September, 2019
Washington – Yesterday's hearing before the House Financial Services Committee, titled "A $1.5 Trillion Crisis: Protecting Student Loan Borrowers and Holding Student Loan Servicers Accountable," invites comparisons between corruption at the Department of Education a decade ago and now.
In a way, there has been no change, because several of the same people are involved. They have just passed once again through the revolving door that connects the loan industry, Capitol Hill, and the Department. See more below.
But there has been a significant change, for the worse. Fifteen years ago, corruption was led out of the Department but was curtailed somewhat by the White House. Now, it is led out of the White House and is facilitated by other departments: OMB, CFPB, and, most ominously, the Department of Justice.
In this century's first decade, when student loan lenders were collared by the Department of Education's Inspector General (OIG) for making illegal federal subsidy claims in the billions of dollars, OMB and the Domestic Policy Council were caught off guard, as they had not been party to the various schemes. At first, they tolerated the practices: Secretary Margaret Spellings even went to Capitol Hill to a news conference arranged by Congressman John Boehner, whose PAC was a big recipient of political contributions from the lenders, to overturn the OIG's initial audit.
But when OIG did a second, more thorough audit, and it looked as if student loan corruption might become a political issue in the 2006 elections, the White House stepped in to review more carefully what was going on. The Department of Education's chief of staff, David Dunn, called a meeting of lenders, lobbyists, OMB, DPC, the Vice President's office, and Wall Street financiers to consider how to respond to the OIG's latest audit. Industry did not get what it wanted, a "repudiation" of OIG. Instead, it got a deal that while Secretary Spellings would agree with OIG that the subsidy claims were illegal, and always had been, she would not ask for the return of the false claims already paid.
In time, the OIG's audit was awarded the Alexander Hamilton award as the best federal audit of the year. The award was presented by Clay Johnson, personal friend of President Bush, at a ceremony accompanied by "The President's Own" United States Marine Band.
It was a nice way to distance the White House from the corruption at the Department of Education. Secretary Spellings also saw to it that two of the key players facilitating the false claims resigned.
Contrast then with now, as illuminated by Michael Stratford at Politico and Erik Ortiz at NBC News. Secretary Betsy DeVos is obstructing law enforcement agencies – state attorneys general foremost among them – from investigating violations of student loan borrowers' consumer protections. A different president's friend, David Urban, close to President Trump and a prominent loan servicer lobbyist (for PHEAA), has widened the scope of the effort to prioritize the interests of industry over borrowers. Even DOJ, which once investigated corruption at Education and forced out high officials who regulated lenders while holding their company stocks, has joined in, first by trying to block Massachusetts Attorney General Maura Healey from suing PHEAA, and then by taking the position that the Higher Education Act preempts all but the Department of Education from enforcing consumer protections.
This position is losing in courts across the country, but not before borrowers must suffer long delays in getting their protections, if they ever do.
Late at yesterday's hearing, a Congresswoman asked a panelist if she knew who Kathleen Smith was. The questioner answered her own question. She was a high level Education official who has now become PHEAA's lobbyist, as Politico has pointed out and several ethicists have questioned. That's not all. While with John Boehner, Kathleen Smith was liaison to lenders making contributions to his PAC and a central figure in arranging the Spellings' rejection of the first OIG audit, which took place in Boehner's office. She was also present and a key figure in the meeting with David Dunn, at which time she argued, from her position as head of the Education Finance Council, for rejection of the second OIG audit. More recently, at the Department of Education, she signed the letter cutting off data exchanges between the Department and the CFPB, and led the effort to stop cooperating with state and local law enforcement to protect borrower's rights.
The Congresswoman called her move to lobbyist "swampy," but this goes beyond swampiness. What we are witnessing is racketeering and corruption, with violations of law along the way by multiple people who move through the revolving door: violations of recusals, obstruction of federal audits, perjury, and obstruction of law enforcement.
The hearing produced consensus that there is indeed a "crisis" in student loans, but got no further as to solutions. My suggestion: Congress must eliminate corruption from student loans, tearing it out root and branch. The hearing was a disappointment, as the word corruption was not even uttered until 3 hours and 45 minutes into a 3 hour 50 minute hearing. By that time, most everyone had left.
I hope no members of the House Financial Services Committee are telling constituents that they are going to fix the student loan crisis, because based on yesterday's hearing, such action is a long way off.
