February, 2021
Washington – For "man bites dog" stories, it's hard to top this one, coming from the student loan world: Secretary of Education Betsy DeVos abruptly resigned whereupon her deputy secretary moved quickly, once she was gone, to recover an estimated $22.3 million from a lender that had filed false claims against federal taxpayers more than a decade ago, but never repaid despite an OIG audit.
The action to recover was unexpected, to say the least, during the remaining days of the Trump Administration, which was expected to find a way to excuse the lender, as it had other such lenders over the years. The action was reported quickly by Politico, the Washington Post, and the New York Times.
The Washington Post gave readers context: "The Education Department’s decision stems from a scandal that signaled the beginning of the end of a system that enriched financial firms at the expense of taxpayers."That is doubtless true and it is good to see the decision framed that way. The action also suggests that at least some people in the Department still care about the rule of law.
2. Although the action was reported in some of the nation's newspapers of record, it was not noted in the higher education trade press. I was not surprised, as trade press reporting has been carrying ever-fewer articles on student loan scandals affecting borrowers and taxpayers. Perhaps it is because they are so common, but it may also reflect disinterest in the subject by administrators and faculty at higher education institutions, who are eager to see students and parents borrow but care little about what happens thereafter.
Two observations:
1. The lender reacted to the decision by claiming that it had been following the guidance of the Department all along: “We are disappointed with this statement as we believe these practices were in line with Department of Education guidelines, which were stated in a letter from the Department. The company and other industry participants asked for and relied on that letter to ensure that our billing practices for special charges were correct.”
Translation: other lenders got off, why not us?
But here is what the decision said with regard to that letter: "[A] Dear Colleague letter is a mechanism to provide guidance on existing laws and regulations, not to establish new rules. DCL FP-07-01 does not have the force or authority of a statute or regulation, it has no power to obviate the enforcement of such laws, and it does not establish a binding and enforceable contract between the Department and Navient to waive the liability established in the OIG Audit."
But here is what the decision said with regard to that letter: "[A] Dear Colleague letter is a mechanism to provide guidance on existing laws and regulations, not to establish new rules. DCL FP-07-01 does not have the force or authority of a statute or regulation, it has no power to obviate the enforcement of such laws, and it does not establish a binding and enforceable contract between the Department and Navient to waive the liability established in the OIG Audit."
I believe this is correct and it is good to see it coming from the Department after all these years. May it foretell more such actions.*
It may also reflect the fact that the trade press pays its bills with advertising revenue from the student loan industry, which does not like to see articles of this kind. One advantage of having been a litigant on these issues is that I have seen, in the products of legal discovery, many documents that show heavy-handed blowback when the trade press publishes unfavorable investigative works. Hence the growing tendency in the trade press to publish articles about low-stakes disputes in America's faculty lounges rather than explaining high-stakes corruption in student loans.
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* It would be appropriate to see what other OIG audits this might apply to, if they were overruled under the mistaken idea that a DCL can "obviate the enforcement of...laws." Which is not to say that the Secretary cannot use other authority, and apparently has, to overrule an OIG student loan audit, such as the broad "compromise and settle" authority of 20 U.S.C. 1082. The lender at issue in this case is raising the issue of equity, which invites review of contemporaneous false claims made by other lenders and how they were handled under any authority.
