Reviewing Two Think-Tank Reports

May, 2019

Washington -- What would we do without Washington think-tanks? Their staffs provide scholarly analyses and recommendations on a wide variety of issues. They are important watchdogs of federal agencies.

Two recent think-tank reports on higher education issues are especially noteworthy, both for their insights and their limitations.

One is New America's report, "Closing the Evidence Gap: Doing More of What Works in Higher Education" by Clare McCann. She takes the Department of Education and the Congress to task for failing to evaluate programs like TRIO and GEAR UP. She identifies the lobby group that has successfully opposed evaluation of TRIO for decades. Too often such studies are loath to take on political realities. That is not the case here.

If anything, however, she could have gone further to give more context to these two programs. They are small potatoes when it comes to overall federal spending on higher education access and success. Pell and the Campus-Based programs, much larger, are not evaluated either, due to resistance not only in the higher education community, but also within the statutorily responsible evaluation office itself, the Department's independent Institute of Education Sciences. Although the situation is now improved with the appointment of Mark Schneider as IES director, when Grover Whitehurst was in the post he proposed an IES legislative authorization that omitted post-secondary programs entirely. Fortunately, the IES statute that Congress eventually authorized contains authority for IES to carry out post-secondary research and evaluation, even though there is currently little meaningful activity under the authority.

As Clare McCann correctly notes, the Government Performance and Results Act (GPRA) is applicable and places an obligation on the Department of Education to conduct performance evaluations of all its programs as well. Too bad GPRA has become a dead letter in the Trump Administration.

Although both the current reality and the historical context are working against evaluations of TRIO and other higher education programs, Clare McCann's report should be on every committee member's desk as Congress goes about reauthorization of the Higher Education Act. All HEA programs badly need better evaluation.

The other report of special note is "Ensuring Accountability and Effectiveness at the Office of Federal Student Aid," by Ben Miller of the Center for American Progress and Jason Delisle of the American Enterprise Institute.

The value of this report is that it pulls together the history of the Office of Federal Student Aid as a Performance Based Organization, or PBO. Of particular help is a discussion of the PBO concept and the other federal offices that became PBOs as well, and how they contrast with OSFA.

Again, however, the report could use broader context. It looks at OSFA in terms of its formal creation and organization as a PBO, more or less antiseptically. For a more complete understanding it would be good to look at the informal networks and communication channels that shaped the PBO from its beginning to its current condition. Such a look is beyond the scope and purpose of the CAP/AEI report, but the following observations hint at how this different lens could affect conclusions.

The CAP/AEI report suggests that excessive waste and fraud in student aid programs in "the 1990s" led to the creation of OSFA as a PBO in 1998. Actually, dysfunctional personnel networks were a more proximate tripwire.

To be sure, the early 1990s were plagued with for-profit school fraud and high student loan default rates, but those problems were quickly addressed by Secretary Richard Riley early in his tenure. Thousands of for-profit schools were eliminated from federal student aid eligibility and student loan defaults plummeted quickly as well. Much credit for this should go to Senator Sam Nunn, who held a series of high-profile hearings on these issues and to whom Secretary Riley gave his pledge to clean things up.

But even as Senator Nunn was pleased at the success of the Secretary's attack on fraud and waste, people in the Department's second tier of leadership were often unable to work out their differences as to how OSFA operated as a part of the larger Office of Postsecondary Education. OPE was headed by David Longanecker as Assistant Secretary, with Maureen McLaughlin as Deputy Assistant Secretary. Both had formidable policy and analytical strengths from their years at the Congressional Budget Office. OPE's Deputy Assistant Secretary for its OSFA component was Leo Kornfeld, whose orientation was operational, based on his many years in the student loan industry. The Clinton Administration in its second term saw the creation of a PBO as a way to resolve leadership conflicts by splitting OSFA off from OPE. OPE would still set policy, but a separate, independent OSFA would handle operations and regulatory compliance for student financial aid programs.

Not that the Department under Secretary Riley had resolved all student loan administration problems prior to the creation of the PBO in 1998. Its Direct Loan contractors in mid-decade fell seriously behind in loan consolidations, making applicants wait weeks and even months to consolidation their loans to qualify for lower interest rates and other benefits. The solution, however, was not the creation of the PBO; rather it was to allow FFEL lenders to consolidate Direct Loans into the FFEL program under the so-called Two-Way Loan Consolidation amendment that Congress approved. That created its own set of problems when FFEL entrepreneurs set up boiler-room operations to lure borrowers into FFEL loans not to relieve a consolidation backlog but to win federal FFEL subsidies. It was the Federal Trade Commission that finally took action against some of the worst of the FFEL operators who misused the Department's name and logo.

After the PBO was created legislatively, Greg Woods became its COO. Unfortunately -- Greg was a talented administrator without conflicts of interest -- he passed away soon after he took the reins at OSFA. His major accomplishment was to move OSFA physically to a better workplace, well distant from the rest of the Department of Education. We are left to wonder how the Woods PBO would have asserted its new independence in combating fraud and waste through statutory and regulatory compliance measures, which were now its primary bailiwick. Appointment of his successor was left to President Bush's Secretary of Education, Rod Paige, who chose Theresa Shaw, a former student loan industry executive, as the COO.

In the Shaw era, OSFA took not only its policy signals but also its compliance approach from Bush Administration political appointees. For example, in 2002 compliance questions appropriately raised of OSFA by FFEL lenders were passed on by OSFA personnel, inappropriately, to political officials, most notably to the office of Deputy Secretary William Hansen, who was officially recused from such decisions because he had been a leading industry lobbyist. In 2003, an OFSA unfavorable compliance review of a different lender was incorrectly reversed after the lender discussed the review with political appointees. (The original finding took four years to be restored.) In 2006, the Inspector General wrote a report condemning OSFA for its failure to exercise its compliance function properly. That same year, Assistant Secretary Sally Stroup at OPE gave inside advice to a lender's lobbyist as to how to deal with an upcoming IG audit.

These examples are merely illustrative of the many informal and extra-legal relationship networks that transcended the formal organizational boxes establishing the PBO legislatively.

Secretary Paige's successor, Margaret Spellings, did not extend Theresa Shaw's appointment as COO for another term. Among the reasons had to be OSFA's failure to police itself: one OSFA executive, Matteo Fontana, accepted stock from a company he was regulating. This was also a time when compliance efforts were so weak at OSFA that student financial aid officials at UT-Austin, Columbia, USC, and Johns Hopkins routinely accepted favors from student loan companies in exchange for recommending them to students as preferred lenders. At a loan servicer, compliance measures of the time coming from the Department were characterized as "pathetic" and "weak-minded."

In other words, looking at the PBO from the standpoint of lobbying and political networks leaves an even less flattering view than the CAP/AEI report, which itself was equivocal about the success of the PBO.

I cannot conclude, based on close personal observation over many years, that the PBO in its first decade of existence improved operations or compliance in any way compared to the former organizational arrangement. Of course we don't know what would have happened had OSFA not been re-created as a PBO, but it's hard to imagine a worse outcome. This is not to discredit some fine work within the PBO done by talented and dedicated employees, but I would also note that too many of the bonuses given out in the Shaw era were based on allowing the PBO to be undermined by political and industry revolving-door networks.

One bright spot for OSFA was the conversion of schools from FFEL to Direct Loans in 2010 and 2011. This accomplishment, however, was greatly aided from the outside by volunteers from Direct Loan schools who undertook the training of their counterparts at FFEL schools.

Regrettably, the second decade of the PBO's existence did not give its reputation an overall reprieve. If anything, the situation grew worse. The aftermath of the Great Recession saw a recurrence of for-profit school fraud that dwarfed what the Nunn Hearings uncovered in the late 1980s and early 1990s. The Public Service Loan Forgiveness program, contracted to servicer FedLoan by the PBO, never got on track and is now a national scandal. The Ombudsman's office, housed in the PBO, never became effective as an advocate for borrowers. Only with the creation of the Consumer Financial Protection Bureau did borrowers gain a real voice in the halls of the federal bureaucracy. The CFPB sued a leading student loan servicer, Navient, for compliance failures that should have been corrected by the PBO. The list goes on and on, the failures escalating, the aroma of corruption permeating the fabric of the entire enterprise.

The CAP/AEI report is valuable as far as it goes. It deserves to be in the information binders of HEA reauthorizers as they look at OSFA as a PBO, but it should not be read as the last word until a more complete history of the PBO is fully told. While I endorse the report's recommendations for the HEA reauthorization, it is clear to me that another series of congressional oversight hearings, like those conducted by Senator Nunn's Permanent Subcommittee on Investigations, will be necessary if Congress and the public want real change. The sooner the better.

Author's note: Much of the above OSFA/PBO history is public information and available from news accounts of the time. I also know it well because I was often literally in the room, as a civil servant working in the Office of Legislation and Congressional Affairs, from the time of Senator Nunn's conversations with Secretary Riley to the arrival of Secretary Paige. From there onward I pick up the thread of OSFA/PBO decision-making networks as a litigant against student loan fraud, based on discovery and depositions from 2001 onward. Much of that is also public information although little of it has been published.