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.