much about them. It's a standard type of agreement in which Nelnet paid back funds to the Treasury and I dropped my federal False Claims case against them; each side going forward does not discuss or reveal the details of discovery in the case. That's what the federal judge in the case wanted, to avoid a trial in 2010, so that was the outcome. There's nothing in the agreement that precludes me from discussing public policy about student loan servicing, however, so I can say relatively good things about Nelnet regarding its record over the years since the settlement. Nelnet has added good people to its board; it diversified; it has fewer borrower complaints than Navient or PHEAA, servicers with records so bad several state attorneys general are taking legal action against them to protect their citizens. The Consumer Financial Protection Bureau has also taken legal action against Navient (formerly known as Sallie Mae). Of the nation's "big four" student loan servicers, Great Lakes and Nelnet are clearly better than the other two. But the bar for comparison is low.
The question of a merger (actually an acquisition of Great Lakes by Nelnet) has at least two aspects. First, is it wise to continue the movement toward for-profit servicers, as opposed to nonprofits? Second, inasmuch as the servicers are supposed to compete with each other as federal contractors, would this merger lessen the competition to the disadvantage of federal taxpayers, who pay the bills?
The move to for-profit servicers and secondary markets dates to the mid-1990s. Back then, nonprofit Boston-based Nellie Mae persuaded Senator Ted Kennedy that it should be allowed to go for-profit, at which time it would set up a charitable foundation worth tens of millions, representing the value of the tax exemptions and concessions it received as a nonprofit over the years. The new foundation would make grants to education charities. This conversion, however, required a change to the Higher Education Act. Senator Kennedy successfully got an amendment to make the conversion possible, albeit through an unrelated bill that went unnoticed until the next morning when the deed had been done. Secretary of Education Richard Riley opposed the change, as did Donald Feuerstein and the late Tom Wolanin of the Education Department, who understood that the amendment applied not only to Nellie Mae, but to all nonprofits that might want to convert to for-profit. This led to a chain reaction of conversions over the ensuing years on terms favorable to the new for-profits, including the grandfathering of their tax-exempt bond estates for years into the future.
Likewise in the mid-1990s, the government sponsored enterprise (GSE) known as Sallie Mae, the largest student loan servicer and secondary market in the country, also petitioned Congress to allow it to go for-profit. The Clinton Administration did not oppose it, the idea coming in part out of Vice President Gore's "re-inventing government" initiative. The legendary Secretary Riley, named by Time magazine as one of the top ten cabinet members of the post-WWII era, opposed the change unless Sallie Mae made concessions back to the government in recognition of all the benefits that had been bestowed on it as a GSE. Deputy Assistant Secretary Tom Wolanin also opposed the conversion on the basis that the government was getting an extremely bad deal. He resigned in frustration.
We have now seen the results of the conversions. The ability of for-profits to move loans around among taxable and tax-exempt bond estates was a factor in the mischief known as the 9.5% loan scandal. Worse, for-profit Sallie Mae (newly Navient), now boldly states that its operations are to benefit its stockholders, and that it has no obligation to borrowers to provide them with information about what repayment programs might be best for them. This is a federal contractor being paid with taxpayer money, out only for itself with no real regard for the obligations it has to give borrowers correct information and get them into programs appropriate to their situation. It's not really a surprise that the CFPB has sued Navient.
As to the matter of competition between servicers, it is again necessary to look back to the 1990s when Congress created the so-called Direct Loan program. It was an alternative to the bank-based student loan program known as FFEL. Rather than using private bank capital to originate student loans, requiring a subsidy set by Congress to make the loans and their servicing profitable, the DL program used Treasury capital to make the loans and set up a competitive bidding process to hold down the cost of servicing. In 2010, Congress killed the wasteful, fraud-riddled FFEL program (see previous posts) in favor of the DL program going forward. But for the DL program to be successful, there would have to be adequate competition among servicers to let the free market help hold down taxpayer costs.*
So one of the questions now is whether a merger between the two top servicers is in taxpayers' interests. I would be more comfortable with the merger if the other competitors, Navient and PHEAA, were worthy of federal contracts. As long as they are not, a merger does not seem like a good idea. Will a charitable foundation be spun off from Great Lakes, as has been the case with other conversions to for-profit? There is a waiting period required by law before the merger-acquisition takes place. Consumer and taxpayer advocates, take note.
You may ask why the Department of Education limits servicer contract competition only to those with student loan servicing experience. What about companies that do credit card servicing, or mortgage servicing? Good question. The merger would be more palatable if the competition were opened up further.
Then there is the possibility of handling student loan repayments as other countries do, through the tax payment and withholding system. That could make the question of the merger moot.
________________________
* Savings from killing the costly FFEL program have been redirected into the Pell Grant program, to benefit low-income students.
Iron Triangles, Part I
December, 2017
Washington -- The Chronicle of Higher Education has outed me; I'm a "university professor." Which is more or less true, as I have taught many years in the classroom, undergraduate and graduate.
This reminds me of the line uttered by the late Daniel Patrick Moynihan when he was in an election contest for the U.S. Senate. His opponent called him "Professor Moynihan," to which Moynihan replied, "The mud-slinging has begun." (I knew the professor and senator, as I sat behind him for five years in meetings of the Senate Budget Committee.)
All of which gives me occasion to conduct a college class discussion, via this blog post, in Public Administration 101, or perhaps 401 if the course is for graduate credit. The topic is "iron triangles."
An iron triangle at either the state or federal level is a lobbying association's dream, always sought and often achieved. One corner is the lobbying group; another is the staff of an elected official in the legislative branch with jurisdiction over the subject area; in the third corner are the officials in the executive branch who administer the relevant government programs.
The goal is to get the lobbying association's own people in charge of all the corners. This is done by means of the "revolving door," through which like-minded people sympathetic to the lobby group fill and then rotate among the corner positions, moving from one to another as opportunities arise.
The Pennsylvania student loan lender and secondary market PHEAA achieved an iron triangle in 2002. Its Washington lobbying association, the Education Finance Council, was led by a former PHEAA employee, Kathleen Smith, and governed by a board with PHEAA membership. The House of Representative's authorizing committee with jurisdiction over student loans was chaired by a Pennsylvania congressman, William Goodling, through 2001; he had hired former PHEAA employees as staff and they were retained by his successor. One of the committee staff, Sally Stroup, former PHEAA chief counsel, soon went over to the U.S. Department of Education to be an assistant secretary in charge of student loan policy. Already waiting at the Department was an undersecretary (later deputy secretary), Eugene Hickok, who had been a PHEAA board member when he was a Pennsylvania government official.
The iron triangle was therefore established and staffed. The only question remaining was how PHEAA would turn its good fortune into gold, so to speak.
It soon came up with a scheme, outlined by the CFO, Timothy Guenther, to its incoming CEO, Richard Willey, in May of 2002, to move student loans around among different tax-free and taxable bond estates to claim a windfall of extra federal taxpayer subsidies. The scheme would even have the loans wind up in a location where PHEAA could avoid any "excess interest" penalties under U.S. Treasury regulations, so PHEAA could put the money to any purpose it wanted, including big bonuses and retirement packages for its executives. Although the CFO said this too-good-to-be-true scheme was allowed under government regulations, PHEAA never sought opinion of counsel, never asked the Department of Education if it was legal, and in fact internally cautioned against anyone at PHEAA asking the Department if the scheme was proper, for fear of getting an answer that it was not.
CFO Timothy Guenther's memo had a note of caution. PHEAA shouldn't do too much of the scheme for fear of "political" ramifications. Meaning, of course, someone might notice. Nevertheless, Richard Willey, soon to be CEO, quickly told his CFO to "maximize" the revenue from the scheme.*
Working as a researcher at the Institute of Education Sciences, I noticed about a year later that PHEAA's payments were going up rapidly and asked the Office of Inspector Gereral to look into it. A few weeks after that, U.S. News and World Report contacted me about a cover story they were writing, entitled "Big Money on Campus." I told them they had a good story and should check out how excess subsidies were distorting the student loan markets. They did and included the observation in one of their articles.
After the story appeared, the aforementioned assistant secretary, formerly of PHEAA, formerly of the House committee staff, announced from a stage at a student financial aid conference that whatever U.S. News was talking about, "it's all legal." No one seems to remember exactly what the question from the audience was, but her answer was quickly published by the lobbying association's newsletter, published by the former PHEAA person who worked there.
Did the assistant secretary have Departmental clearance to make such an announcement? No, she later testified under oath in a deposition. No matter. Her statement that "it's all legal" circulated throughout the student loan industry, and soon nine other lenders and secondary markets were participating in the scheme. When I alerted the Government Accountability Office (GAO) a few weeks later, GAO wrote a report to Congress that indicated billions of dollars were at stake and that the scheme had to be cut off as soon as possible.
GAO said there were three ways to cut it off: Congressional action; new Department regulations; or simply clarification of existing regulations to make it clear the scheme was never allowed. The third option was one that I had recommended to the Department and the one Secretary Margaret Spellings eventually chose to kill the scheme, after the Department's Inspector General informed her that the scheme had never been legal. In the meantime, Congress acted to cut off the scheme prospectively.
Eventually the iron triangle collapsed. Deputy Scretary Hickok was caught holding stock in a bank while regulating it. Assistant Secretary Stroup was returned by Secretary Margaret Spellings to the House staff from which she came, (but only after she passed along information to PHEAA as to how to prepare for the Inspector General's audit). Another government employee with a student loan industry background, Matteo Fontana, who had supervised program reviews that somehow always overlooked legal problems with the scheme, was suspended, convicted, and fined for accepting stock in a student loan lender while supposedly regulating the industry. His boss, Terri Shaw, the COO of the Office of Federal Student Aid who paid the illegal claims for years from taxpayer dollars, without question, was not retained by Secretary Spellings when her appointment expired.
The extra revenue for PHEAA during the heyday of the iron triangle almost sank the company. When the Pennsylvania Auditor General, Jack Wagner, looked at PHEAA, he concluded that spending on perks and bonuses were so excessive that PHEAA had lost sight of its mission, which supposedly was to provide students with financial aid. He recommended changing the PHEAA board structure; Richard Willey resigned as CEO in the face of public outcry.** Pennsylvania Governor Ed Rendell was so incensed he tried to sell PHEAA to rival private company Sallie Mae.
All's well that ends well? No. In 2017, through discovery, we found the 2002 PHEAA internal memo that set off the whole scheme. PHEAA had told the OIG during its audit that no such document existed, that it had provided all its records dealing with its claims. PHEAA's CFO gave a deposition under oath that denied the existence of such a plan. The 2017 evidence showed that testimony to be false. No matter. When a jury was asked if PHEAA should return the illegally claimed money, which our expert witnesses put at $116.5 million and PHEAA did not dispute, the jury declined to get it back. Only the jury knows the reasons for its decision, but surely it had to do with the "it's all legal" statement by the assistant secretary as she moved through the iron triangle.
So that's today's class lesson in Public Administration 101/401 from a "university professor." There will not be a test on this material unless you think of this discussion the next time you go to the polls.
Note to my colleagues in academe: feel free to use this example the next time you teach about iron triangles.
__________________
* These records, uncovered by legal discovery in 2017, were public evidence at the trial of PHEAA in federal district court, just completed.
** Pennsylvania Auditor General Jack Wagner wrote: "PHEAA was governed and managed within a culture that sometimes allowed self-reward to supersede fiscal prudence. In those instances, PHEAA failed its mission by not using all available resources to benefit Pennsylvania students." Unfortunately, this report was not allowed into evidence in the PHEAA trial and the jury never saw it, but it can be read here.
Washington -- The Chronicle of Higher Education has outed me; I'm a "university professor." Which is more or less true, as I have taught many years in the classroom, undergraduate and graduate.
This reminds me of the line uttered by the late Daniel Patrick Moynihan when he was in an election contest for the U.S. Senate. His opponent called him "Professor Moynihan," to which Moynihan replied, "The mud-slinging has begun." (I knew the professor and senator, as I sat behind him for five years in meetings of the Senate Budget Committee.)
All of which gives me occasion to conduct a college class discussion, via this blog post, in Public Administration 101, or perhaps 401 if the course is for graduate credit. The topic is "iron triangles."
An iron triangle at either the state or federal level is a lobbying association's dream, always sought and often achieved. One corner is the lobbying group; another is the staff of an elected official in the legislative branch with jurisdiction over the subject area; in the third corner are the officials in the executive branch who administer the relevant government programs.
The goal is to get the lobbying association's own people in charge of all the corners. This is done by means of the "revolving door," through which like-minded people sympathetic to the lobby group fill and then rotate among the corner positions, moving from one to another as opportunities arise.
The Pennsylvania student loan lender and secondary market PHEAA achieved an iron triangle in 2002. Its Washington lobbying association, the Education Finance Council, was led by a former PHEAA employee, Kathleen Smith, and governed by a board with PHEAA membership. The House of Representative's authorizing committee with jurisdiction over student loans was chaired by a Pennsylvania congressman, William Goodling, through 2001; he had hired former PHEAA employees as staff and they were retained by his successor. One of the committee staff, Sally Stroup, former PHEAA chief counsel, soon went over to the U.S. Department of Education to be an assistant secretary in charge of student loan policy. Already waiting at the Department was an undersecretary (later deputy secretary), Eugene Hickok, who had been a PHEAA board member when he was a Pennsylvania government official.
The iron triangle was therefore established and staffed. The only question remaining was how PHEAA would turn its good fortune into gold, so to speak.
It soon came up with a scheme, outlined by the CFO, Timothy Guenther, to its incoming CEO, Richard Willey, in May of 2002, to move student loans around among different tax-free and taxable bond estates to claim a windfall of extra federal taxpayer subsidies. The scheme would even have the loans wind up in a location where PHEAA could avoid any "excess interest" penalties under U.S. Treasury regulations, so PHEAA could put the money to any purpose it wanted, including big bonuses and retirement packages for its executives. Although the CFO said this too-good-to-be-true scheme was allowed under government regulations, PHEAA never sought opinion of counsel, never asked the Department of Education if it was legal, and in fact internally cautioned against anyone at PHEAA asking the Department if the scheme was proper, for fear of getting an answer that it was not.
CFO Timothy Guenther's memo had a note of caution. PHEAA shouldn't do too much of the scheme for fear of "political" ramifications. Meaning, of course, someone might notice. Nevertheless, Richard Willey, soon to be CEO, quickly told his CFO to "maximize" the revenue from the scheme.*
Working as a researcher at the Institute of Education Sciences, I noticed about a year later that PHEAA's payments were going up rapidly and asked the Office of Inspector Gereral to look into it. A few weeks after that, U.S. News and World Report contacted me about a cover story they were writing, entitled "Big Money on Campus." I told them they had a good story and should check out how excess subsidies were distorting the student loan markets. They did and included the observation in one of their articles.
After the story appeared, the aforementioned assistant secretary, formerly of PHEAA, formerly of the House committee staff, announced from a stage at a student financial aid conference that whatever U.S. News was talking about, "it's all legal." No one seems to remember exactly what the question from the audience was, but her answer was quickly published by the lobbying association's newsletter, published by the former PHEAA person who worked there.
Did the assistant secretary have Departmental clearance to make such an announcement? No, she later testified under oath in a deposition. No matter. Her statement that "it's all legal" circulated throughout the student loan industry, and soon nine other lenders and secondary markets were participating in the scheme. When I alerted the Government Accountability Office (GAO) a few weeks later, GAO wrote a report to Congress that indicated billions of dollars were at stake and that the scheme had to be cut off as soon as possible.
GAO said there were three ways to cut it off: Congressional action; new Department regulations; or simply clarification of existing regulations to make it clear the scheme was never allowed. The third option was one that I had recommended to the Department and the one Secretary Margaret Spellings eventually chose to kill the scheme, after the Department's Inspector General informed her that the scheme had never been legal. In the meantime, Congress acted to cut off the scheme prospectively.
Eventually the iron triangle collapsed. Deputy Scretary Hickok was caught holding stock in a bank while regulating it. Assistant Secretary Stroup was returned by Secretary Margaret Spellings to the House staff from which she came, (but only after she passed along information to PHEAA as to how to prepare for the Inspector General's audit). Another government employee with a student loan industry background, Matteo Fontana, who had supervised program reviews that somehow always overlooked legal problems with the scheme, was suspended, convicted, and fined for accepting stock in a student loan lender while supposedly regulating the industry. His boss, Terri Shaw, the COO of the Office of Federal Student Aid who paid the illegal claims for years from taxpayer dollars, without question, was not retained by Secretary Spellings when her appointment expired.
The extra revenue for PHEAA during the heyday of the iron triangle almost sank the company. When the Pennsylvania Auditor General, Jack Wagner, looked at PHEAA, he concluded that spending on perks and bonuses were so excessive that PHEAA had lost sight of its mission, which supposedly was to provide students with financial aid. He recommended changing the PHEAA board structure; Richard Willey resigned as CEO in the face of public outcry.** Pennsylvania Governor Ed Rendell was so incensed he tried to sell PHEAA to rival private company Sallie Mae.
All's well that ends well? No. In 2017, through discovery, we found the 2002 PHEAA internal memo that set off the whole scheme. PHEAA had told the OIG during its audit that no such document existed, that it had provided all its records dealing with its claims. PHEAA's CFO gave a deposition under oath that denied the existence of such a plan. The 2017 evidence showed that testimony to be false. No matter. When a jury was asked if PHEAA should return the illegally claimed money, which our expert witnesses put at $116.5 million and PHEAA did not dispute, the jury declined to get it back. Only the jury knows the reasons for its decision, but surely it had to do with the "it's all legal" statement by the assistant secretary as she moved through the iron triangle.
So that's today's class lesson in Public Administration 101/401 from a "university professor." There will not be a test on this material unless you think of this discussion the next time you go to the polls.
Note to my colleagues in academe: feel free to use this example the next time you teach about iron triangles.
__________________
* These records, uncovered by legal discovery in 2017, were public evidence at the trial of PHEAA in federal district court, just completed.
** Pennsylvania Auditor General Jack Wagner wrote: "PHEAA was governed and managed within a culture that sometimes allowed self-reward to supersede fiscal prudence. In those instances, PHEAA failed its mission by not using all available resources to benefit Pennsylvania students." Unfortunately, this report was not allowed into evidence in the PHEAA trial and the jury never saw it, but it can be read here.
Highest Praise, Part III
December, 2017
Washington -- This is part three of my "Highest Praise" series of posts, to give credit where credit is due for courageous and selfless actions to expose waste, fraud, and abuse in federal student loan programs. Standing in the shoes of the U.S. government through the False Claims Act, we were able to recover over $70 million of false claims for the U.S. Treasury, succeeding in seven of nine lawsuits. Part I gives credit to the legal team at Wiley Rein; Part II gives credit to the Office of Inspector General. Without them, there would have been no chance for success.
Now it is time to give credit to the trade press, especially reporters at The Chronicle of Higher Education, and to dedicated people at the New America Foundation, a Washington think tank.
At the Chronicle, reporters wrote story after story of corruption in the student loan industry. Among those was the story of how lenders and secondary markets made false subsidy claims on loans that guaranteed them a 9.5% return on loans, as opposed to the subsidy rate that by law they were supposed to get, which was much less and at times nothing. The secondary markets did this by moving loans in and out of different tax-exempt and taxable bond estates, a process some of them (behind closed doors) called "washing" and others called "dipping." It was all illegal. The reporters wrote about how the funds illegally claimed were used to create illegal inducements for colleges to push their students into loans offered by favored lenders, all while the Department of Education looked the other way.
Lenders and secondary markets did not like the articles and pressed Chronicle editors and management to fire or reassign reporters. Did they succeed? Discovery in my lawsuit against the lender PHEAA sheds light on it all. Discovery documents are now in the process of being sorted and archived to determine if the public can soon have the answers to such questions.*
Meanwhile, authors of the New America Foundation's blog, "Higher Ed Watch," also wrote about corruption in the industry. Steve Burd discovered that lenders offered bribes to college financial aid officers. He took names. He also discovered that an official at the Department of Education responsible for enforcement of statutes and regulations was given stock in a lender. This official was also suspected of giving lenders access to the Department's data bases of borrowers, so that lenders could contact borrowers directly to get them to switch their lucrative loans into the bank-based loan program, FFEL, through loan consolidation. A whole new branch of the student loan industry, employing thousands, grew up to take advantage.
In 2010, a Texas lender and secondary market that I sued, Panhandle Plains, subpoenaed New America for its records, to see if there was a connection between me and the foundation. New America at first resisted, but I was pleased to see the prospect of even more documents about the 9.5 scandal come to light, for any and all to see. The head of New America at the time, Steve Coll, a two time winner of the Pulitzer Prize and now the dean of the Graduate School of Journalism at Columbia University, consented to release the papers in question. Several of the emails and notes at issue were introduced in the recent trial of PHEAA as evidence and will soon be available for the public to review. It is my position that the public should be able to see every scrap of paper relating to the 9.5 scandal, although some lender documents unfortunately will never see the light of day because of 2010 settlement agreements requiring their destruction in exchange for the recovery of funds to the Treasury.
The work of the trade press and New America was important to the ultimate success of the lawsuits. I cannot thank those authors enough for standing up to pressure, even at the risk of their careers and reputations.
Although other newspapers are certainly strong enough to protect their reporters, I should also say that long articles by Sam Dillon of the New York Times and John Hechinger and Ann Marie Chaker of the Wall Street Journal, both in 2007, were of great value in telling the story of the false lender claims and the culture of indulgence for them at the Department of Education.
This is a good time to reveal my own sense of relief in 2016 when the lender PHEAA hired the former solicitor general of the U.S., Paul Clement, to represent it for argument in the 4th Circuit (and later the Supreme Court), against us on the issue of PHEAA's claimed sovereign immunity. Not that he wouldn't be a formidable new force in the case, of course, but I was relieved that the lender's enormous resources would be directed to legal talent, not to shadier purposes. (I have seen lenders' loan collectors ruin four generations of a family in one case, unfortunately not unique.) More than once in this lawsuit did friends ask me if I felt in danger personally, with hundreds of millions of dollars at stake. I certainly felt uneasy having the sense of being followed around for ten years when giving talks and lectures (excerpts of which appear in PHEAA's trial evidence, now for all to see, I'm happy to report), and I felt uneasy when meeting consumer advocates or writing on topics of national higher education policy in this blog.
I am of course pleased that my team at Wiley Rein won the battle with Paul Clement and PHEAA over sovereign immunity, purely at the intellectual level. And that any blood spilled was only symbolic, and theirs.
_____________________
* PHEAA also tried to stop my investigation of their false claims, asking officials at the Department of Education in 2006 if there was any way to stop me from speaking about the investigation. The answer to that from the Department is also in the discovery documents.
Washington -- This is part three of my "Highest Praise" series of posts, to give credit where credit is due for courageous and selfless actions to expose waste, fraud, and abuse in federal student loan programs. Standing in the shoes of the U.S. government through the False Claims Act, we were able to recover over $70 million of false claims for the U.S. Treasury, succeeding in seven of nine lawsuits. Part I gives credit to the legal team at Wiley Rein; Part II gives credit to the Office of Inspector General. Without them, there would have been no chance for success.
Now it is time to give credit to the trade press, especially reporters at The Chronicle of Higher Education, and to dedicated people at the New America Foundation, a Washington think tank.
At the Chronicle, reporters wrote story after story of corruption in the student loan industry. Among those was the story of how lenders and secondary markets made false subsidy claims on loans that guaranteed them a 9.5% return on loans, as opposed to the subsidy rate that by law they were supposed to get, which was much less and at times nothing. The secondary markets did this by moving loans in and out of different tax-exempt and taxable bond estates, a process some of them (behind closed doors) called "washing" and others called "dipping." It was all illegal. The reporters wrote about how the funds illegally claimed were used to create illegal inducements for colleges to push their students into loans offered by favored lenders, all while the Department of Education looked the other way.
Lenders and secondary markets did not like the articles and pressed Chronicle editors and management to fire or reassign reporters. Did they succeed? Discovery in my lawsuit against the lender PHEAA sheds light on it all. Discovery documents are now in the process of being sorted and archived to determine if the public can soon have the answers to such questions.*
Meanwhile, authors of the New America Foundation's blog, "Higher Ed Watch," also wrote about corruption in the industry. Steve Burd discovered that lenders offered bribes to college financial aid officers. He took names. He also discovered that an official at the Department of Education responsible for enforcement of statutes and regulations was given stock in a lender. This official was also suspected of giving lenders access to the Department's data bases of borrowers, so that lenders could contact borrowers directly to get them to switch their lucrative loans into the bank-based loan program, FFEL, through loan consolidation. A whole new branch of the student loan industry, employing thousands, grew up to take advantage.
In 2010, a Texas lender and secondary market that I sued, Panhandle Plains, subpoenaed New America for its records, to see if there was a connection between me and the foundation. New America at first resisted, but I was pleased to see the prospect of even more documents about the 9.5 scandal come to light, for any and all to see. The head of New America at the time, Steve Coll, a two time winner of the Pulitzer Prize and now the dean of the Graduate School of Journalism at Columbia University, consented to release the papers in question. Several of the emails and notes at issue were introduced in the recent trial of PHEAA as evidence and will soon be available for the public to review. It is my position that the public should be able to see every scrap of paper relating to the 9.5 scandal, although some lender documents unfortunately will never see the light of day because of 2010 settlement agreements requiring their destruction in exchange for the recovery of funds to the Treasury.
The work of the trade press and New America was important to the ultimate success of the lawsuits. I cannot thank those authors enough for standing up to pressure, even at the risk of their careers and reputations.
Although other newspapers are certainly strong enough to protect their reporters, I should also say that long articles by Sam Dillon of the New York Times and John Hechinger and Ann Marie Chaker of the Wall Street Journal, both in 2007, were of great value in telling the story of the false lender claims and the culture of indulgence for them at the Department of Education.
This is a good time to reveal my own sense of relief in 2016 when the lender PHEAA hired the former solicitor general of the U.S., Paul Clement, to represent it for argument in the 4th Circuit (and later the Supreme Court), against us on the issue of PHEAA's claimed sovereign immunity. Not that he wouldn't be a formidable new force in the case, of course, but I was relieved that the lender's enormous resources would be directed to legal talent, not to shadier purposes. (I have seen lenders' loan collectors ruin four generations of a family in one case, unfortunately not unique.) More than once in this lawsuit did friends ask me if I felt in danger personally, with hundreds of millions of dollars at stake. I certainly felt uneasy having the sense of being followed around for ten years when giving talks and lectures (excerpts of which appear in PHEAA's trial evidence, now for all to see, I'm happy to report), and I felt uneasy when meeting consumer advocates or writing on topics of national higher education policy in this blog.
I am of course pleased that my team at Wiley Rein won the battle with Paul Clement and PHEAA over sovereign immunity, purely at the intellectual level. And that any blood spilled was only symbolic, and theirs.
_____________________
* PHEAA also tried to stop my investigation of their false claims, asking officials at the Department of Education in 2006 if there was any way to stop me from speaking about the investigation. The answer to that from the Department is also in the discovery documents.
Highest Praise, Part II
December, 2017
Washington -- Citizens and taxpayers can sleep better, as a general rule, knowing that each department of the federal government has an independent Office of Inspector General, which audits the respective departments to seek out waste, fraud, and abuse. The Inspector General at the U.S. Department of Education over the years has done some remarkable work, for which the IG and staff should be commended.
Some of this work has to do with the so-called 9.5% loan scandal, in which student loan lenders falsely claimed subsidy returns guaranteeing them a total return of 9.5% on student loans, when in fact, according to the Inspector General, they were legally entitled only to a lower subsidy rate, or none at all.
These excess subsidy payments, growing toward billions of federal taxpayer dollars, worked their way into the whole student loan system. Lenders getting the extra subsidies started paying higher premuims in the student loan secondary markets to banks that originated student loans, driving up loan prices and lender profits all around.
Lenders not making the false claims and paying the loan premiums were disadvantaged. Some lenders and secondary markets held out on grounds that the loan washings between bond estates, used to make the false claims, were illegal. But some of them switched to making the claims, for fear of being driven out of business if they didn't, and were thereby corrupted.
What the Inspector General did:
• While all of this was going on, the IG assisted in looking at who in the Department of Education had conflicts of interest. They found Deputy Secretary Eugene Hickok, who had been required to sell off his stock in student loan lenders Wachovia, Citigroup, Key Bank, and Bank of America while his Department was regulating the student loan system. He was also a former member of the board of PHEAA, a lender and secondary market which, discovery in a lawsuit has since shown, pioneered the way to make the illegal, high-subsidy claims. Hickok did not sell off his BoA stock as required, was fined $50,000 in federal district court, and quietly left government in early 2005 as Margaret Spellings succeeded Rod Paige as Secretary of Education. As he left, Hickok said he would never work in government again, trying to leave the impression that he was disgusted with it, rather than the fact that the government itself was showing him the door.
• Starting in 2005, the Inspector General started a series of audits of nonprofit secondary markets in New Mexico, Pennsylvania, and Kentucky, and audits of for-profit secondary markets Nelnet, Sallie Mae, and Nellie Mae (which had been bought by Sallie Mae). The IG concluded that none of these entities was entitled to all the subsidies they were claiming, and recommended to Secretary Spellings that she seek the overpayments back. She did not, but chose rather to require independent audits going forward, to sort out legal from illegal claims. One of the IG's audits was given the prestigious Alexander Hamilton award by the Executive Council on Integrity and Efficiency. It was a remarkable audit and the award was richly deserved. Presentation of the award was made by a close personal friend of the President, making clear that the White House was on the side of the IG and did not want to be associated with the scandal of the wrongfully paid subsidies, even as many of the lenders were making political contributions to elected officials to try to overturn the audits of the IG.
• In 2006, at the same time the award-winning audit was released, the Inspector General issued a report critical of the Office of Federal Student Aid (FSA), the office that had paid the claims to which the IG took exception. The report, written by Helen Lew, found the FSA personnel poorly trained and more interested in forming partnerships with financial institutions than in assuring compliance with statutes and regulation. It even discovered an instance of an FSA employee providing a pre-decisional document to a secondary market, which then tried to use the document to get a court injunction against the OIG. When the time came for Secretary Spellings to renew or replace the COO of FSA, which had paid the illegal claims, she understandably chose to replace her.
• In 2007, thanks to the investigative work of the New America Foundation, it was revealed that some lenders were making illegal payments and gifts to college student financial aid officers in order to get their business. The financial aid officers at Columbia University, the University of Texas - Austin, the University of Southern California, and Johns Hopkins University were fired by their institutions. It was also discovered that a Department official, Matteo Fontana, was holding stock in one such lender (Student Loan XPress) while overseeing the staff of program reviewers who were supposed to be checking the lenders for compliance with federal regulations. After a review by the IG, this individual was suspended, charged, and ultimately dismissed from the government with a fine of over $100,000.
• In 2017, in preparation for a false claims lawsuit against PHEAA (see previous posts), Howard Sorensen of the Inspector General's office gave a deposition on the award-winning audit. He gave an award-worthy deposition, as he was involved directly in all the audits. A colleague of his gave testimony at the jury trial of PHEAA, stating under oath that PHEAA had not given up key documents to the IG during its 2006 audit, and had actually denied their existence. It was only through the discovery process in 2017 that the documents ever came to light.
Can citizens and taxpayers sleep better because the Inspector General at the Department of Education is on duty? Yes. But of course there is an epilogue to all of the above. The jury in the PHEAA case delivered a verdict that did not require PHEAA to return funds from its false claims, presumably on grounds that the Department of Education knew all along what PHEAA was doing and paid its claims for years, until the IG's audit. That made it reasonable in the minds of the jury that PHEAA did not know its claims were false, even if PHEAA hid documents.
Stell dir das mal vor!
The fact that PHEAA will not be paying any money back is not the fault of the Office of Inspector General. It did its work, and did it well. If anyone is losing sleep, it is likely to be OIG personnel worried about what is still going on in the rest of the Department.* Waste, fraud, and abuse, even when identified, are hardy perennials, never to be fully rooted out.
_____________________________
* Even as this is being posted, the Department is undermining the so-called gainful employment regulations that are designed to protect consumers from shoddy colleges that have high borrower loan default rates. In a report to Congress, the OIG writes,"On gainful employment, we did not agree with the Department’s decision to delay a provision requiring schools to provide consumer protection disclosures directly to students before they enroll and Federal student aid funds are committed or disbursed." This blow against consumers by the Department will cost taxpayers millions as borrowers go increasingly into student loan default. It will ruin the lives of many students and their families. For the victims of these schools, the outcomes will be nothing short of tragic.
Washington -- Citizens and taxpayers can sleep better, as a general rule, knowing that each department of the federal government has an independent Office of Inspector General, which audits the respective departments to seek out waste, fraud, and abuse. The Inspector General at the U.S. Department of Education over the years has done some remarkable work, for which the IG and staff should be commended.
Some of this work has to do with the so-called 9.5% loan scandal, in which student loan lenders falsely claimed subsidy returns guaranteeing them a total return of 9.5% on student loans, when in fact, according to the Inspector General, they were legally entitled only to a lower subsidy rate, or none at all.
These excess subsidy payments, growing toward billions of federal taxpayer dollars, worked their way into the whole student loan system. Lenders getting the extra subsidies started paying higher premuims in the student loan secondary markets to banks that originated student loans, driving up loan prices and lender profits all around.
Lenders not making the false claims and paying the loan premiums were disadvantaged. Some lenders and secondary markets held out on grounds that the loan washings between bond estates, used to make the false claims, were illegal. But some of them switched to making the claims, for fear of being driven out of business if they didn't, and were thereby corrupted.
What the Inspector General did:
• While all of this was going on, the IG assisted in looking at who in the Department of Education had conflicts of interest. They found Deputy Secretary Eugene Hickok, who had been required to sell off his stock in student loan lenders Wachovia, Citigroup, Key Bank, and Bank of America while his Department was regulating the student loan system. He was also a former member of the board of PHEAA, a lender and secondary market which, discovery in a lawsuit has since shown, pioneered the way to make the illegal, high-subsidy claims. Hickok did not sell off his BoA stock as required, was fined $50,000 in federal district court, and quietly left government in early 2005 as Margaret Spellings succeeded Rod Paige as Secretary of Education. As he left, Hickok said he would never work in government again, trying to leave the impression that he was disgusted with it, rather than the fact that the government itself was showing him the door.
• Starting in 2005, the Inspector General started a series of audits of nonprofit secondary markets in New Mexico, Pennsylvania, and Kentucky, and audits of for-profit secondary markets Nelnet, Sallie Mae, and Nellie Mae (which had been bought by Sallie Mae). The IG concluded that none of these entities was entitled to all the subsidies they were claiming, and recommended to Secretary Spellings that she seek the overpayments back. She did not, but chose rather to require independent audits going forward, to sort out legal from illegal claims. One of the IG's audits was given the prestigious Alexander Hamilton award by the Executive Council on Integrity and Efficiency. It was a remarkable audit and the award was richly deserved. Presentation of the award was made by a close personal friend of the President, making clear that the White House was on the side of the IG and did not want to be associated with the scandal of the wrongfully paid subsidies, even as many of the lenders were making political contributions to elected officials to try to overturn the audits of the IG.
• In 2006, at the same time the award-winning audit was released, the Inspector General issued a report critical of the Office of Federal Student Aid (FSA), the office that had paid the claims to which the IG took exception. The report, written by Helen Lew, found the FSA personnel poorly trained and more interested in forming partnerships with financial institutions than in assuring compliance with statutes and regulation. It even discovered an instance of an FSA employee providing a pre-decisional document to a secondary market, which then tried to use the document to get a court injunction against the OIG. When the time came for Secretary Spellings to renew or replace the COO of FSA, which had paid the illegal claims, she understandably chose to replace her.
• In 2007, thanks to the investigative work of the New America Foundation, it was revealed that some lenders were making illegal payments and gifts to college student financial aid officers in order to get their business. The financial aid officers at Columbia University, the University of Texas - Austin, the University of Southern California, and Johns Hopkins University were fired by their institutions. It was also discovered that a Department official, Matteo Fontana, was holding stock in one such lender (Student Loan XPress) while overseeing the staff of program reviewers who were supposed to be checking the lenders for compliance with federal regulations. After a review by the IG, this individual was suspended, charged, and ultimately dismissed from the government with a fine of over $100,000.
• In 2017, in preparation for a false claims lawsuit against PHEAA (see previous posts), Howard Sorensen of the Inspector General's office gave a deposition on the award-winning audit. He gave an award-worthy deposition, as he was involved directly in all the audits. A colleague of his gave testimony at the jury trial of PHEAA, stating under oath that PHEAA had not given up key documents to the IG during its 2006 audit, and had actually denied their existence. It was only through the discovery process in 2017 that the documents ever came to light.
Can citizens and taxpayers sleep better because the Inspector General at the Department of Education is on duty? Yes. But of course there is an epilogue to all of the above. The jury in the PHEAA case delivered a verdict that did not require PHEAA to return funds from its false claims, presumably on grounds that the Department of Education knew all along what PHEAA was doing and paid its claims for years, until the IG's audit. That made it reasonable in the minds of the jury that PHEAA did not know its claims were false, even if PHEAA hid documents.
Stell dir das mal vor!
The fact that PHEAA will not be paying any money back is not the fault of the Office of Inspector General. It did its work, and did it well. If anyone is losing sleep, it is likely to be OIG personnel worried about what is still going on in the rest of the Department.* Waste, fraud, and abuse, even when identified, are hardy perennials, never to be fully rooted out.
_____________________________
* Even as this is being posted, the Department is undermining the so-called gainful employment regulations that are designed to protect consumers from shoddy colleges that have high borrower loan default rates. In a report to Congress, the OIG writes,"On gainful employment, we did not agree with the Department’s decision to delay a provision requiring schools to provide consumer protection disclosures directly to students before they enroll and Federal student aid funds are committed or disbursed." This blow against consumers by the Department will cost taxpayers millions as borrowers go increasingly into student loan default. It will ruin the lives of many students and their families. For the victims of these schools, the outcomes will be nothing short of tragic.
To Borrowers Who Have Contacted Me For Help
December, 2017
Washington -- In case it appears from the last few posts that I am down on all student loan lenders, guarantors, and servicers, let me balance that with a few words of appreciation for good outfits.
There are bad apples and good apples in any business. In the student loan industry, there are several previously good apples that have gone bad, corrupted. Then there are bad apples that somehow miraculously became good. (I am thinking of one in particular that, after a bad experience, put new and credible people on its board, diversified, and is now even bringing a good apple into its business; time will tell if I am right.)
One good apple in the business, I have always felt, is American Student Assistance of Massachusetts. Allesandra Lanza of ASA is a contributor to web pages that give truly useful advice to borrowers. When borrowers are at their wits' end and don't know where to turn for help, she offers good links to explore. She is also brutally honest about the shortcomings of loan servicers when she writes that in the face of
"growing concerns that student loan servicers aren't always looking out for borrowers' best interests, it's never been more important for student loan consumers to stay informed on their rights and protections."
In other words, buyer beware. If you think your loan servicer is being straight with you, as opposed to looking out for how it can make more bucks off you, think again. One servicer, Navient, has even blurted out, “There is no expectation that the servicer will act in the interest of the consumer." Take that, borrowers.
Now, to all borrowers who have contacted me, hoping I can help them (and I dearly wish I could), let me pass on the suggestions of Allesandra Lanza as to sources of help that you may not have considered. Click on the link in the preceding sentence. Here is what you will see, in part:
• State attorneys general: If your state has not enacted any student loan protections on its own, the attorney general's office is a good place to learn more about your rights as a borrower.
For example, in Massachusetts, Attorney General Maura Healey has established a Student Lending Assistance Unit that provides a hotline and free mediation service to borrowers who are having difficulties with student loans.
• Consumer Financial Protection Bureau: This bureau continuously collects student loan borrowers' complaints, investigates trends and regularly issues reports on its findings. In addition to forwarding complaints about the company handling your loan so that it can hopefully resolve the issue, the CFPB may also use your feedback to inform its rule-making process as it creates and enforces federal consumer financial laws.
• Consumer advocates: A number of consumer advocacy organizations work on behalf of student loan borrowers.
Two prominent ones are the National Consumer Law Center's Student Loan Borrower Assistance Project and the Project on Predatory Student Lending out of Harvard Law School. Both groups offer direct assistance to borrowers, as well as frequently integrate testimony from their clients when they participate in student loan policy discussions and debate.
• Your congressional representatives: Of course, there's always the tried-and-true method of contacting your congressional representatives in Washington, D.C. You can find contact information for the House of Representatives and Senate and then raise your concerns with each representative's office.
Washington -- In case it appears from the last few posts that I am down on all student loan lenders, guarantors, and servicers, let me balance that with a few words of appreciation for good outfits.
There are bad apples and good apples in any business. In the student loan industry, there are several previously good apples that have gone bad, corrupted. Then there are bad apples that somehow miraculously became good. (I am thinking of one in particular that, after a bad experience, put new and credible people on its board, diversified, and is now even bringing a good apple into its business; time will tell if I am right.)
One good apple in the business, I have always felt, is American Student Assistance of Massachusetts. Allesandra Lanza of ASA is a contributor to web pages that give truly useful advice to borrowers. When borrowers are at their wits' end and don't know where to turn for help, she offers good links to explore. She is also brutally honest about the shortcomings of loan servicers when she writes that in the face of
"growing concerns that student loan servicers aren't always looking out for borrowers' best interests, it's never been more important for student loan consumers to stay informed on their rights and protections."
In other words, buyer beware. If you think your loan servicer is being straight with you, as opposed to looking out for how it can make more bucks off you, think again. One servicer, Navient, has even blurted out, “There is no expectation that the servicer will act in the interest of the consumer." Take that, borrowers.
Now, to all borrowers who have contacted me, hoping I can help them (and I dearly wish I could), let me pass on the suggestions of Allesandra Lanza as to sources of help that you may not have considered. Click on the link in the preceding sentence. Here is what you will see, in part:
• State attorneys general: If your state has not enacted any student loan protections on its own, the attorney general's office is a good place to learn more about your rights as a borrower.
For example, in Massachusetts, Attorney General Maura Healey has established a Student Lending Assistance Unit that provides a hotline and free mediation service to borrowers who are having difficulties with student loans.
• Consumer Financial Protection Bureau: This bureau continuously collects student loan borrowers' complaints, investigates trends and regularly issues reports on its findings. In addition to forwarding complaints about the company handling your loan so that it can hopefully resolve the issue, the CFPB may also use your feedback to inform its rule-making process as it creates and enforces federal consumer financial laws.
• Consumer advocates: A number of consumer advocacy organizations work on behalf of student loan borrowers.
Two prominent ones are the National Consumer Law Center's Student Loan Borrower Assistance Project and the Project on Predatory Student Lending out of Harvard Law School. Both groups offer direct assistance to borrowers, as well as frequently integrate testimony from their clients when they participate in student loan policy discussions and debate.
• Your congressional representatives: Of course, there's always the tried-and-true method of contacting your congressional representatives in Washington, D.C. You can find contact information for the House of Representatives and Senate and then raise your concerns with each representative's office.
Highest Praise, Part I
December, 2017
Washington -- Coming off ten years of lawsuits against student loan lenders in which our overall record is 7-1-1, it's time to give credit where credit is due: mostly to the law firm of Wiley Rein (and, through 2010, the TELG law group). Tens of millions of dollars of repayments of false lender claims have come back to the U.S. Treasury. Students and families themselves now have new opportunities to challenge lenders and servicers for their errors, when often before they had no recourse. And sunshine has broken through to show how the shadowy side of the student loan system really works.
Think of the legal victories:
• Settlements with seven lenders, which not only got many millions back for taxpayers, but sent a strong message that false claims have consequences. False claims can be attempted, but at lenders' peril. The false claims between 2002 and 2006 in these cases obviously played a role in the decision by Congress in 2010 to kill the expensive, bank-based student loan system, FFEL. That freed up savings of over $30 billion for students, over subsequent years, in the form of additional grants, not loans. Think of it, $30 billion for financially needy students!
• A victory at the U.S. Supreme Court level, to confirm a 4th Circuit decision that a tax-exempt lender could not hide behind the doctine of sovereign immunity to deny student loan borrowers their day in court if they had been wronged by the lender. This will be of great assistance to aggrieved borrowers for many years to come. To get this victory, Wiley Rein had to win three separate appeals in the 4th Circuit and have the decision pass muster at the U.S. Supreme Court. This was an incredible achievement that will help borrowers as the sadly mishandled Public Service Loan Forgiveness progam is sorted out.*
• Getting a lender to a jury trial, where finally the sun shed its light on how the lender viewed its federal regulator, the U.S. Department of Education. "Pathetic" and "weak-minded" was the lender view. The lender even called a decison by Secretary Margaret Spellings, to restate Department regulations governing subsidies, a "joke." To get mountains of such evidence into the public realm was indeed one of the main goals of a jury trial. Wiley Rein did this through painstaking discovery over months and years, even while knowing (all too well, as it turned out) that discovery evidence might not make any difference to a jury, which was confronted by the fact that the Department of Education paid the false claims for years without question.** Pursuing truth through discovery for the sake of sunshine was a courageous and selfless act by Wiley Rein on behalf of its client, deserving of the highest acclaim.
• Bringing to light unseemly practices among certain lenders. One trial witness was confronted with the fact that she had set up a consulting company to show a for-profit lender how it could reap huge additional subsidies from the Department of Education, for a two percent share of the extra take for her company. The lender eventually had to pay back a portion of the false claims involved in the scheme, but the consultant walked away with her percentage nevertheless, with no consequences. Citizens and taxpayers, take note of how your tax dollars are spent.
The list could go on and on, and with appropriate curiosity shown by historians, journalists, public policy experts, and ordinary citizens, it will. The final lawsuit is over; Wiley Rein has done extraordinary, incredibly praiseworthy work.
Now: Is there anything to be learned from the ten years of these legal battles? Let's hope so, and let's get to it.
________________________
* Not that any aggrieved borrower should or should not actually sue. That the possibility of a successful suit exists should have a salutary effect on servicer performance. After Oberg III was decided by the 4th Circuit and the Supreme Court denied a writ of certiorari on the case in January, 2017, all tax-exempt lenders and servicers that relied on sovereign immunity to turn away borrower suits were put on notice that such a defense might henceforth not work.
** Making it difficult if not impossible to demonstrate to a jury that the lender was without a reasonable basis for its claims, because the Department was paying them, even though the Department later ruled the claims false after audits by the Inspector General. A jury, conversely, could have found that the claims were reckless, given that the lender never sought opinion of counsel, never asked the Department for its approval, and in fact hid its false claims scheme from the Department, as shown by Wiley Rein through discovery. But this jury did not.
Washington -- Coming off ten years of lawsuits against student loan lenders in which our overall record is 7-1-1, it's time to give credit where credit is due: mostly to the law firm of Wiley Rein (and, through 2010, the TELG law group). Tens of millions of dollars of repayments of false lender claims have come back to the U.S. Treasury. Students and families themselves now have new opportunities to challenge lenders and servicers for their errors, when often before they had no recourse. And sunshine has broken through to show how the shadowy side of the student loan system really works.
Think of the legal victories:
• Settlements with seven lenders, which not only got many millions back for taxpayers, but sent a strong message that false claims have consequences. False claims can be attempted, but at lenders' peril. The false claims between 2002 and 2006 in these cases obviously played a role in the decision by Congress in 2010 to kill the expensive, bank-based student loan system, FFEL. That freed up savings of over $30 billion for students, over subsequent years, in the form of additional grants, not loans. Think of it, $30 billion for financially needy students!
• A victory at the U.S. Supreme Court level, to confirm a 4th Circuit decision that a tax-exempt lender could not hide behind the doctine of sovereign immunity to deny student loan borrowers their day in court if they had been wronged by the lender. This will be of great assistance to aggrieved borrowers for many years to come. To get this victory, Wiley Rein had to win three separate appeals in the 4th Circuit and have the decision pass muster at the U.S. Supreme Court. This was an incredible achievement that will help borrowers as the sadly mishandled Public Service Loan Forgiveness progam is sorted out.*
• Getting a lender to a jury trial, where finally the sun shed its light on how the lender viewed its federal regulator, the U.S. Department of Education. "Pathetic" and "weak-minded" was the lender view. The lender even called a decison by Secretary Margaret Spellings, to restate Department regulations governing subsidies, a "joke." To get mountains of such evidence into the public realm was indeed one of the main goals of a jury trial. Wiley Rein did this through painstaking discovery over months and years, even while knowing (all too well, as it turned out) that discovery evidence might not make any difference to a jury, which was confronted by the fact that the Department of Education paid the false claims for years without question.** Pursuing truth through discovery for the sake of sunshine was a courageous and selfless act by Wiley Rein on behalf of its client, deserving of the highest acclaim.
• Bringing to light unseemly practices among certain lenders. One trial witness was confronted with the fact that she had set up a consulting company to show a for-profit lender how it could reap huge additional subsidies from the Department of Education, for a two percent share of the extra take for her company. The lender eventually had to pay back a portion of the false claims involved in the scheme, but the consultant walked away with her percentage nevertheless, with no consequences. Citizens and taxpayers, take note of how your tax dollars are spent.
The list could go on and on, and with appropriate curiosity shown by historians, journalists, public policy experts, and ordinary citizens, it will. The final lawsuit is over; Wiley Rein has done extraordinary, incredibly praiseworthy work.
Now: Is there anything to be learned from the ten years of these legal battles? Let's hope so, and let's get to it.
________________________
* Not that any aggrieved borrower should or should not actually sue. That the possibility of a successful suit exists should have a salutary effect on servicer performance. After Oberg III was decided by the 4th Circuit and the Supreme Court denied a writ of certiorari on the case in January, 2017, all tax-exempt lenders and servicers that relied on sovereign immunity to turn away borrower suits were put on notice that such a defense might henceforth not work.
** Making it difficult if not impossible to demonstrate to a jury that the lender was without a reasonable basis for its claims, because the Department was paying them, even though the Department later ruled the claims false after audits by the Inspector General. A jury, conversely, could have found that the claims were reckless, given that the lender never sought opinion of counsel, never asked the Department for its approval, and in fact hid its false claims scheme from the Department, as shown by Wiley Rein through discovery. But this jury did not.
Moving on to More Questions about Student Loans
December, 2017
Washington -- Ten years ago I filed suit in federal court on behalf of the United States to recover taxpayer funds claimed illegally by nine financial institutions, all student loan lenders and servicers. Over the years, this action has resulted in the return of over $70 million of taxpayer money to the U.S. Treasury.
As of 2016, of the nine financial institutions sued, seven have paid money back in settlements. The eighth dropped out of the suit because it was found by the court to be an arm of the state of Arkansas and thus exempt under the doctrine of sovereign immunity. This was no great loss to the suit, as the lender had already paid back several million voluntarily and the remaining issue was whether the lender had actually paid back all it owed.
So with a record of 7-0-1, the last case went to a federal jury trial this November against PHEAA, a Pennsylvania financial institution. PHEAA told the jury that it had thought its billings were legal, because the Department of Education paid them. Evidence presented at the trial also showed that PHEAA considered the Department "pathetic" and "weak-minded," and that a subsequent finding by Secretary Margaret Spellings (who restated regulations making clear the claims has never been legal), was a "joke." The jury could not overcome the fact that the Department had indeed paid the claims.
Which brings us to an overall record of 7-1-1, thanks to a remarkable effort by my counsel in the case, the team of lawyers at Wiley Rein (and, through 2010, the TELG law group). Even getting the PHEAA case to trial required a Wiley Rein victory at the U.S. Supreme Court, which confirmed a 4th Circuit ruling that PHEAA could not use sovereign immunity as a means to avoid a jury trial. This victory allowed a student loan borrower in a companion case, Pele v. PHEAA, to sue and separately settle with PHEAA under the Fair Credit Reporting Act. This had previously been impossible.
The effort to clean up the nation's student loan mess now moves into a new phase, as it must. Total student loan debt outstanding has surpassed $1.4 trillion. Far too many borrowers, victimized by shoddy for-profit schools and predatory lenders, cannot pay their loans back. The student loan mess is ruining the American Dream for countless students and families across the country; they have no way out of it.
Thanks to getting PHEAA to a jury trial, however, the record of evidence in this case can now be examined by the public, including historians, investigative reporters, and those who write law journal articles about civil fraud and the False Claims Act. The fact that the jury was not able to get money back for taxpayers is secondary to the benefit of allowing sunshine onto how our nation's student loan system works, to reveal all its ugliness.
The next phase also must deal with the pending question of who can regulate the student loan lenders and servicers. Several state attorneys general have filed suit on behalf of their citizens against Navient (another large lender and servicer) and PHEAA. The Consumer Financial Protection Bureau has filed suit against Navient as well. The financial institutions are fighting back, as they want desperately to be regulated not by states, but by the Department of Education.
Is there a better way? Many thoughtful people, troubled at the devastation visited on students and their families by the current system (let alone the billions in costs to taxpayers for subsidies to servicers), have suggested that the United States adopt the student loan system used in other countries. Other countries successfully handle student loan repayments through their tax withholding and payment systems, avoiding the Navients and PHEAAs. It's time to take a serious look at this alternative.
Washington -- Ten years ago I filed suit in federal court on behalf of the United States to recover taxpayer funds claimed illegally by nine financial institutions, all student loan lenders and servicers. Over the years, this action has resulted in the return of over $70 million of taxpayer money to the U.S. Treasury.
As of 2016, of the nine financial institutions sued, seven have paid money back in settlements. The eighth dropped out of the suit because it was found by the court to be an arm of the state of Arkansas and thus exempt under the doctrine of sovereign immunity. This was no great loss to the suit, as the lender had already paid back several million voluntarily and the remaining issue was whether the lender had actually paid back all it owed.
So with a record of 7-0-1, the last case went to a federal jury trial this November against PHEAA, a Pennsylvania financial institution. PHEAA told the jury that it had thought its billings were legal, because the Department of Education paid them. Evidence presented at the trial also showed that PHEAA considered the Department "pathetic" and "weak-minded," and that a subsequent finding by Secretary Margaret Spellings (who restated regulations making clear the claims has never been legal), was a "joke." The jury could not overcome the fact that the Department had indeed paid the claims.
Which brings us to an overall record of 7-1-1, thanks to a remarkable effort by my counsel in the case, the team of lawyers at Wiley Rein (and, through 2010, the TELG law group). Even getting the PHEAA case to trial required a Wiley Rein victory at the U.S. Supreme Court, which confirmed a 4th Circuit ruling that PHEAA could not use sovereign immunity as a means to avoid a jury trial. This victory allowed a student loan borrower in a companion case, Pele v. PHEAA, to sue and separately settle with PHEAA under the Fair Credit Reporting Act. This had previously been impossible.
The effort to clean up the nation's student loan mess now moves into a new phase, as it must. Total student loan debt outstanding has surpassed $1.4 trillion. Far too many borrowers, victimized by shoddy for-profit schools and predatory lenders, cannot pay their loans back. The student loan mess is ruining the American Dream for countless students and families across the country; they have no way out of it.
Thanks to getting PHEAA to a jury trial, however, the record of evidence in this case can now be examined by the public, including historians, investigative reporters, and those who write law journal articles about civil fraud and the False Claims Act. The fact that the jury was not able to get money back for taxpayers is secondary to the benefit of allowing sunshine onto how our nation's student loan system works, to reveal all its ugliness.
The next phase also must deal with the pending question of who can regulate the student loan lenders and servicers. Several state attorneys general have filed suit on behalf of their citizens against Navient (another large lender and servicer) and PHEAA. The Consumer Financial Protection Bureau has filed suit against Navient as well. The financial institutions are fighting back, as they want desperately to be regulated not by states, but by the Department of Education.
Is there a better way? Many thoughtful people, troubled at the devastation visited on students and their families by the current system (let alone the billions in costs to taxpayers for subsidies to servicers), have suggested that the United States adopt the student loan system used in other countries. Other countries successfully handle student loan repayments through their tax withholding and payment systems, avoiding the Navients and PHEAAs. It's time to take a serious look at this alternative.
Simply Unfathomable
December, 2017
Berlin -- Germany is trying, so far without success, to put together a coalition government under the leadership of Chancellor Angela Merkel of the Christian Democratic Union (CDU).
The first attempt has foundered. The CDU (along with the Christian Social Union, its Bavarian sister party) offered positions in the government to the Green Party and to the Free Democratic Party (FDP) to form a voting majority in the Bundestag. This somewhat unlikely joining of four parties was given the short-hand name of "Jamaika" coalition, because the colors of the party symbols were black (CSU/CSU), green (the Greens) and yellow (FDP), the colors of the Jamaican flag.
Surprisingly, it was the FDP that blew up the talks. The Greens and the CDU were making solid progress. The pro-business FDP had been aligned with the CDU in previous governments, so why not once again? There is not a lot of daylight between the CDU and the FDP ideologically.
What on earth was the FDP thinking? It had been out of power for years, and had even lost representation in the Bundestag. It campaiged on its reputation for responsible government, but once Chancellor Merkel offered it the chance to act responsibly, it bolted. It was a shock. This, after all, is the party of the late statesman Hans Dietrich Genscher, who was foreign minister in both the governments of Helmut Schmidt (SPD) and Helmut Kohl (CDU), during the 1980s and 1990s.
So it is back to the drawing board to see if the Social Democratic Party (SPD) will once again join the CDU in a grand coalition government. That is the coalition that has governed Germany for the past several years, quite successfully, but it has cost the SPD votes in several elections, as the SPD has not been able to distinguish itself from the CDU on many issues. SPD reluctance to join a coalition is understandable.
Moreover, the SPD wants to act as the main opposition in the Bundestag. If it joins the government, that would leave the far-right Alternativ für Deutschland (AfD) party as the main opposition, giving it recognition and authority far beyond the 13% share of votes it got in the recent national elections.
The CDU talks with the SPD will linger on for some time.
What is the American interest here? Doubtless it is to see Germany led by a stable government. What is the Russian interest here? Doubtless it is to see turmoil and instability in the leading European country that has stood for Western values and democracy. Russia chafes at the effectiveness of the NATO alliance, through which Germany and the United States, for decades, have defended freedom in the Baltic States, in Eastern Europe, and on the Southeastern Europe flank.
Which is why it is troubling to think Russian interests are being coddled by the current U.S. president, and to worry that he was the product of Russian meddling in American elections.
Like the unfathomable and irresponsible leadership of the FDP, what on earth can the U.S. president be thinking? Was fighting the Cold War all for naught?
Berlin -- Germany is trying, so far without success, to put together a coalition government under the leadership of Chancellor Angela Merkel of the Christian Democratic Union (CDU).
The first attempt has foundered. The CDU (along with the Christian Social Union, its Bavarian sister party) offered positions in the government to the Green Party and to the Free Democratic Party (FDP) to form a voting majority in the Bundestag. This somewhat unlikely joining of four parties was given the short-hand name of "Jamaika" coalition, because the colors of the party symbols were black (CSU/CSU), green (the Greens) and yellow (FDP), the colors of the Jamaican flag.
Surprisingly, it was the FDP that blew up the talks. The Greens and the CDU were making solid progress. The pro-business FDP had been aligned with the CDU in previous governments, so why not once again? There is not a lot of daylight between the CDU and the FDP ideologically.
What on earth was the FDP thinking? It had been out of power for years, and had even lost representation in the Bundestag. It campaiged on its reputation for responsible government, but once Chancellor Merkel offered it the chance to act responsibly, it bolted. It was a shock. This, after all, is the party of the late statesman Hans Dietrich Genscher, who was foreign minister in both the governments of Helmut Schmidt (SPD) and Helmut Kohl (CDU), during the 1980s and 1990s.
So it is back to the drawing board to see if the Social Democratic Party (SPD) will once again join the CDU in a grand coalition government. That is the coalition that has governed Germany for the past several years, quite successfully, but it has cost the SPD votes in several elections, as the SPD has not been able to distinguish itself from the CDU on many issues. SPD reluctance to join a coalition is understandable.
Moreover, the SPD wants to act as the main opposition in the Bundestag. If it joins the government, that would leave the far-right Alternativ für Deutschland (AfD) party as the main opposition, giving it recognition and authority far beyond the 13% share of votes it got in the recent national elections.
The CDU talks with the SPD will linger on for some time.
What is the American interest here? Doubtless it is to see Germany led by a stable government. What is the Russian interest here? Doubtless it is to see turmoil and instability in the leading European country that has stood for Western values and democracy. Russia chafes at the effectiveness of the NATO alliance, through which Germany and the United States, for decades, have defended freedom in the Baltic States, in Eastern Europe, and on the Southeastern Europe flank.
Which is why it is troubling to think Russian interests are being coddled by the current U.S. president, and to worry that he was the product of Russian meddling in American elections.
Like the unfathomable and irresponsible leadership of the FDP, what on earth can the U.S. president be thinking? Was fighting the Cold War all for naught?
Bad Days for NU, and for All Nebraska
November, 2017
Lincoln -- These are bad days for the University of Nebraska, for the State of Nebraska, and for all who call Nebraska home.
I am not talking about the football team, nor about the free-speech contretemps on the Lincoln campus. Indeed, those problems are bad enough but they should not be taking up so much of the university president's and chancellor's time, dominating as they do state-wide headlines.
Rather, I am referring to Nebraska's agricultural economy, how deeply it is in trouble, and how the leadership of our land-grant university must become more engaged in finding solutions to the growing ag sector crisis.
Last week I talked to a member of the state's revenue forecasting board, who confirmed the pessimistic news that while Omaha and Lincoln are doing fairly well, the rest of the state is not and state government tax revenues are plummeting. This means no money for local property tax relief, let alone for the funding of state government functions. The board's prediction is that things will only get worse.
As if that weren't enough, the U.S. Chamber of Commerce released its report that Nebraska would be among the states hardest hit by the current NAFTA negotiations. If the Trump Administration pulls the U.S. out of NAFTA, Nebraska will lose $2.6 billion in export revenue and lose 87,000 jobs.
The real free speech question here is whether the university leadership is able to speak forthrightly to this situation and take the institution in directions that might turn the failing ag sector around. That's what land-grant institutions are for. Or has the ascendant political culture in Nebraska, which seems to want to take advantage of the university's troubles, made it unsafe for such speech and leadership because part of the solution is inherently political and would constitute a challenge? Who else has the stature to admit that current farm programs are not working and that withdrawing from NAFTA is daft?*
The university, to be sure, is doing some new and impressive work for Nebraska agriculture. For example, in a few days the Nebraska Innovation Campus will host a session on developing local food markets, along with partners USDA and the Nebraska Investment Finance Authority, among others. The NIC has come a long way from its shaky start and is now starting to live up to its name. New initiatives at the IANR campus are also promising.
But at the top, university leadership is mired in a contrived controversy involving an undergraduate student who, outside the classroom, proclaims "Big Government Sucks" and a graduate student who calls the undergraduate a "Neo-Fascist." To me, both expressions are offensive and best handled by Miss Manners, not by our top university leaders who need to start speaking out themselves on what must be done to save the Nebraska agricultural economy.
____________________________
*Certainly not the faculty, which has just been chilled by the sacrifice of two university employees to appease political critics. Their offense? Fighting back for their institution, perhaps ineptly, but loyally. Message sent; message received.
Lincoln -- These are bad days for the University of Nebraska, for the State of Nebraska, and for all who call Nebraska home.
I am not talking about the football team, nor about the free-speech contretemps on the Lincoln campus. Indeed, those problems are bad enough but they should not be taking up so much of the university president's and chancellor's time, dominating as they do state-wide headlines.
Rather, I am referring to Nebraska's agricultural economy, how deeply it is in trouble, and how the leadership of our land-grant university must become more engaged in finding solutions to the growing ag sector crisis.
Last week I talked to a member of the state's revenue forecasting board, who confirmed the pessimistic news that while Omaha and Lincoln are doing fairly well, the rest of the state is not and state government tax revenues are plummeting. This means no money for local property tax relief, let alone for the funding of state government functions. The board's prediction is that things will only get worse.
As if that weren't enough, the U.S. Chamber of Commerce released its report that Nebraska would be among the states hardest hit by the current NAFTA negotiations. If the Trump Administration pulls the U.S. out of NAFTA, Nebraska will lose $2.6 billion in export revenue and lose 87,000 jobs.
The real free speech question here is whether the university leadership is able to speak forthrightly to this situation and take the institution in directions that might turn the failing ag sector around. That's what land-grant institutions are for. Or has the ascendant political culture in Nebraska, which seems to want to take advantage of the university's troubles, made it unsafe for such speech and leadership because part of the solution is inherently political and would constitute a challenge? Who else has the stature to admit that current farm programs are not working and that withdrawing from NAFTA is daft?*
The university, to be sure, is doing some new and impressive work for Nebraska agriculture. For example, in a few days the Nebraska Innovation Campus will host a session on developing local food markets, along with partners USDA and the Nebraska Investment Finance Authority, among others. The NIC has come a long way from its shaky start and is now starting to live up to its name. New initiatives at the IANR campus are also promising.
But at the top, university leadership is mired in a contrived controversy involving an undergraduate student who, outside the classroom, proclaims "Big Government Sucks" and a graduate student who calls the undergraduate a "Neo-Fascist." To me, both expressions are offensive and best handled by Miss Manners, not by our top university leaders who need to start speaking out themselves on what must be done to save the Nebraska agricultural economy.
____________________________
*Certainly not the faculty, which has just been chilled by the sacrifice of two university employees to appease political critics. Their offense? Fighting back for their institution, perhaps ineptly, but loyally. Message sent; message received.
Veterans' Day, 2017
November, 2017
Washington -- Today is Veterans' Day and a time to reflect on family and friends who served in uniform.
Thoughts go first to those veterans I knew personally, albeit as a youngster with little appreciation for their service. Great uncles Ralph Zicafoose, Oscar Spader, and Herbert Bergstrom were all wounded in WWI. Hilmer Bergstrom served in the merchant marine.
Then there are my first cousins, once removed, who served in WWII: Walt Johnson; George Richardson; Les and Orville Oberg; and John Calvin Oberg, who survived the sinking of the USS Wasp.
Four first cousins served during the period from WWII's end through Korea and Vietnam: Roger and Merv Johnson, Virgil Oberg, Byron Almquist.
Many friends and neighbors have served in uniform. I hardly knew him, but neighbor Frank Eager (1872-1960) served in the Philippine War and was awarded the Silver Star. (His family homestead was rented out and he lived in Lincoln.) Several in my high school class served (as did I). Some in my college class were killed or captured in Vietnam.
Going back further, family ancestors on my paternal grandmother's side served in the colonial wars and in the Revolutionary War. Some of their descendants, also forebears, fought on both sides of the Civil War, as their ancestral home was in Virginia at the beginning of the war and in West Virginia at the end of it. Ephraim Zicafoose, who fought for the Union, lies buried in a Union cemetery in Mississippi. His cousin Sampson Zicafoose, my great-great grandfather, died in 1863 of unknown causes after being in the Confederate Army. Likely he was conscripted into it, and may even have perished through fleeing it, as he made it home before his death; but he may also have been a willing defender of slavery, as his wife's family (Simmons) had been slaveholders.
Which leads to the question of what to make of the current controversy over Confederate monuments. Being the descendant of at least one Confederate soldier, I have license equal to other such descendants to voice my opinion, which is to put them in museums, where they will be explained, not celebrated. We are not a country that defaces or blows-up statues. We should confront our history honestly and try to improve from it.
Recognition of uniformed service, in whatever wars, should be a time of reflection more than celebration. Indeed, I'm grateful for all who served in honorable causes. As to my own service, I'd like to think it was in an honorable cause (and some of it was, to be sure; see a previous post), but I'm not putting on my old uniform and joining any parades this Veterans' Day. I could, but won't.
Washington -- Today is Veterans' Day and a time to reflect on family and friends who served in uniform.
Thoughts go first to those veterans I knew personally, albeit as a youngster with little appreciation for their service. Great uncles Ralph Zicafoose, Oscar Spader, and Herbert Bergstrom were all wounded in WWI. Hilmer Bergstrom served in the merchant marine.
Then there are my first cousins, once removed, who served in WWII: Walt Johnson; George Richardson; Les and Orville Oberg; and John Calvin Oberg, who survived the sinking of the USS Wasp.
Four first cousins served during the period from WWII's end through Korea and Vietnam: Roger and Merv Johnson, Virgil Oberg, Byron Almquist.
Many friends and neighbors have served in uniform. I hardly knew him, but neighbor Frank Eager (1872-1960) served in the Philippine War and was awarded the Silver Star. (His family homestead was rented out and he lived in Lincoln.) Several in my high school class served (as did I). Some in my college class were killed or captured in Vietnam.
Going back further, family ancestors on my paternal grandmother's side served in the colonial wars and in the Revolutionary War. Some of their descendants, also forebears, fought on both sides of the Civil War, as their ancestral home was in Virginia at the beginning of the war and in West Virginia at the end of it. Ephraim Zicafoose, who fought for the Union, lies buried in a Union cemetery in Mississippi. His cousin Sampson Zicafoose, my great-great grandfather, died in 1863 of unknown causes after being in the Confederate Army. Likely he was conscripted into it, and may even have perished through fleeing it, as he made it home before his death; but he may also have been a willing defender of slavery, as his wife's family (Simmons) had been slaveholders.
Which leads to the question of what to make of the current controversy over Confederate monuments. Being the descendant of at least one Confederate soldier, I have license equal to other such descendants to voice my opinion, which is to put them in museums, where they will be explained, not celebrated. We are not a country that defaces or blows-up statues. We should confront our history honestly and try to improve from it.
Recognition of uniformed service, in whatever wars, should be a time of reflection more than celebration. Indeed, I'm grateful for all who served in honorable causes. As to my own service, I'd like to think it was in an honorable cause (and some of it was, to be sure; see a previous post), but I'm not putting on my old uniform and joining any parades this Veterans' Day. I could, but won't.
Stan Matzke, Jr. 1933 - 2017
November, 2017
Lincoln and Washington -- It's painful to note the passing yesterday of Stan Matzke, Jr., my longtime friend and colleague.
The last time I heard from him was in the mail. He sent me a photo he had taken while visiting our Nebraska prairie property, along with two dollar bills to pay for the shoe covers he had accidently taken from our barn. The gesture was in part to tweak the very idea of having shoe covers in a barn. Stan had his own farm in the southern reaches of Lancaster County, on which he and Dorothy raised pecans and walnuts.
Stan sometimes thought of himself modestly, as being in the shadow of his father, Stan Matzke, Sr., a legendary state senator and conservationist. He always liked it when I told him I knew the Matzke name more from his own exploits on the basketball court (as a star player at NU in the 1950s) than from the accomplishments of his father.
Stan Jr. had his own accomplishments in government, about which I have written before. See posts here and here. He could work across party lines easily for good causes, working with Democrats while remaining close to the most decent of Republicans.
Stan, I'll be tied up in Washington next week and won't have a chance to pay my final respests to you in Lincoln. So I'll just have to post this message to say Nebraska has lost one of its best, and forever will be a lesser place without you.
Lincoln and Washington -- It's painful to note the passing yesterday of Stan Matzke, Jr., my longtime friend and colleague.
The last time I heard from him was in the mail. He sent me a photo he had taken while visiting our Nebraska prairie property, along with two dollar bills to pay for the shoe covers he had accidently taken from our barn. The gesture was in part to tweak the very idea of having shoe covers in a barn. Stan had his own farm in the southern reaches of Lancaster County, on which he and Dorothy raised pecans and walnuts.
Stan sometimes thought of himself modestly, as being in the shadow of his father, Stan Matzke, Sr., a legendary state senator and conservationist. He always liked it when I told him I knew the Matzke name more from his own exploits on the basketball court (as a star player at NU in the 1950s) than from the accomplishments of his father.
Stan Jr. had his own accomplishments in government, about which I have written before. See posts here and here. He could work across party lines easily for good causes, working with Democrats while remaining close to the most decent of Republicans.
Stan, I'll be tied up in Washington next week and won't have a chance to pay my final respests to you in Lincoln. So I'll just have to post this message to say Nebraska has lost one of its best, and forever will be a lesser place without you.
Regular Order is a Mistake for the Farm Bill
October, 2017
Washington and Lincoln -- Ordinarily I agree with agriculture expert and commentator Alan Guebert and would be commending his views to any readership. But his recent column "Regular Order" is shortsighted and downright wrong.
He praises the House and Senate agriculture committees for their hearings and deliberations over the 2018 Farm Bill, apparently for the purpose of contrasting how these committees go about their agriculture work, against the legislative chaos surrounding health care and taxes.
The 2018 Farm Bill, however, is headed toward ever more disintegration and destruction of rural America. If you like $2.95/bu corn (current price around Lincoln, Nebraska), by all means praise the committees for following Regular Order. If you accept "food deserts" across the country, as described so well by Barbara Soderlin of the Omaha World-Herald, then you will like more of the same being offered up by the House and Senate agriculture committees. If you like the fate of the American heartland being in the hands of foreign countries' commodity demands, then you will agree that the 2018 Farm Bill should follow the path of its 2014 predecessor, with just a bit of tinkering here and there. If you make no connection between the Farm Bill and the nation's diabetes epidemic, praise the Regular Order.
There is another way. The Farm Bill should be as contested as any legislation now before Congress. Production agriculture (Ag 1.0) should evolve into nutrition agriculture (Ag 2.0) through new provisions in the next Farm Bill. (See my earlier post about the distinction.) A realistic market basis for this evolution has now been outlined in a new report from the Federal Reserve Bank of St. Louis and the USDA. Entitled "Harvesting Opportunity," it should be a constant reference work for drafters of the Farm Bill.
Elected officials who care about rural America, and all who care about a healthy citizenry, need to be as fierce on the Farm Bill as they are on health insurance or taxes, if not more so. This means using all the legislative tools at hand – including throwing a wrench or two – even if they push beyond the niceties of the Regular Order.
Washington and Lincoln -- Ordinarily I agree with agriculture expert and commentator Alan Guebert and would be commending his views to any readership. But his recent column "Regular Order" is shortsighted and downright wrong.
He praises the House and Senate agriculture committees for their hearings and deliberations over the 2018 Farm Bill, apparently for the purpose of contrasting how these committees go about their agriculture work, against the legislative chaos surrounding health care and taxes.
The 2018 Farm Bill, however, is headed toward ever more disintegration and destruction of rural America. If you like $2.95/bu corn (current price around Lincoln, Nebraska), by all means praise the committees for following Regular Order. If you accept "food deserts" across the country, as described so well by Barbara Soderlin of the Omaha World-Herald, then you will like more of the same being offered up by the House and Senate agriculture committees. If you like the fate of the American heartland being in the hands of foreign countries' commodity demands, then you will agree that the 2018 Farm Bill should follow the path of its 2014 predecessor, with just a bit of tinkering here and there. If you make no connection between the Farm Bill and the nation's diabetes epidemic, praise the Regular Order.
There is another way. The Farm Bill should be as contested as any legislation now before Congress. Production agriculture (Ag 1.0) should evolve into nutrition agriculture (Ag 2.0) through new provisions in the next Farm Bill. (See my earlier post about the distinction.) A realistic market basis for this evolution has now been outlined in a new report from the Federal Reserve Bank of St. Louis and the USDA. Entitled "Harvesting Opportunity," it should be a constant reference work for drafters of the Farm Bill.
Elected officials who care about rural America, and all who care about a healthy citizenry, need to be as fierce on the Farm Bill as they are on health insurance or taxes, if not more so. This means using all the legislative tools at hand – including throwing a wrench or two – even if they push beyond the niceties of the Regular Order.
Coalition Governments and American Exceptionalism
October, 2017
Berlin -- After recent elections with no clear winners in Austria, the Czech Republic, and Germany, coalition governments are being formed to proportionately reflect voting outcomes in each country. This is not easy when the top vote-getting parties have major policy differences.
In Austria and the Czech Republic, new parties and leaders on the right have emerged with pluralities. They may be able to form governments with other parties not distant ideologically. In Germany, however, the center-left SPD has pulled out of its previous coalition with the center-right CDU and will now become the leader of the opposition. Although the CDU and the centrist FDP have ruled before in coalition, after the most recent elections they now need Green Party participation to form a government.
One idea under consideration in Germany is to create two vice-chancellors under Chancellor Merkel of the CDU, one for the FDP and one for the Greens. But there is no authority and no precedent for this, so there may have to be other solutions. The process may take the rest of the year.
Meanwhile, shortly after pulling out of the national coalition, the SPD scored impressive gains in the subsequent elections in the state of Lower Saxony. It is as though the SPD discovered new backbone and voters responded accordingly.
All of which is a contrast to the situation in the United States. American exceptionalism does not provide proportional representation at the national level, so there is not much structure around which coalitions can be formed. With an increasingly polarized American electorate, the result is either gridlock or, with a president having no experience in government and no skills to bring people together, dangerous misrule.
American state and local governments, by contrast, have diverse ways of avoiding polarization: non-partisan elections, proportional representation, even non-partisan unicameral bodies, as in Nebraska. It is not always fully appreciated that in the United States, election laws are under the authority of state govenments, including authority over congressional districting. States could do much to apply correctives to the sorry state of the national government. This is a feature of American exceptionalism that needs urgently to be exercised.
Berlin -- After recent elections with no clear winners in Austria, the Czech Republic, and Germany, coalition governments are being formed to proportionately reflect voting outcomes in each country. This is not easy when the top vote-getting parties have major policy differences.
In Austria and the Czech Republic, new parties and leaders on the right have emerged with pluralities. They may be able to form governments with other parties not distant ideologically. In Germany, however, the center-left SPD has pulled out of its previous coalition with the center-right CDU and will now become the leader of the opposition. Although the CDU and the centrist FDP have ruled before in coalition, after the most recent elections they now need Green Party participation to form a government.
One idea under consideration in Germany is to create two vice-chancellors under Chancellor Merkel of the CDU, one for the FDP and one for the Greens. But there is no authority and no precedent for this, so there may have to be other solutions. The process may take the rest of the year.
Meanwhile, shortly after pulling out of the national coalition, the SPD scored impressive gains in the subsequent elections in the state of Lower Saxony. It is as though the SPD discovered new backbone and voters responded accordingly.
All of which is a contrast to the situation in the United States. American exceptionalism does not provide proportional representation at the national level, so there is not much structure around which coalitions can be formed. With an increasingly polarized American electorate, the result is either gridlock or, with a president having no experience in government and no skills to bring people together, dangerous misrule.
American state and local governments, by contrast, have diverse ways of avoiding polarization: non-partisan elections, proportional representation, even non-partisan unicameral bodies, as in Nebraska. It is not always fully appreciated that in the United States, election laws are under the authority of state govenments, including authority over congressional districting. States could do much to apply correctives to the sorry state of the national government. This is a feature of American exceptionalism that needs urgently to be exercised.
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