August, 2019
Washington -- Three House committees are combining investigative forces to try to get to the bottom of the federal student loan servicing mess, a stupefying demonstration of malfeasance and wrongdoing affecting millions of borrowers nationwide.
I was in successful litigation for thirteen years against student loan lenders and servicers, on behalf of the United States, and before that, a civil service employee of the U.S. Department of Education, so this is not a new subject for me.
The committees are looking especially hard at three problem areas: the deliberate placement of borrowers into inappropriate repayment programs; the attempt by Secretary DeVos to preeempt state laws protecting borrowers as consumers; and the attempt by DeVos to obstruct law enforcement organizations from investigating borrower complaints.
If the investigation is thorough, what the committees will find is a revolving-door network of individuals who move between industry, the department, and sometimes even the congressional staffs themselves to make and influence decisions for private gain at the expense of vulnerable borrowers and taxpayers.
The committees will discover that the network has been a formidable force since 2002, when conflict of interest recusals were breached, followed soon thereafter by loan fraud. The integrity of federal audits was undermined and inspector general's findings were overridden. Department lawyers who did not go along were circumvented. False claims against taxpayers were never recovered; millions remain outstanding since 2009 with no action. When repeated perjury was discovered at a lender, there were no consequences.
When the servicer PHEAA lost its sovereign immunity in the U.S. Supreme Court in January of 2017, opening the way for borrowers – and states on their behalf – to sue PHEAA, the revolving-door network acted through new Trump Administration appointments to try to preempt state lawsuits and state servicer licensing. (Licensing requirements are a particular problem because a servicer could lose its license to operate in a state if charged with offenses like fraud and perjury.)
Under color of law, Secretary DeVos and the network acted to obstruct law enforcement from protecting borrower rights. The committees may well look at this as a violation of Title 18, United States Code, Section 242, Deprivation of Rights Under Color of Law.
Emails are starting to surface, the results of FOIA inquiries, showing communications in the Trump Administration between members of the network within the department and within parts of the industry. There are many familiar names; these emails are not the first of their kind. With all the violations of law over the years, it is hard not to view the revolving-door network as a corrupt organization under the Racketeer Influenced and Corrupt Organization Act (RICO).
The House Financial Services Committee will hold a hearing September 10 on the student loan servicers. Past hearings have not resulted in solutions; nor has remedial legislation. What surely is necessary is action to remove network individuals from government, and from government contracting positions, as provided in RICO remedies.
