March, 2025
Washington — After two decades of efforts by many public-spirited citizens and officials to wring fraud, waste, and abuse out of federal student loan programs, the Trump administration is paving the way for corruption's return.
First, the new administration fired the Department of Education's inspector general, wiped out the Consumer Financial Protection Bureau, and terminated research contracts essential to identifying corruption. (Does anyone believe these choices were made to balance the federal budget?)
Now the new administration proposes (if Project 2025 is any indication) to return all student lending to many of the very entities that failed so spectacularly when loans were made with private capital and guaranteed by federal taxpayers. Several of these organizations were once caught making false claims, creating illegal back-door deals with schools, and invading loan databases to exploit unwitting borrowers to their disadvantage if not ruin.
When the Great Recession hit in 2008, the system of private capital, guaranty agencies, and secondary markets froze up and had to be bailed out by the federal treasury through Congressional legislation known as ECASLA. In 2010, Congress asked itself why this corrupt system should continue on taxpayer subsidies and ended it for all federal loans thereafter.
Unfortunately, Congress left a vestige of the old system in place for servicing the Department of Education's Direct Loans. Two of the largest servicers have since either been debarred (Navient) or quit (PHEAA) for abuse of borrowers.
If you're the Trump administration in 2025, looking for ways to dismantle the Department of Education, what's not to like about bringing back the old system? Many of the channels of corruption still exist, just waiting to be reactivated. The old transactional relationships — federal subsidies returned through big political contributions — never went away.
And who's going to catch you?
How bad was the old system? Here is a short, annotated bibliography to re-inform public policy. Click on the authors.
- Department of Education. Misuse of the NSLDS data siystem by lenders, marketers, and collection agencies was so alarming the system had to be shut down and restarted with new controls.
- Stephen Burd. Explains how the author of the NSLDS letter above was corrupt himself.
- Stephen Burd. Reveals details of school/lender corruption.
- Amit Paley. Must reading in view of DOGE attempts to invade databases.
- Dan E. Moldea. The formidable investigative journalist turns his attention to lender false claims using primary sources to expose corruption, focusing on PHEAA and SLFC.
- Ryann Liebenthal. Perhaps the most comprehensive book yet on the failures of the federal guaranteed student loan system.
- Washington Monthly. Provides examples of corruption.
- Jonathan D. Glater and Karen W.Arenson. An insightful look at multiple entanglements.
- Danielle Douglas-Gabriel. Recounts the 9.5% scandal through 2015. [Full Disclosure: I brought the suit in question.]
- Public domain. Previously sealed primary source documents, dealing with several lenders' false claims, were released into the public domain in November, 2024, pursuant to a landmark First Amendment decision by the Fourth Circuit Court of Appeals. None of the lenders is a sole interested party in these documents, nor are the documents necessarily representative of all lenders, but the documents provide a level of detail essential to understanding the relationship between lenders and federal agencies.
