Washington — The chair and ranking member of a U.S. Senate oversight committee have given student-loan servicer James Steeley, CEO of PHEAA, until July 7th to explain his false and misleading statements given under oath during an April hearing.
What is unusual about this is not that PHEAA committed perjury (it has a history of it), but that PHEAA was turned in by an official of the U.S. Department of Education. The senators' bipartisan letter to PHEAA was prompted by a detailed letter from Richard Cordray, the head of Federal Student Aid and former director of the Consumer Financial Protection Bureau.
In the past, the Department was more likely to help PHEAA cover up its false statements, and even go so far as to create new policies to keep borrowers, state attorneys general, and consumer advocates from suing PHEAA for its many mistakes. For example, when PHEAA lost its sovereign immunity in a U.S. Supreme Court decision in 2017, meaning it was subject to suit by borrowers, Secretary of Education Betsy DeVos invented a "preemption" doctrine instructing servicers like PHEAA not to respond to efforts by state and federal consumer protection offices to resolve student-loan borrower issues.
Federal courts in many jurisdictions overturned this doctrine and it has since been formally withdrawn by the Department of Education, but only after three years of consumer injustices.
Why is PHEAA so prone to perjury? Some have said it is just a part of their organizational culture. I believe it is the result of not being held to account over many years. Now would be a good time for the Senate committee to look at past PHEAA occasions of perjury and to ask those who have looked the other way to explain themselves.
First and foremost would be when PHEAA withheld documents from the Department of Education's Inspector General, "under penalty of perjury," in 2007. This came to light in 2017, but to our knowledge, the IG never took action, to this or any other similar violation. Such inaction may have created a moral hazard situation, through which PHEAA learned that there is actually no penalty for perjury.
The only time I know PHEAA was disciplined was in a federal court. In 2014, U.S. magistrate judge John Anderson rebuked PHEAA for withholding documents dealing with potential financial fraud and levied a $45,000 penalty.* However, it must be added that neither the Department of Education nor the Department of Justice brought the matter to the attention of the judge, although they both knew about it. (The judge learned of it through outside litigation, to which I was a party.)
But this was a rare act of discipline of a student-loan servicer. Both ED and DOJ have a history of giving student loan lenders and servicers a pass on even the most egregious occasions of waste, fraud, and abuse, costing taxpayers astounding sums. Moreover, they have agreed to keeping records confidential so that the public is not able to know how fraud was committed, by whom, by what means, for what reasons, and to what effect on the integrity of student-loan programs.
This is a good public-policy oversight subject for the Senate committee. Did past federal indulgence of fraud and perjury among certain student-loan contractors lead to the predictable PHEAA perjury in April? I've been involved in student-loan programs for five decades, and can say without doubt that the answer is yes. Perhaps the Senate will now start to get to the bottom of why student-loan programs have become such a mess.
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* Dan E. Moldea (2020). Money, Politics, and Corruption in U.S. Higher Education, p. 120.
