New Taxpayer Burdens from Student Loan Deceptions

July, 2022

Washington — Deceptions of borrowers by lenders, accompanied by loan servicer misrepresentations, have long plagued federal student loan programs.  The extent of the abuse is becoming more apparent as the nation attempts to find solutions to its $1.7 trillion (and growing) student loan crisis.  

At what point should deceptions and misrepresentations be investigated as fraud against both borrowers and taxpayers, who wind up paying for it?  That is a question raised by looking at an actual case, brought to my attention earlier this year by an Oregon borrower who has shared her extensive loan paperwork with me.  

The borrower first took out bank-based federal guaranteed loans (FFEL) in 1989.  She obtained a four-year degree from a reputable college and did additional graduate study, borrowing a total loan principal of $78,096.  Over the following years, like many borrowers, she experienced occasions when she could not afford her monthly payments and was placed by her loan servicers into deferments, then into forbearances, which capitalized interest.  She was conscientious and never went into delinquency or default.

To be able to handle payments of principal, interest, and rapidly growing capitalized interest, she asked her servicers for an affordable repayment plan based on her income, but was turned down on grounds that she was not eligible.  Her servicers offered more forbearances instead, which drove her more deeply into debt.

She then undertook a close examination of her loan history to determine why servicers would not place her into an affordable repayment plan, for which she rightly thought she was eligible.  She was perplexed at what she found.

She had consolidated her loans in 2002 with Vermont Student Assistance Corporation (VSAC), which was also her loan servicer, then re-consolidated in 2004 with the federal Education Department's Direct Loan (DL) program, with servicing contracted to Affiliated Computer Services (ACS).  But that consolidation was never finalized.  Although DL paid off VSAC for the consolidated loan, she never received a DL repayment schedule.  Instead of a DL schedule, on which she was to begin paying, she was contacted by Goal Financial, a private direct-marketing consolidator, which sent its own consolidation paperwork to her.  Because Goal Financial clearly knew about her DL consolidation — just how is a key question — and advised her how to complete its own paperwork referencing it, she was deceived into thinking that what she got from them was still part of the DL process.  But what she signed actually terminated her DL consolidation and put her back into the FFEL program with Goal Financial as her lender.  

Goal Financial, which paid off DL, then began receiving her payments along with lucrative federal taxpayer special allowance payments that supplemented them.  

Goal Financial contracted with ACS and Great Lakes as servicers but after a few years the servicing of her loan was moved to AES/PHEAA.  That servicer, notorious for mismanaging federal contracts, misrepresented her eligibility for an affordable repayment plan, telling her incorrectly that FFEL borrowers could not participate.  In 2020, the Oregon borrower re-consolidated into DL to take advantage of a repayment pause due to the Covid pandemic.  DL paid off Goal Financial fully for the loan, including all the interest capitalization the borrower incurred because she had been denied benefits to which she was entitled.  The payoff amount to Goal Financial was $89,711, despite her payments of $68,239 over thirty years.  In other words, compared to the principal she borrowed, she was $11,615 worse off despite paying $68,239 toward the original debt.  

Thanks to a recent (and wise) decision by the Education Department, borrowers illegally denied their benefits have been offered "income driven repayment waivers" so that they can be placed back into the programs they could have participated in, but for deception and misrepresentation.  In the Oregon borrower's case, the balance of her loans will be cancelled to the extent she has been in repayment for more than the number of years required under the plans she was eligible for, but denied.  

But why, federal taxpayers might ask, shouldn't the payoff to Goal Financial be reduced to take out the illicit profit it made from its original deception and its servicer's misrepresentation?  Why shouldn't Goal Financial be investigated for the deception through which it received federal special allowance subsidies during the period from 2005-2020, and for how much the servicer illegally added to the borrower's principal that was paid to Goal Financial in 2020? 

The borrower has taken up these questions of deception and misrepresentation with the Oregon attorney general, who has established a consumer protection unit dedicated to student loan abuses.  When the Oregon AG looks into this case (and likely many, many more cases like it), here is what that office will find.

• The story of Goal Financial goes back to the 1990s, when Marcus Katz defrauded federal student aid programs in Georgia and was debarred for it.  After the debarment was lifted, he and his sons Ryan and Cary Katz, along with former Congressional aide Mark Brenner and others, formed private loan consolidation companies in San Diego.  They used direct marketing techniques, including cold-calling telephone banks, to entice borrowers into consolidating their loans into Goal Financial and College Loan Corporation. They also used mail with letterheads strongly resembling the seal of the U.S. Department of Education. They were enormously successful, financially.  But their success was due in part to privacy breaches, through which they obtained the names of borrowers from credit rating agencies, loan servicers, and perhaps even the Education Department itself, which in 2005 shut off lender access of its student loan data files temporarily out of concern the access was being misused.  Goal Financial was cited for unspecified privacy breaches by the FTC in subsequent years.  
• The direct-marketing lenders developed a process known as the "two-step consolidation" through which borrowers who thought they were getting one consolidation quickly wound up with another.  The "two-step" expression is still used guardedly among servicers and loan administrators as the suspected reason that documents are missing from paper trails.  The Oregon borrower who was deceived into a Goal Financial consolidation never received a DL payment schedule, most likely because it was never created, allowing time for the San Diego phone banks to call her first.  The servicer ACS may have been complicit, as it had access to DL records and a relationship with Goal Financial.  Or Education Department employees themselves may have been involved, actively or passively.  No one is eager to talk, other than to say that many records involving "two-step" have since been purged.  
• The attempt by the Oregon borrower to follow paper trails in this case, often without success, raises questions in itself.  The Goal Financial loan was apparently owned at different times by one or more eligible lender trusts, but it is hard to determine, because trust names and numbers do not match.  The loan may have lost eligibility for its federal guaranty at one point, due to "marketing errors" as cited in SEC reports, but no information is available to the borrower as to what those marketing errors were, who committed them, who took away the federal guaranty, or who restored it.  

At both state and federal levels, student loan borrowers have consumer protections.  Oregon consumer protections are statutory, specifically citing student loan borrowers.  At the federal level, a presidential executive order gives borrowers a right to "actionable" information about their loans.  In this borrower's case, she has succeeded in achieving eventual cancellation of her remaining loan balances under the IDR waiver process, but too many questions remain unanswered to stop there.  

The Oregon AG in particular needs to investigate further what is already known about this case, because there may be thousands or even hundreds of thousands of cases just like it.  Time is of the essence, because there is a history of repeated attempts at the federal level to pre-empt state investigations of federal student loan programs, and more may be in the offing.

This is also a matter that should be taken up by the Inspector General at the U.S. Department of Education, not only from the consumer protection standpoint, but to determine if lender deceptions and servicer misrepresentations constitute fraud against taxpayers, who are paying lenders and servicers questionable sums likely in the billions of dollars when paying off loans through consolidations, federal guaranties, or under various loan cancellation efforts.  These are amounts that were never incurred by borrowers to pay for education, but were added to their loan balances by deception and misrepresentation, and absolutely should not be a liability of taxpayers. 

 

Brothers, Cousins, Friends, and Enemies in the Civil War

July, 2022

Washington — Climbing high into the branches of one's family tree and brushing aside foliage can reveal great surprises.  I did so recently and found hiding there more than I ever expected to know about the 14th Virginia Cavalry, a Confederate regiment in which two of my (time-removed) cousins served in the Civil War.

  

I knew my second great-grandfather Peter B. Wimer and his brothers Aaron and Ephraim Wimer had been Confederate infantry soldiers, but not that their first cousins Andrew J. Wimer and Cornelius T. Wimer had been soldiers in the ill-fated 14th Cavalry.  The cousins enlisted in 1862 from Highland County, Virginia, which, along with Augusta and Rockbridge counties, provided the men and horses for the regiment's Company C.*  

The 14th left a mostly dismal record fighting up and down the Shenandoah Valley, into West Virginia, Maryland, and Pennsylvania.  Hundreds of its men and horses were captured in 1862 at Sinking Creek in Greenbrier County, West Virginia, by a small Union force that did not fire a shot.  Some of the 14th escaped, but some died in a Union prison.  In 1863, at Gettysburg, the 14th provided each soldier only ten rounds, so the regiment soon retreated to the rear of the battle.  In 1864, the 14th was unable to prevent the burning of VMI at Lexington by General David Hunter's Union forces.  Their presence, however, led a confused Hunter to retreat deep into West Virginia, which opened the Valley to Confederate General Jubal Early's foray into Maryland, Pennsylvania, and almost into Washington, DC. But in the process, drunken soldiers of the 14th burned the town of Chambersburg, Pennsylvania, an act that was opposed by many in the regiment itself, who tried to put the fires out.  The 14th fought in 1865 at Appomattox until the cease-fire when Lee surrendered, but only one last soldier from Company C was present at the end. Death, disease, and desertion had greatly reduced the ranks.  

Elsewhere among the family tree branches appears another cousin, who actually fought against the 14th throughout the war.  David Hunter Strother, also known by his pen name, Porte Crayon, was a Union cartographer and eventually a brevet general, despite his Virginia roots.  He is a cousin to me through the Strother line, not the line of Wimers against whom he fought.  

But David Hunter Strother's own war record was not what he wanted it to be, according to his widely-read diary.  He deplored many of the Union army's actions in the Valley, even while chief of staff to the general who perpetrated them.  Although he favored the burning of VMI because it taught treason, he said, he often intervened to stop other burnings and hangings.  He was not alone; his Union army colleague General George Crook was of like mind in taking a dim view of General Hunter; both were pleased to see General Philip Sheridan take Hunter's place.  Strother spent the rest of the war in Baltimore, glad to be out of it.**

Military records give a glimpse of what brothers Andrew and Cornelius Wimer experienced in Company C of the 14th Cavalry, as privates.  In going through records, I came across names from another tree I've been researching, the Vess family, the branches of which overlap with the Wimers during the Civil War.  Brothers Samuel A., John T., and William A. Vess were also privates in Company C, from Rockbridge County.  Very likely the Wimer brothers and the Vess brothers were well-acquainted.

Apparently all five of them were at Sinking Creek in 1862, because records show that Andrew Wimer and John T. Vess were both captured by the enemy and sent to military prison in Alton, Illinois.  Andrew Wimer was later released as part of a prisoner exchange.  John T. Vess, however, did not survive a smallpox outbreak at the prison and is buried in the Confederate cemetery at Alton.  

Various accounts of the raid at Sinking Creek suggest that all five were captured at first, but twenty-two Union soldiers could not handle the hundreds of Confederates they had taken.  The Union tried to march the Confederates through extreme cold and a snow storm, stopping to light bonfires to warm men and horses.  All but about 100 escaped.  Escapees probably included Cornelius Wimer and Samuel and William Vess.  

What else these cavalry privates endured is unknown, except that four of the five survived the war.  Samuel and William Vess went back to Rockbridge County and raised families.  

Cornelius Wimer is recorded as being AWOL at one time during the war, and Andrew Wimer deserted before coming back.  This was not uncommon.  Both returned to Highland County after the war and had large families.  Cornelius Wimer's son Charles, nephew of my second great grandfather Peter B. Wimer, migrated to Nebraska before 1885, as did his uncle.  Charles lived in Ashland, his uncle lived southeast of Ceresco, according to the 1885 Nebraska census. 

Some of the Strother family also moved to Nebraska, although spelling errors changed their names to Strawder.  Wimers and Strawders, once enemies, lived among each other in Cass and Lancaster counties for several years.  We know they socialized, and even intermarried, but we don't know what they talked about.  

 

_______________________________

* Knowledge of Peter B. Wimer's time in the Confederate army is based on an uncorroborated 1890 census of veterans, when he was living in Nebraska.  Documentation is better for Aaron Wimer, who fought in the 62nd Infantry and for Ephraim Wimer, who fought in the 25th Infantry.  The 14th Cavalry also attracted my cousins Robert and Jacob Phares from Pendleton County, WV, adjacent to Highland County, VA, but records of their fate with the 14th are too sketchy to draw any conclusions about their time in the cavalry.  

** After the war, Strother was adjutant general of Virginia and restored VMI.  Crook was sent to Nebraska where he helped the cause of Indian rights in Standing Bear v. Crook, and where his house still stands on the Fort Omaha campus.   

    

  

Constitutional Rights Riddle

June, 2022

Washington — It was a right not mentioned in the original Constitution or the Bill of Rights.  It was not considered when the Fourteenth Amendment was adopted in 1868.  There is no history and tradition behind it.  The Supreme Court's jurisprudence on the subject dates only from the 1970s.  What is it?

The answer is not abortion, the Court's ahistorical analysis in the Dobbs decision notwithstanding. 

The answer is unregulated corporate political contributions, determined in 2010 by the Court in the Citizens United case to be accorded the same free speech rights as human persons.   

If Dobbs overrules Roe on abortion, according to so-called originalist interpretations, then Citizens United on corporate contributions should likewise be overruled, because the originalist case for overturning it is actually stronger.  

Here is an academic treatise on the history of the dubious right of unregulated corporate political speech:

[W]hen the First Amendment was ratified in 1791, we find that business corporations were understood to have the exact opposite relationship to society as Lockean-Jeffersonian human beings. Whereas human beings were endowed with inalienable rights that society could not take away, corporations had only such rights as society chose to give them, as illustrated by Chief Justice Marshall’s iconic decision in Trustees of Dartmouth College v. Woodward. In 1791, corporations had to be specially charted by legislatures and were bound by the ultra vires doctrine to pursue only the ends for which they were chartered. Based on this history, we see no basis to contend that business corporations were thought to possess the same speech rights as human beings and that society could not restrict their ability to participate in the political process....

[W]hen the Fourteenth Amendment was ratified in 1868 to see if the understanding that corporations were fundamentally different from human beings had changed. Although by that time the movement toward general chartering of corporations had emerged, the historical understanding of the corporation’s relationship to society remained the same, and corporations were still subject to the ultra vires doctrine and other tight restrictions on their scope of operations. Though the law had recognized that corporations’ property rights had to be respected for them to function as intended, corporations were not accorded the liberty rights, such as speech, of individuals. And stockholders used the ultra vires doctrine to restrict corporate political and charitable spending. Likewise, as soon as corporations began to involve themselves in the political process, legislative regulation of the conduct emerged with no concern about whether those restrictions were inhibited by the First Amendment. As a result, we find no basis to conclude that the adoption of the Fourteenth Amendment represented a decision to accord corporations free speech rights akin to those of human persons...

[U]ntil the 1920’s, First Amendment law itself was largely undeveloped and it would not be until the 1970’s that the Supreme Court first examined the First Amendment implications of campaign finance laws.

The era of the drafting of the Fourteenth Amendment is of special interest.  When I was a graduate student in college, I gave a seminar presentation on Roscoe Conkling, a disreputable character of the second half of the 19th Century who represented corporate interests before the Supreme Court.  He told the Court an incredible lie about what happened at the drafting of the Fourteenth Amendment, how he personally saw to it that corporations would be given the same liberties as natural persons.   The story is well told in a 2018 article in The Atlantic.  

Conkling's legerdemain should become an exhibit in litigation to overturn Citizens United, a regrettable decision by a credulous Court that opened the floodgates of corporate money to political campaigns, the results of which are now apparent, even to the extent of threatening our nation's democratic governance.      

Dobbs and the Erosion of Nebraskans' Rights

June, 2022

Lincoln —  That didn't take long.  The Supreme Court issued its Dobbs decision on June 24th and three days later the Nebraska's attorney general argued in the Eighth Circuit federal appeals court that Nebraska voters have no right to vote in state initiatives under federal law, because "the federal constitution has nothing to say about initiatives."   This, despite the Dobbs proviso that the decision applies only to abortion.  Here is an excerpt from the Nebraska appeal in the case of Eggers v. Evnen:

[T]he district court incorrectly held that the federally protected fundamental right to vote attaches to all state processes for qualifying initiatives.  It did so even though the federal constitution says nothing about initiatives and the Supreme Court "has long been 'reluctant' to recognize rights that are not mentioned in the Constitution." Dobbs v. Jackson, Jun. 24, 2022.   

Which adds to the list of rights and freedoms already under attack in Nebraska by our governor, as described in a previous post a few days ago.  Which also suggests that Nebraska's attorney general will be joining with other attorneys general around the country to apply Dobbs to a wide range of existing rights, not just abortion rights.

The extent to which Dobbs will restrict reproductive choice — the more overt target — depends on if and when the governor calls the unicameral legislature into session.  If he does, state senators should be looking carefully at the language of Dobbs to determine what can be considered constitutional restrictions under a so-called "rational-basis" standard.

Although some have suggested that this is an extremely low bar for a legislature, the actual language of Dobbs is not so clear.  A federal judge in the near future could conclude what seems rather obvious, that the Dobbs court laid out its own rational-basis test in its examples of rationality, which arguably look more to balancing the interests of the mother and the state than simply making a list of a state's interest in preventing abortions.  If a state chooses not to recognize interests such as "the protection of maternal health and safety...and the prevention of discrimination on the basis of race, sex, or disability," the legislation may fail a federal court's rational-basis test.  Moreover, by citing the Glucksberg case, the Dobbs court adds more context to the value of the mother's life and health, not just that of the fetus.  From Dobbs:

A law regulating abortion, like other health and welfare laws, is entitled to a “strong presumption of validity.” Heller v. Doe, 509 U. S. 312, 319 (1993). It must be sustained if there is a rational basis on which the legislature could have thought that it would serve legitimate state interests. Id., at 320; FCC v. Beach Communications, Inc., 508 U. S. 78 DOBBS v. JACKSON WOMEN’S HEALTH ORGANIZATION Opinion of the Court 307, 313 (1993); New Orleans v. Dukes, 427 U. S. 297, 303 (1976) (per curiam); Williamson v. Lee Optical of Okla., Inc., 348 U. S. 483, 491 (1955). These legitimate interests include respect for and preservation of prenatal life at all stages of development, Gonzales, 550 U. S., at 157–158; the protection of maternal health and safety; the elimination of particularly gruesome or barbaric medical procedures; the preservation of the integrity of the medical profession; the mitigation of fetal pain; and the prevention of discrimination on the basis of race, sex, or disability. See id., at 156– 157; Roe, 410 U. S., at 150; cf. Glucksberg, 521 U. S., at 728– 731 (identifying similar interests).  — Dobbs v. Jackson [emphasis added]

From Glucksberg: 

The risk of harm is greatest for the many individuals in our society whose autonomy and well-being are already compromised by poverty, lack of access to good medical care, advanced age, or membership in a stigmatized social group. ... The State's interest here goes beyond protecting the vulnerable from coercion; it extends to ...  prejudice, negative and inaccurate stereotypes, and "societal indifference".  — Glucksberg v. Washington [emphasis added]

A future federal district court could well fashion a rational-basis test from the Dobbs and Glucksberg list to include a demonstrated state fiscal concern for "maternal health and safety" proportionate to increases in full term pregnancies — no relying on federal taxpayers or private help.  A state escrow fund could be required to meet the test, as it would be irrational not to recognize the fiscal impact of the legislation. Likewise, the test could include access to abortion early in pregnancy, to eliminate "gruesome medical procedures" later in pregnancy in cases of fatal fetus defects, which would also satisfy the Dobbs interest of "mitigation of fetal pain."  

Another part of the test could show due deference to the "integrity of the medical profession" in making judgments as to when abortion is appropriate, to comply with the totality of interests set out in the Dobbs and Glucksberg cases.  Medical professionals must not be put in a position of having to advise a mother, in case of a pregnancy that will soon endanger her life, to wait for medical care until her life is actually in danger.  Waiting would require medical professionals to violate their oaths and their integrity.  Accordingly, it should not be surprising for a judge to require a state to provide appropriate abortion access to its population, citing Dobbs itself as the authority for the requirement.  

And then there is Glucksberg's admonition, that the state's interest "goes beyond protecting the vulnerable from coercion."  Indeed it does.  A rational-basis test must exclude coercion of the pregnant, and attention to them to preclude "societal indifference."    

The Nebraska legislature should anticipate rational-basis tests in passing any legislation prompted by the Dobbs decision, and rise to the occasion to write legislation consistent with the enunciated standards of Dobbs.  In so doing, senators would be true to the jurisprudence of Nebraska's greatest jurist, Roscoe Pound.  (See previous post.) 

As for Nebraska's constitutional officers, they should abide by this provision in Dobbs:  "The Court emphasizes that this decision concerns the constitutional right to abortion and no other right. Nothing in this opinion should be understood to cast doubt on precedents that do not concern abortion."  

Please, no more attempts to erode even more Nebraskans' rights and freedoms.  

Dobbs's Slap at Nebraska's History

June, 2022

Lincoln — We celebrate, with good reason, Nebraska's history and tradition in shaping our nation's laws.  The Standing Bear v. Crook and Meyer v. Nebraska cases are landmarks of civil rights.  Lincolnite Roscoe Pound, as a young University of Nebraska law professor at the beginning of the 20th Century, shook the legal world with his theories of jurisprudence.  His ecological and sociological approach to Constitutional interpretation found its way into countless federal court decisions.  When he retired as the dean of the Harvard Law School, he was among the world's most respected jurists.  Both Standing Bear and Roscoe Pound are in the Nebraska Hall of Fame.  

The Dobbs decision consigns all this to the dustbin of history.  It repeatedly slaps the face of those of us in Nebraska who still treasure our legacy.  In arguing that a civil right is not a right at all if it was not enumerated or understood to be a right at the time of the adoption of the Fourteenth Amendment in 1868, the Dobbs court suggests Standing Bear is not a man and Meyer has no right to teach a foreign language. 

The dissenting justices in Dobbs are disappointing in that they argue too much legal history and too little that the law has a greater purpose, in a Poundian sense, which is the role of law in creating a civil society.  The dissenters make a mistake in tacitly playing by the rules the Dobbs historicists are trying to impose over Constitutional interpretation.   Rather than picking at historical inconsistencies in the majority opinion, the dissenters should have frontally attacked the whole premise of so-called originalism.  Question: should the Nebraska legislature, if called into session by the governor to respond to Dobbs, exempt the indigenous population from all civil rights matters, including issues of abortion, because of how the government viewed Standing Bear in 1868?  Under the Dobbs court's logic, yes.  Standing Bear had no rights in 1868.  

Should we also recall the new Standing Bear statue in Statuary Hall in the U.S. Capitol, and rethink how we are naming state buildings and public schools?  No.  Better to dial back the originalist majority on the court than to live with its bizarre legal decisions.      

If Governor Ricketts calls the Nebraska legislature into session in reaction to Dobbs, the best thing it could do would be to make an appropriation to purchase copies of two books to be placed on the desks of each Supreme Court justice, dissenters included.  One is philosopher Karl Popper's The Poverty of Historicism.  Popper would not look kindly on the idea that the conditions of 1868 could even be determined, let alone serve as guidance in a changing world. 

The discovery of instances which confirm a theory means very little if we have not tried, and failed, to discover refutations. For if we are uncritical we shall always find what we want: we shall look for, and find, confirmation, and we shall look away from, and not see, whatever might be dangerous to our pet theories. In this way it is only too easy to obtain what appears to be overwhelming evidence in favour of a theory which, if approached critically, would have been refuted.

[T]he historicist ... firmly believes in his favorite trend, and conditions under which it would disappear to him are unthinkable. The poverty of historicism, we might say, is a poverty of imagination.  ― Karl Popper, The Poverty of Historicism

The other book is Roscoe Pound's Introduction to the Philosophy of Law, summarized here.  Pound developed his theory of ecological jurisprudence based on his scientific study of botany and ecology on Nebraska prairies, which gave him insights into life's dynamic and interactive relationships.  He would have given little weight to 1868 thinking, but every consideration to the sociological effects of the Dobbs decision in 2022.   

In studying his predecessors Pound saw that all the nineteenth century schools were subject to the common criticism of attempting to construct a science of law solely in terms of law and on the basis of law, divorced from all other phenomena of social control and civilization.  For him a legal science, in order to meet the needs of a changing society, must give up its exclusiveness and work in closer association with the other social sciences.... The social purposes of law must be stressed more than the sanctions, for law is to be regarded as a social institution which can be improved by intelligent effort. To discover the best means of directing and furthering efforts to improve the law, the jurist must be concerned with a wide range of studies, and not just of law. This requires a study of the actual effects of legal institutions and doctrines; a study of the means of making legal rules effective; a sociological legal history, which is a study not only of how doctrines have evolved and developed, considered solely as jural materials, but of what social effects the doctrines of law have produced in the past and how they produce them. ... The functional attitude, which is the study not only of what legal materials are and how they came to be, but also of what they aim to effect and how they work, is fundamental in Pound's legal theory. Also, there must necessarily be intensive study of philosophy and psychology; in order for a legal science to be valuable it must be consistent with the best of modem philosophy and psychology.  — Linus J. McManaman, O.S.B.,  The Legal Philosophy of Roscoe Pound [emphasis added]

There is one, and probably only one, point in the majority opinion with which I agree.  It is the observation that the dissenting justices did not cite any scholarly treatise to justify their position on what was in the minds of citizens in 1868.  They should have offered several, including some that challenged the very idea that the such a determination could ever be made, let alone that it could be dispositive.  

Ricketts' Attacks on Nebraskans' Freedoms

"The freedom to swing your fist ends where my nose begins."  — Old proverb

"The freedom to swing my fist ends where my money and I say it does."  — Paraphrase of the eight-year tenure of Pete Ricketts, Nebraska governor

June, 2022

Lincoln — When it comes to freedoms, Governor Pete Ricketts has bloodied many noses.  His years of mis-rule have rolled back Nebraskans' very freedoms to enjoy life, liberty, and the pursuit of happiness.  Nebraska has lost all resemblance to what we once called The Good Life.   

•  In spreading Covid by refusing to shut down infected packinghouses, then coddling the Typhoid Marys among us over the use of masks, Ricketts endangered Nebraskans' health and welfare.  He refused take the advice of University Medical Center professionals, who had to work around him to try to stop the pandemic.  As many as one-third of Nebraska's Covid deaths were avoidable.  This is the ultimate loss of freedom.

•  In refusing to acknowledge that at least some pregnancies should be terminated for moral, ethical, and medical reasons, a position supported by a wide majority of Nebraskans, Ricketts condemns many families to needless despair.  Government control over such decisions is not countenanced by the Constitution and represents a profound loss of individual freedom, including the freedom to make deeply personal choices in accordance with one's own faith and conscience.    

•  In adopting the mistaken and extreme view that the Second Amendment prohibits the regulation of weapons of war, Ricketts promotes a vision of Nebraska as a fearful, armed camp.  As this view gains currency — it was anathema not long ago, especially among those of us with military experience — it diminishes Nebraskans' freedom from fear. 

•  In aligning himself with those who covet Nebraska's lands and natural resources, Ricketts proposes to curtail landowners' freedom to protect their properties through conservation easements.  While taking away property rights from some, he would use the power of the state to exercise eminent domain over others, including takings for private interests.  

•  In attempting to dictate what can and cannot be taught in the public schools, and what public health measures can and cannot be implemented by county and city health departments, Ricketts limits speech and rolls back the freedoms associated with local self-government in matters of education and health.  

•  By refusing to accept federal funds for needy Nebraskans, Ricketts denies thousands the chance for  freedom from want, in perilous times.  These funds were intended by Congress to help struggling families with rent and food.    

•  By neglecting his duties to administer state agencies in a manner to protect public safety, public welfare, and natural resources, Ricketts has presided over a long and dismal list of procurement scandals (St. Francis), penitentiary mismanagement (all sites), drug-evidence thefts (at the State Patrol), privatization failures (state foster care system), financial audits (rebukes from the State Auditor), and an environmental catastrophe of epic proportions (Alt-En at Mead).  Rather than facing the state's problems squarely, Ricketts has established a pay-to-play approach in state government by accepting political contributions from state contractors and regulated industries.  This was perhaps to be expected from a man who had no previous experience in government or the military, but who personally knew the power of money and wealth. 

•  In making large, unprecedented political contributions himself to candidates for the state legislature, which under Nebraska law is to be nonpartisan and exercise oversight over the executive branch, Ricketts has interfered with the checks and balances that Nebraskans depend on to protect their freedoms.  

Everywhere one looks in Nebraska state government, freedoms are being lost.  It's time to bring back the old proverb and to defend freedoms from those who would swing their fists into our faces. It's time to look again at the Declaration of Independence and to the Four Freedoms enunciated by President Roosevelt — freedom of speech, freedom of worship, freedom from want, and freedom from fear.  Palpable loss of freedoms must be a central issue in all upcoming 2022 elections, but especially in the race for Nebraska governor.  

 

  

 

 

Discovered Deposition Answers Student Loan Questions

June, 2022

Washington — It's been nearly a year since PHEAA announced its departure from federal student loan servicing.  The occasion was summed up well on July 9, 2021, by consumer advocates at the Student Borrower Protection Center who celebrated the news but warned of turmoil and difficult challenges ahead for the U.S. Department of Education:

For over a decade, PHEAA made clear that it could not be counted on to deliver borrowers quality servicing or comply with the law. The organization’s exit from federal student loan servicing provides an opportunity for ED to turn the page and enter a new chapter of consumer protection on behalf of millions of student loan borrowers. But doing so will require providing borrowers justice for existing harms, preventing new errors from arising as PHEAA’s loans are passed on to new servicers, demanding transparency at every point in the transition process, and vigilantly watching for mistakes that this transfer reveals or causes. 

All this is sadly true.  To use the authors' words, let's start meeting the challenges with demanding transparency about what happened well over a decade ago as a part of the effort to enter a new chapter of consumer protection.  

The U.S. Department of Education knew as early as 2002 that PHEAA might not be a law-abiding federal contractor when an astute federal employee in Texas, Jerry Wallace, discovered approximately $50 million in what he considered to be questionable federal subsidy claims generated by PHEAA loan servicing software.*  After consulting with a colleague in the Office of Postsecondary Education in Washington, DC, who concurred, he wrote a report requiring that taxpayers be reimbursed.  

What happened next has long been a matter of conjecture, because the money was never returned.  Why not and on whose orders?  Not only was the money never returned, PHEAA and others started to grow the false claims in much larger amounts.

The answers lie in a deposition given under oath by Jerry Wallace in 2010.  I uncovered a summary of his deposition among papers released this year to me by those who conducted it.

According to the deposition, after a year of back-and-forth between Texas and Washington, the Wallace report was amended to take out any reference that the funds should be returned.  Along the way the language "went from finding, to observation, to note of interest" with "no discussion of growth in the note of interest."  

Wallace testified that this was the only report he had ever seen where this happened.  The potential for "unlimited growth" that "could add up to some real money if all the secondary markets were to start manipulating the system" was not addressed.  Texas-based federal officials "got no explanation of how it was legal."

As to who was behind quashing the original report, Wallace said "there was discussion between Sally Stroup and Kristie Hansen" in Washington.  Stroup, a former PHEAA employee whose emails show frequent exchanges with PHEAA's lobbyist, Scott Miller, was Assistant Secretary for Postsecondary Education; Hansen was an appointed official in the office of Federal Student Aid. "Conversation between Hansen and Stroup was conveyed back" to Texas officials to make the changes, Wallace stated under oath.  

So now we know, finally, after two decades, who gave the orders to look the other way.  

Dr. Earl Crisp, head of the federal regional office in Texas at the time, always declined to say from whom he was taking orders to withdraw the Wallace findings, and to explain why he did not stand up for the rule of law when pressed to violate it.  Wallace says in his deposition that he wrote the report so Crisp could understand it, and its implications, so he would know what was at stake.    

When I first saw the original Wallace report in 2004, a year after I had discovered false subsidy claims myself at other lenders, I recognized it as a model of clarity, compelling in its conclusions.  Wallace's work was later validated in subsequent audits of secondary markets by the Inspector General, which became the basis in 2007 for a determination by the Secretary that PHEAA's and others' manipulation of the loan system was, and had always been, illegal.

But PHEAA never suffered any consequences for this at the hands of the Department of Education, which helps explain why it has continued its bad behavior with calamitous outcomes for borrowers as well as taxpayers.  And no Department of Education officials have ever been investigated for their roles in this or similar scandals, to my knowledge, despite overwhelming evidence that they colluded with perpetrators, actively or passively.  

Is it a surprise that PHEAA went on to be a loan servicer (aka FedLoan and AES Servicing) that has cheated countless borrowers out of their benefits and, perhaps more than any other servicer, thrown the nation's whole student loan operation into chaos?  No.  The warning signs were apparent for years.  I have reviewed PHEAA loan servicing in the period 2013-2022 and find it likewise full of misrepresentation and deception.  

As the Department of Education in 2022 tries to make sense of how to move ahead, it must consider suspensions, debarments, and other actions against those who brought the student loan system to its knees and who continue to do so. 

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* The discovery was made after a review of subsidy claims by the Iowa Student Loan Liquidity Corportation (ISLLC), which used PHEAA's software, known as COMPASS.    

      

 

  

 

The Casual Acceptance of Fraud and Deception in Federal Student Loans

May, 2022

Washington — What would you make of the following email exchange if you came across it as a federal official who had taken an oath faithfully to uphold the law?  That question once presented itself to federal investigators who became aware of it in the course of subsequent litigation.   

The exchange starts off as a question from one student loan lender, Tennessee-based EdFinancial, to another, the Pennsylvania Higher Education Assistance Agency.  EdFinancial is contemplating moving loans among different trusts to generate more federal taxpayer subsidies for itself.  It asks PHEAA, whose software it uses to make subsidy claims, if such claims would be legal.  PHEAA official Diane Freundel passes along the question to PHEAA's liaison to the federal Education Department, Scott Miller:

"Scott, EdFinancial has asked us some questions...how we programmed our system....  Tom Renard made an off-the-record call to Angela Baker at the Dept - she's our...contact and we frequently ask her off-the-record questions.  She didn't know the answer....  Since you have the Dept of ED contacts, I said I would run it by you.  Do you know the answers....  If not, would you be willing to run them by [ED] policy as hypothetical questions from one of our clients (EdFinancial doesn't want their name used)? Thanks!"

Miller replied:  "This issue, and some like it, are currently under scrutiny within ED -- they came up in their audit of Iowa's sec. market (which uses our servicing system).  We are currently plotting strategy on this issue....  In the meantime, please don't ask ED for its opinion -- it's likely to be an answer we don't like.  Thanks!"  (emphasis added)

Several obvious red flags should have gone up immediately to subsequent readers of the exchange, which was intended never to be revealed to lawyers and investigators at the Education Department or the Justice Department.  Why didn't the lenders simply ask ED for a determination, or did they have something to hide?  Why is there an established off-the-record system between lenders and ED officials?  Why is strategy being plotted around the subsidy claims?  Is this the way EdFinancial and PHEAA always do business, never to seek answers they "don't like," especially when the higher subsidies in question could amount to hundreds of millions of dollars for them?

In the past year, both EdFinancial and PHEAA got news they undoubtably did not like.  EdFinancial was required by the Consumer Financial Protection Bureau (CFPB) to enter into a consent agreement and pay a million dollar fine for lying to borrowers.  EdFinancial put out a statement that it vehemently disputed the federal agency's action and that it settled only so it could devote more of its efforts to helping borrowers.  (Note to EdFinancial:  no one with knowledge of student loan servicing believes that.)  

PHEAA's too-clever strategies have likewise caught up with them, the denouement coming at a 2021 U.S. Senate hearing when their CEO dissembled under oath.  A few weeks later, PHEAA announced it would no longer be a federal student loan servicer.  There is now a massive federal effort underway to clean up the student loan servicing wreckage left behind by PHEAA.  It may take years.

In view of what has happened, another red flag should now go up with more questions:  When did the above email exchange take place, and what did federal officials do when they learned of it?  

It occurred in 2005.  To the best of my knowledge, federal officials who, upon its discovery, should have investigated it further, did nothing.*  The subsidies in question were reiterated by ED in 2007 to be illegal but most lenders never had to pay any of their false claims back. The experience taught the industry the lesson that, in student loans, no bad deeds ever go punished, so to speak.**    

It's been clear for two decades that borrowers and taxpayers have been exploited by unscrupulous people in the student loan arena.  It's still going on.  The National Association of Student Financial Aid Administrators (NASFAA) last week put out a white paper on needed reforms.  Many of its recommendations are good, but they are heavy on blame of others and light on reining in the exploiters.  This is to be expected, as three of the four "experts" who helped with the white paper are high on the list of people who contributed to the nation's student loan debacle in the first place.  Two of them are former PHEAA officials, including even the aforementioned Scott Miller.  (NASFAA does its own reputation, which has hardly recovered from lender payoff scandals in 2007, no good by giving voice to discredited, long-standing perpetrators of student loan dysfunction.)

It may be too late to take action on scandals that should have been investigated long ago, but not too late to learn lessons from them, particularly that casual acceptance of such dealings often leads to even bigger problems later, as in the sad cases of EdFinancial and PHEAA.  Now is the time for our country to consider major changes in the way we finance higher education, to rid us of the plague of schools, lenders, and loan servicers that have ruined the lives of so many borrowers.  It's time to look at how other countries make higher education affordable without attendant corruption. 

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*Other discovered emails at PHEAA showed a scheme, begun in 2002, to claim higher federal subsidies, but not so great as to draw attention to them.  The scheme was known to political appointees at ED who provided PHEAA with inside information as to how to avoid adverse findings by Inspector General audits.  See Dan E. Moldea, Money, Politics, and Corruption in U.S. Higher Education (2020), pp. 128-129.   

**Worth noting: the one lender that had to pay back a significant amount went on to make changes in its board of directors and instituted a code of ethics.  It is now ranked higher as a servicer than entities that were not required to repay any of their false claims.

 

  

Don't Overlook These Student Loan Cancellation Basics

May, 2022

Washington — President Biden has signaled that he is considering cancellation of federal student loans for certain borrowers in amounts yet undetermined.  Which has become the subject of many news articles, op-eds, and cartoons, but an understanding of the issues involved (especially costs to taxpayers) has not been a prerequisite for much of the commentary.  

Here are points to keep in mind:

1.  Millions of borrowers have been the victims of unscrupulous loan servicers, which have channeled borrowers into repayment choices that aided their own bottom lines at the expense of the borrowers'.  Cancelling these amounts, which have ballooned borrowers' balances, constitutes a removal of deceptive and improper* charges, not a cost to taxpayers.    

2.  Borrowers' interest rates and origination fees have always been set well above the government's cost of money, to have borrowers themselves pay for the program's administration, including estimated write-offs.  The federal student loan program has actually been making money for the government for many years before the Covid-related repayment pause.    

3.  Many Americans who attended public colleges in the past paid relatively low tuition, heavily subsidized by taxpayers.  In recent decades, taxpayers have benefited as the cost of postsecondary education has been shifted onto students and their parents, most of whom have had to cover the costs with student loans.   If there are taxpayer costs for the President's student loan cancellations above and beyond the considerations identified above, it is tribute toward generational equity.  

4.  Much student loan debt has been incurred by those who attended schools that should never have been approved by the federal government for participation in federal student loan programs.  The victims of these schools —overwhelmingly low-income — are unlikely ever to be able to repay their debts, so it is best to cancel the loans to relieve an unjust burden from the already  disadvantaged.  A simultaneous purge of low quality schools from continued eligibility must accompany the loan cancellations, for substantial out-year taxpayer savings.** 

5.  For debt that is not cancelled (the President wants to target the relief), borrowers should have bankruptcy protection restored, to treat student loan debt the same as other debt.  Some have argued that student loan borrower benefits, such as income based repayment options, remove the need for bankruptcy protections, but that obviously has not worked out because loan servicers have steered unwitting borrowers away from taking advantage of such benefits.  

The Secretary of Education has broad powers under current statutes to carry out student loan cancellations, remediations, and loan compromises.  It is hard to estimate with precision how much can be done at no net taxpayer cost, but it is much more than is commonly acknowledged by critics of cancellation, many of whom are unaware of the basics of student loan finance.  To the extent any cancellations would begin to cost taxpayers, the expenditures should be considered a bargain if they lead to borrower victims getting back to being productive members of society and an overdue crackdown on substandard schools.  These factors should be scored by CBO and OMB over ten years to determine taxpayer impacts on both revenues and expenditures. 

What is still lacking is more attention to fixing accountability for how we got into the federal student loan mess in the first place, which is necessary so that we do not repeat the same mistakes.  Under law, the Secretary of Education is responsible for "sound management and accountability" in the loan programs.  Better management seems to be in the works; more accountability must follow. 

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* Example:  “EdFinancial’s failure to tell the full truth to borrowers, so it could pad its bottom line, highlights a systemic problem with loan servicing,” CFPB Director Rohit Chopra said.... “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”  https://www.washingtonpost.com/education/2022/03/31/edfinancial-cfpb-sanctions-student-loans/

** Unfortuntately for borrowers and taxpayers alike, many of those in Congress who oppose student loan cancellation support federal subsidies for substandard schools.   

Empower Fleeing Russians

April, 2022

Washington — American foreign policy should seek more aggressively to divide the honorable Russian people from Vladimir Putin, weakening him and increasing the chances of his ouster. 

We in the West should embrace and assist the many Russians who have left their country over the war with Ukraine.  Among those fleeing are Russians of many talents and accomplishments who want to help shape a future, non-autocratic government for their homeland, including talented cyber professionals who know how to penetrate Putin's blackout of honest news reporting within Russia.  

It is counterproductive for the West to react to Putin's atrocities by banning all things Russian, which provides the dictator with talking points that the West is out to destroy Russia.  On the contrary, embracing Russians who represent the best of their culture and civilization is essential to ending Putinism. 

But how?  One way is to replace the current Russian government in organizations such as the OSCE with alternate national representation.  Another is to enlist international institutes and organizations to hold conferences at which exiled Russians would be given prominence.  The West could use the opportunities to re-assess its relationship with Russia, providing visions of a post-Putin world that would broadly appeal to Russians now living in an ostracized and collapsing autocracy.  

The West must do more than condemn war crimes and supply weapons for Ukraine's defense.  It must work quickly and purposefully with Russians fleeing their country to end the Putin regime.