Lincoln — As an NU undergraduate many years ago, I studied the relationship between the economy and government. A theme emerged: first came good times for business, with little government involvement beyond providing infrastructure, paid for by taxpayers, so business could thrive. Then came scandals and demands from the public for the government to regulate excesses. Then the regulated industries worked their way into the government, "capturing" regulatory mechanisms to serve their own interests. Inevitably, there were more scandals, whereupon the process would repeat.
During much of the first two decades of this century, I've been in struggles with captured agencies. When necessary, I've had to go to court to protest and to stop egregious waste, fraud, and abuse.
In 2007, I sued nine student-loan lenders for civil fraud. They were taking advantage of a captured agency, the U.S. Department of Education. By 2015, my legal team had won seven settlements. The other two cases were a draw: one lender paid false claims back to the U.S. Treasury, but only about half of what I estimated it owed, and then got out of the case on the basis of sovereign immunity. The final lender, PHEAA, fought us twelve years through federal district court, federal appeals court, and the U.S. Supreme Court. We won the latter. PHEAA won one big district court decision, but at great cost. My counsel estimated they spent $10-15 million on that decision, which is ironic because we had signaled willingness to settle in 2014 for $7.5 million. What were they thinking?
Now the federal contracting arms of PHEAA, known as AES and FedLoan Servicing, are collapsing, so we can move that tie into the win column. The real winners are millions of borrowers who have been ill-served by PHEAA.
For years, PHEAA had many former employees well-placed at the U.S. Department of Education to protect it. But PHEAA perjury in April was one scandal too many, so the cycle of scandal and reform has once again repeated. (Here's a good question: which other servicers are sufficiently in a cycle of reform to be trusted to pick up the millions of PHEAA accounts?)
At the state level, where I have long worked on conservation issues, I was taken aback when the Nebraska legislature, in 2019, merged the Department of Environmental Quality with the state Energy Office. This looked as if the government itself was welcoming capture. Soon enough, the new Nebraska Department of Environment and Energy showed it was much more interested in energy, especially in subsidizing ethanol, than it was in environmental quality. NDEE watched as the Alt-En ethanol facility in Mead poisoned everything around, for miles. And that, unfortunately, might even be an optimistic assessment of the scope of the environmental disaster.
Another taxpayer and I sued to block the ethanol subsidies, which were coming at the expense of conservation programs. That lawsuit is still in court, so I will not comment on it other than to refer readers to newspaper articles about it, which I believe are basically correct. We'll see how this turns out; there are still important issues for the court to decide, the situation is still fluid and could be taking twists to reveal if agencies are still in a capture rather than a reform mode. We've been at this a year and I wouldn't be surprised to see it go on considerably longer.
I am almost always the last person who wants a lawsuit. They require time and money; they can get very difficult if FOIAs and discovery are involved; they can turn into Jarndyce v. Jarndyce situations. Recommendation: let's all read our Dickens and decide to work to avoid litigation.
Which is not to say that I regret these lawsuits. Sometimes it's necessary to step in to stop scandals in order to move on to the reform part of a cycle, which might even last. Students of government should take note that PHEAA is collapsing and its business may well go to others that kept their noses clean in the first place or have cleaned up their acts.