Another Student Loan Servicer Falls

September, 2021

Washington —  Another troubled federal student loan servicer now bites the dust.  That makes three this summer.  Many are saying good riddance.

A worrisome question is where these loans will now go for servicing.  The latest servicer to exit intends to hand off its portfolio to Maximus.  Who and what is Maximus?  It's hardly a household name in student loans.

Thanks to a remarkable research effort by Deanne Loonin, "Illusory Due Process: The Broken Student Loan Hearing System" 11 U.C. Irvine L. Rev. 173 (2020), we know that Maximus may not be a good place for sevicing.  She writes:

In the hearing area, the Department [of Education] appears to rely heavily on Maximus for hearing administration and related tasks. This is a company that has a long track record of problems and sanctions related to federal and state contracts....  

She goes on to describe in detail situations no borrower should have to endure, and no federal taxpayer should be supporting.  

Another must-read work for anyone connected to student loans is Josh Mitchell's The Debt Trap: How Student Loans Became A National Catastrophe (2021).  A WSJ reporter, he has unusual insights into the nation's student loan troubles.

Many years ago, when I was in the U.S. Navy, all personnel who handled important national security materials were required to undergo a National Agency Check (NAC) or a Background Investigation (BI).   Government agency files were searched to find any records of bad behavior; investigators called on citizens who knew individuals to determine their fitness and character.  

Student loan servicers should be similarly vetted.  What would turn up in agency files about the fitness and character of those who service student loans?  From my experience — and it is extensive — a lot of servicers would not pass muster, and should not be entrusted to handle student loans.  How some have escaped sanctions and even debarment is a question that now must be asked and answered, given the inevitable shake-up that is occurring.

A student loan operational crisis will soon be upon the nation.  The repayment pause granted during the pandemic will expire at the end of January.  Millions of borrowers will be assigned new servicers, who will have only the old servicers' records to go by, records that we know are riddled with errors created by sevicer ineptitude and sometimes corruption.  

The Department of Education should be taking steps to cancel as many loans as possible in the best interest of the country.  Those borrowers who have paid back their principal and interest at the government's cost of money should have their loans cancelled now.  Any remaining balances due to fees, penalties, compounding of interest, and other charges have a too-high likelihood of being manipulated by servicers toward their own ends, not based on law or regulation.

In the case of the Public Service Loan Forgiveness program, mismanaged terribly by PHEAA, loans should be cancelled after ten years of public service.  Again, too many borrowers are being disqualified for servicer error, not for failure to live up to their obligations under the purpose of the program.   

The Secretary of Education has the authority under existing law to make these decisions, in the interest of both borrowers and taxpayers.*  The Secretary may also have additional authority under "compromise and settle" law, but he surely has authority to cancel loans as recommended above, as part of an attempt to deal with the upcoming operational crisis. 

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* Taxpayers have a big interest in seeing student loan programs operated correctly and efficiently.  They benefit when borrowers are able to move ahead with productive lives, whether through repayment, cancellation according to law, or, as is provided to other debtors when necessary, bankruptcy.  Taxpayers should not be paying the costs of corruption among lenders, servicers, and collectors that keep people in debt as long as possible so as to maximize profits from them, yet that has been all too common for many years.  

Addressing Financial Exploitation of the Elderly in Maryland

September, 2021

Washington — On October 1, 2021, a new law will go into effect in Maryland, protecting susceptible adults from exploitation by financial advisors and others who would take advantage of them.  

Here is a summary of the new law as passed by the Maryland legislature and signed by the governor: 

"Authorizing the Division of Consumer Protection in the Office of the Attorney General to bring certain actions on behalf of certain susceptible adults and older adults; authorizing the Securities Commissioner of the Division of Securities of the Office of the Attorney General to bring a civil action on behalf of certain susceptible adults and older adults; ... authorizing a susceptible or older adult to bring an action under certain circumstances; etc."

 
Readers of this blog will recall the genesis of this law, the case of Vess v. Price, in which a financial advisor, Robert Price, arranged to have himself become the sole beneficiary of the estate of his client, elderly widower Howard Vess.  After Vess died, Price produced a new will claiming he, Price, was the estate's beneficiary, superseding the will his client had filed at his county courthouse, which left his entire estate to charities.  Claudia Vess, niece of Howard, sued the financial advisor in a case that lasted six years, with the support of her uncle's rural neighbors, ultimately prevailing in a settlement that saw her uncle's charities receive benefits from the estate, as she knew he had intended.  Unfortunately, the financial advisor spent much of the Howard Vess estate in his own defense, leaving diminished amounts for the charities.  

I knew all the parties involved, including Howard Vess's neighbor George Garner, a legal researcher (also known as the Shepherd of Accokeek) who worked tirelessly on his deceased friend's behalf but died before he knew the outcome of the litigation. In a November, 2019, post I wrote:

Maryland law must be changed to guard against financial advisors becoming clients' beneficiaries. Lawyers would be disbarred if they attempted the same chicanery. Financial advisors are often positioned even better than lawyers to take advantage of their elderly clients.

After the long legal battle, Claudia Vess asked her Maryland state legislative delegation for just such a law.  Delegate Al Carr led the way by endorsing the effort; Delegate Emily Shetty and Senator Jeff Waldstreicher, members of key committees, introduced new legislation at her request.  Public hearings were held in February, 2020.  Because of the Covid pandemic, the Maryland legislature adjourned early without taking action, but legislation was again introduced in 2021 and passed.  

The new law includes these findings:  

"Studies have shown that millions of vulnerable Americans over the age of 67 may be targets annually, and the financial loss to victims of financial abuse is estimated to be several billion dollars each year... These estimated financial losses increase exponentially when additional related costs to the victim, such as health care, social services, investigations, legal fees, and lost income, are taken into account..  Redress for victims of financial exploitation in Maryland is limited to adult protective services, criminal law enforcement, and costly civil remedies...

"The heightened burden of proving guilt beyond a reasonable doubt in a criminal case, the difficulty of proving exploitation when the victim may be older or infirm, and the limited remedies available to adult protective services and law enforcement further support the need for a solution under civil law to address the financial exploitation of susceptible adults and older adults...."

So as of October 1, Marylanders can ask the Attorney General to bring civil actions on behalf of susceptible adults, and can bring actions themselves under the new law entitled "THE MARYLAND STATUTE AGAINST FINANCIAL EXPLOITATION (SAFE) ACT."

The settlement of Vess v. Price achieved a measure of justice, but its long-lasting effect, because it led to a change in the law itself, will be fewer victims of unscrupulous financial advisors and others who prey on the vulnerabilities of the elderly population. 

Stop This Taxpayer-Financed Smear Campaign

September, 2021

Washington — If you are a government employee, having taken an oath to discharge the duties of your office faithfully, and your office duties include the evaluation or supervision of government programs, you have an obligation to listen to all sides of issues surrounding those programs. 

Especially to listen to those who may have information that the programs are not working well, perhaps due to waste, fraud, and abuse.  

Who would think otherwise?  I wouldn't.  I spent five years at the Institute of Education Sciences, the research arm of the U.S. Department of Education, reviewing federal postsecondary education programs.  The very idea that I would be limited to looking only at favorable or unfavorable evidence would be dismissed out of hand.   

Once, in 2004, I read a Wall Street ratings agency's cryptic report about a new securitization by a for-profit lender of federal guaranteed student-loans.  I called Fitch Ratings to get more information, because I was concerned that the lender may have been making false financial claims against taxpayers.  Fitch told me its legal department had the same concerns.  That was the beginning of an effort, ultimately successful, to save taxpayers from billions of dollars of false claims.

A few years later, a deputy undersecretary at the Department of Education, Bob Shireman, listened to a presentation in the Senate by a Wall Street investor who thought for-profit colleges were overvalued in the market because they were not the wonderful educational institutions they were claimed to be.   Why wouldn't he listen?  Wall Street can be a good source of information about federal education programs, pro and con.  

Many in the for-profit school industry objected.  They were accustomed to department officials, many of whom were in the revolving door between the industry and the department, singing the praises of the industry, and giving it regulatory breaks, in order to pump up industry stock prices on Wall Street.  

Some in Congress objected as well.  Especially those members like Buck McKeon, who held stock in a for-profit school and whose former aides had once populated key positions in the department.  

So for his willingness to listen to industry critics, and maybe even look more critically at the industry, Bob Shireman became the object of a smear campaign, which has not let up over the years.  He was accused of somehow profiting from short-selling, although subsequent investigations, demanded by his detractors, actually dispelled any such notion.

Now he is pushing back, as well he should.  You can read about it in a new exposé of the smear campaign, published this week.*  He wants his reputation back.  Of course anyone who actually knows Bob Shireman, as I do, knows that his reputation and his legacy cannot be take from him by anyone, especially the ethically-challenged, revolving-door denizens of the halls of Congress and federal regulatory departments.  

What is outrageous about the whole matter is that federal taxpayer money has fueled the smear campaign all along the way.  And fueled the political contributions to those in Congress who participated in it.  For-profit colleges are creatures of federal taxpayer largesse through the federal student-loan system. 

A fitting conclusion would be for the Wall Street Journal, which abetted the smear, to issue a correction and an apology, and for its editorial page to take a stand against the incredible waste of taxpayer dollars in this sorry episode.**      

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* The smear campaign has previously been noted in Dan E. Moldea's book Money, Politics, and Corruption in U.S. Higher Education, (2020), p. 320.

** If the newspaper needs a primer on for-profit colleges and student-loans, it would do well to read its own reporter's new book, The Debt Trap, by Josh Mitchell.

Stand Down, Vermont Librarians

September, 2021

Lincoln —  Enough, Vermont librarians.  Enough!  

Librarians in Vermont have removed the name of author Dorothy Canfield Fisher (1879-1958) from an eponymous book award.  Why?  She may have held eugenicist views, they say.  

Not that there is much, if any, evidence for it.  She did write some Vermont promotional materials about the state's proud Yankee stock.  The promotional organization for which she wrote was led by a person who was once in another organization that....you get the picture.  She did write a few lines over a long career that depicted flaws in a Native American character and in a French Canadian character.  But readers of her works in their entirety understand that Fisher was all about tolerance and equality.  

Even her defenders in Vermont, who weakly say she should be judged by the standards of her day, should actually read what she wrote.  If anything, Dorothy Canfield Fisher was well ahead of her time. 

No one who reads "An American Citizen," about a Black American who is finally treated with dignity when he moves to a Basque village in Europe, can say that Fisher is some kind of eugenicist.

No one who reads "Through Pity and Terror," about an upper-class woman who looks down on lower class children and won't let her own children play with them, but then loses all in war and has to accept food from the same poor families, can possibly imagine that Fisher has the slightest eugenicist leanings.

If Vermont librarians want to go after a eugenicist, may I suggest one who was not a Vermonter but occasionally practiced law there.  He believed in chloroforming disabled children and was a philandering husband; he was a Social Darwinist and in another state defended a teacher who used a textbook that described African Americans as an inferior race.  That would be Clarance Darrow.  You can look it up.   

Nebraskans know Dorothy Canfield from her days in Lincoln at the university.  She was the daughter of Chancellor James Canfield, perhaps the best chancellor in the history of the institution, after whom the UNL administration building is named.  She was a friend of Willa Cather and collaborated with her on publications.  Their correspondence over decades is the subject of much scholarship.

The next time Nebraskans are looking to honor an author through an award, let them name it after Dorothy Canfield Fisher.

Demote the AfD in the Bundestag

September, 2021

Berlin — One of my hopes for the upcoming German elections is that the Alternative for Germany (AfD) party is dislodged from its place as the leading opposition party in the Bundestag.  AfD is the wrong choice for Germany for many reasons, not the least of which are the party's neo-Nazi leanings.  

The AfD should never have been given this prominent platform after the last elections.  Had the centrist Free Democratic Party (FDP) joined into the governing coalition as it should have, the Social Democratic Party (SPD) would have taken the leading opposition role and the AfD would have been marginalized.  

I'm hoping the Christian Democratic Party (CDU/CSU) takes the spot of the leading opposition party this time around.  That would most likely result from a coalition to govern formed by the SPD, the Greens, and the FDP, which is feasible at this point.  This would be the Ampelkoalition, or traffic-light government, named for the parties' colors: red, yellow, and green.  

Or the SPD or the Greens could move into the leading opposition party, if they don't do quite as well as the polls now indicate.  That would not be a terrible outcome.  The SPD actually wanted that role after the last elections, rather than being the reluctant partner once again with the CDU/CSU.  

Anybody but the AfD.