Two PSLF Solutions

September, 2019

Washington –  The Public Service Loan Forgiveness program of the U.S. Department of Education is an abysmal mess.  See several earlier posts on it as well as continuing major media coverage.

This post offers two solutions.  Before getting to them, new observations are in order.

• Yesterday's hearing by the House Education and Labor Committee was valuable in that two panelists who have lawsuits pending on PSLF had a chance to be heard and they acquitted themselves well.  The testimony from the Urban Institute's person, unfortuately, set back the causes his employer stands for, as he obviously tried to distract from establishing accountability.  GAO could have been stronger on its panel had there been better questions from the members. The testimony of the Department of Education's person, a civil servant without authority to comment on policy, was successful if the purpose of his appearance was to save a political appointee from having to testify under oath.

• The empty chair on the first panel was that of the loan servicer PHEAA (FedLoan), which also did not want to testify under oath, or to face its accusers.  Explaining its absence, PHEAA suggested that as a federal contractor it was not allowed to testify under directions from the Department of Education, which may be true.  The Department surely fears what PHEAA might have to say under oath if presented with evidence of wrongdoing.  Too bad PHEAA was not subpoenaed along with a political appointee from the Department.  Fortunately, the relationship between PHEAA and the Department is becoming public in another forum, a federal district court where a magistrate judge may put sanctions on both for wrongdoing in actions against unwitting borrowers in other programs.  See this letter as evidence that the Department and PHEAA are no longer on the same page; that is, working together against the interests of borrowers.  Much credit for making this situation public must go to those at the Project on Predatory Student Lending who led the legal fight, and won, on "borrower defense" law. 

• Members spent entirely too much time bemoaning the complexity of the PSLF statute and not enough on wrongdoing at the Department and among the servicers.  As statutes go, PSLF is actually fairly clear and it could have been implemented successfully had there been a will to do it.  It contains several conditions borrowers must meet to receive cancellation of the balance of their loans after ten years of public service, but the obstacles are not so much the conditions themselves as borrowers being uninformed of what they are and how to meet them.  So why were so many uninformed?  Because there was money to be made by not informing them and, shamefully, by misinforming them.  That should have been the focus of the hearing.  GAO had already pointed this out, and NASFAA has as well in a recent letter to the Committee.  There is also new, disturbing evidence that PHEAA's handling of borrower calls was designed to result in PSLF failure.

• PSLF will not be resolved successfully without focusing on wrongdoing, not complexity.  Unfortunately, only once was the word used by a member in nearly three hours of hearings.  Aggrieved borrowers are no closer to resolution than they were before the hearing.  And, if the remarks of some members are indicative, Congress will go off on a goose-chase of amending statutes and do nothing to correct the wrongs that have been done to borrowers across the country.

As to solutions, let me offer two.

First, the Secretary has broad powers under 20 USC 1082 to correct any situation in which a borrower was misinformed by a servicer, intentionally or otherwise, or any other situation that calls for intervention to protect the purpose of a program.  Previous Secretaries have used this power, most notably Secretary Spellings in 2007 when she excused lenders from repaying approximately $800 million of false claims because she said, rightly or wrongly, they may have been misled by the Department.  Now is the time to do the same for borrowers misled by the Department and by its servicers.  This could be done by outreach to borrowers separately or as part of the Temporary PSLF application.  The very purpose of TPSLF was to remedy problems with PSLF and Section 1082 (6) powers should arguably have been part of that effort in the first place.

Second, if necessary, Congress could do for PSLF what it does in other programs that people count on in their retirement planning.  For example, potential retirees in the military retirement system, CSRS, and FERS are allowed certain kinds of buy-backs to get themselves retroactively into the right programs that properly recognize their service.  If a PSLF borrower was in the wrong repayment program, or had the wrong kind of loan, or otherwise failed to meet a PSLF condition but in fact has ten years of qualifying public service, let the borrower remedy the matter and qualify.

These solutions would go a long way toward doing the right thing by the PSLF program and all the teachers, servicemen and servicewomen, first responders, and charitable workers who have been counting on it.

Meanwhile, Congress must take note of judicial sanctions and consider its own.  PHEAA has been sanctioned before by a federal district court, but to no apparent avail.  Sanctions on the Department of Education must likewise be examined: servicer wrongdoing does not happen in a vacuum.

The Med Cruise, 1964

September, 2019

Lincoln – The final training cruise for our class in the NROTC program at the University of Nebraska came in the summer between our junior and senior years, in 1964.  It was the last chance for us to learn what we needed to know at sea before we became Navy or Marine officers.

A few in the class ahead of us had come back in the fall of 1963 with stories of their cruise in the Mediterranean, preceded by a month's touring in Europe on their own.  They claimed to have witnessed President Kennedy's "Ich bin ein Berliner" speech in Berlin before reporting to their ships.

So I wanted the fabled Med Cruise as well.  Luckily for me, in 1964 we had opportunities to go to the Med, the Far East, or stateside.  Who got what was determined by the final grade in the course on celestial navigation – calculating all those sidereal hour angles and the like (which I could not do today, for sure).  When I saw the final exam, I knew I was headed for my first choice cruise, as it was exactly the same example exam I had used to prepare the night before.

I got a Eurailpass, flew to Frankfurt, shipped my seabag to Cannes, and checked in periodically at U.S. naval attaché offices to keep track of where I was to report for training.  Slowly, I made my way to Naples, to the USS Enterprise (CVAN-65).  After a week aboard Enterprise, steaming enroute with USS Long Beach and USS Bainbridge (all nuclear-powered, see top photo below) I was in Pollensa Bay, Mallorca, to embark in USS Waller (DD-466), a destroyer that would be my home for the next five weeks.

Waller left soon for Cypress, to stand by to evacuate Americans if necessary because of hostilities on the contested island between Turkey and Greece.  Every day, Turkish and Greek warplanes flew over us to check out our nationality.  We rigged a huge canvas amidships, between the stacks, with the American flag showing on both sides.

Waller conducted exercises with other U.S. Navy ships in the area and replenished from the aircraft carrier USS Franklin D. Roosevelt (CVA-42).  The middle photo below shows Waller alongside "Rusty Rosie" with captain R.D. Sante and operations officer Mr. Christian on the bridge, along with the captain's sound-powered telephone talker and the messenger of the watch.

Eventually we were relieved off Cypress by another destroyer and sent to San Remo, Italy, for rest and resupply.  Enroute, I once stood a 4-to-8 early morning watch on the bridge with Mr. Christian, who informed me (I remember clearly because I had never heard of the place), "We are now entering the Ligurian Sea."  I used the conversation to ask if by chance he was related to Fletcher Christian, of the HMS Bounty.  Indeed, he acknowledged, he was.

San Remo was then a sleepy town on the Italian Riveria.  Townspeople came out to see USS Waller at anchor.  See lower photo.

My NU classmate Dave Wetherell chose the Far East for his 1964 cruise and served in the Tonkin Gulf.  It was right after the destroyers USS C. Turner Joy and USS Maddox were attacked by North Vietnamese patrol boats, for which President Johnson asked Congress for authority to strike back through the Tonkin Gulf Resolution.  The trouble, my classmate told us all after returning to college for our senior year, was that the attacks never happened.  The ships' crews were adamant that the stories were mostly concoctions, but that was not to be known more widely for many, many years.

Student Loan Corruption, Then and Now

September, 2019

Washington – Yesterday's hearing before the House Financial Services Committee, titled "A $1.5 Trillion Crisis: Protecting Student Loan Borrowers and Holding Student Loan Servicers Accountable," invites comparisons between corruption at the Department of Education a decade ago and now.

In a way, there has been no change, because several of the same people are involved.  They have just passed once again through the revolving door that connects the loan industry, Capitol Hill, and the Department.  See more below.

But there has been a significant change, for the worse.  Fifteen years ago, corruption was led out of the Department but was curtailed somewhat by the White House.  Now, it is led out of the White House and is facilitated by other departments:  OMB, CFPB, and, most ominously, the Department of Justice.

In this century's first decade, when student loan lenders were collared by the Department of Education's Inspector General (OIG) for making illegal federal subsidy claims in the billions of dollars, OMB and the Domestic Policy Council were caught off guard, as they had not been party to the various schemes.  At first, they tolerated the practices:  Secretary Margaret Spellings even went to Capitol Hill to a news conference arranged by Congressman John Boehner, whose PAC was a big recipient of political contributions from the lenders, to overturn the OIG's initial audit.

But when OIG did a second, more thorough audit, and it looked as if student loan corruption might become a political issue in the 2006 elections, the White House stepped in to review more carefully what was going on.  The Department of Education's chief of staff, David Dunn, called a meeting of lenders, lobbyists, OMB, DPC,  the Vice President's office, and Wall Street financiers to consider how to respond to the OIG's latest audit.  Industry did not get what it wanted, a "repudiation" of OIG.  Instead, it got a deal that while Secretary Spellings would agree with OIG that the subsidy claims were illegal, and always had been, she would not ask for the return of the false claims already paid. 

In time, the OIG's audit was awarded the Alexander Hamilton award as the best federal audit of the year.  The award was presented by Clay Johnson, personal friend of President Bush, at a ceremony accompanied by "The President's Own" United States Marine Band. 

It was a nice way to distance the White House from the corruption at the Department of Education.  Secretary Spellings also saw to it that two of the key players facilitating the false claims resigned.

Contrast then with now, as illuminated by Michael Stratford at Politico and Erik Ortiz at NBC News.  Secretary Betsy DeVos is obstructing law enforcement agencies – state attorneys general foremost among them – from investigating violations of student loan borrowers' consumer protections.  A different president's friend, David Urban, close to President Trump and a prominent loan servicer lobbyist (for PHEAA), has widened the scope of the effort to prioritize the interests of industry over borrowers.  Even DOJ, which once investigated corruption at Education and forced out high officials who regulated lenders while holding their company stocks, has joined in, first by trying to block Massachusetts Attorney General Maura Healey from suing PHEAA, and then by taking the position that the Higher Education Act preempts all but the Department of Education from enforcing consumer protections.

This position is losing in courts across the country, but not before borrowers must suffer long delays in getting their protections, if they ever do.

Late at yesterday's hearing, a Congresswoman asked a panelist if she knew who Kathleen Smith was.  The questioner answered her own question.  She was a high level Education official who has now become PHEAA's lobbyist, as Politico has pointed out and several ethicists have questioned.  That's not all.  While with John Boehner, Kathleen Smith was liaison to lenders making contributions to his PAC and a central figure in arranging the Spellings' rejection of the first OIG audit, which took place in Boehner's office.  She was also present and a key figure in the meeting with David Dunn, at which time she argued, from her position as head of the Education Finance Council, for rejection of the second OIG audit.  More recently, at the Department of Education, she signed the letter cutting off data exchanges between the Department and the CFPB, and led the effort to stop cooperating with state and local law enforcement to protect borrower's rights.

The Congresswoman called her move to lobbyist "swampy," but this goes beyond swampiness.  What we are witnessing is racketeering and corruption, with violations of law along the way by multiple people who move through the revolving door:  violations of recusals, obstruction of federal audits, perjury, and obstruction of law enforcement.

The hearing produced consensus that there is indeed a "crisis" in student loans, but got no further as to solutions.  My suggestion:  Congress must eliminate corruption from student loans, tearing it out root and branch.  The hearing was a disappointment, as the word corruption was not even uttered until 3 hours and 45 minutes into a 3 hour 50 minute hearing.   By that time, most everyone had left.

I hope no members of the House Financial Services Committee are telling constituents that they are going to fix the student loan crisis, because based on yesterday's hearing, such action is a long way off.

Meeting Governor Bullock

September, 2019

Washington – Yesterday I met Governor Steve Bullock of Montana for the first time, and came away favorably impressed with him as a presidential candidate. 

And that was before I read his most recent rural policy initiatives, which have received good reviews among people who know food and agriculture.  The Des Moines Register has a rundown of them. 

I especially like his attention to the need for regional foods hubs to create healthy food markets, an idea often mentioned in these pages but absent from other candidate's offerings. 

Governor Bullock has made getting Dark Money out of elections a priority.  He's got the record to show how it can be done.  It's the key to getting many national problems solved. 

We had a good conversation about Montana and one of his predecessors, the late Governor Tom Judge.  Tom Judge's grown kids showed Steve Bullock's young kids around the governor's mansion when they first moved in. 

I knew Governor Judge in the 1970s when he and four other governors led the Old West Regional Commission:  Jim Exon of Nebraska, Dick Kneip of South Dakota, Art Link of North Dakota, and Ed Herschler of Wyoming. 

All Democrats, by the way, which I pointed out to Steve Bullock.  It isn't that long ago that Democrats won in what are now Red states.  They were all pragmatic governors who could work with the other party.  Steve Bullock welcomes the label pragmatic progressive. 

Governor Bullock could win big in the swing states if he gets the Democratic nomination.  It's surprising that he isn't doing better in the polls, because in many ways he is an ideal candidate:  Columbia Law, Washington DC law experience, state attorney general, twice elected governor in a Red state, the right national priorities for the times, populist and progressive, young and personable. 

Some have suggested that he should run for the Senate in Montana, to help Democrats win a Senate majority.  He's not going to do that for good reason: the top of the ticket is key to winning back the Senate as much as anything else.  He could well do more for the Senate as the Democrats' presidential candidate.

There are other good candidates in the field, but Governor Bullock should be considered a top contender, and then let the voters decide. 

Corruption as a Cause of Student Loan Failures

September, 2019

Washington – Yet another GAO report on student loan program failures, yet more media coverage of the outrages, yet another House hearing promised....  How many times have we gone through this?

This time it is the new GAO report on the Temporary Public Service Loan Forgiveness program, national coverage from NPR and the Washington Post, and a promise from Congressman Bobby Scott for a September 19th hearing before the House Education and Labor Committee, of which he is chairman.  That follows a September 10th hearing before the House Financial Services Committee.

We should all reflect for a moment about a gullible young boy named Charlie Brown, a girl named Lucy, and a football.  But not laugh.  Every time Charlie Brown's student loan program equivalent is cheated out of a kick at the football, thousands of students, families, and taxpayers are cheated out of their due, their consumer protections, the benefits they have earned, and importantly, faith in their government.

It's long past due for a different approach.  The Inspector General, the GAO, and the Congress should look at the problems not as incompetence at the Department of Education and at the loan servicers, but as corruption, and investigate it for what it is.

It's not that hard, as I can attest from personal experience.  Just look first at the pronouncements and motivations of those involved.  In this case, Secretary DeVos has already informed her employees that she does not like student loan forgiveness and cancellations, regardless of the law.  The loan servicers are not fond of them either, when it results in less revenue for them.  They are also known for placing borrowers in repayment programs that are not good for the borrowers, but good for the bottom lines of the servicers.  Several state attorneys general, in addition to borrowers, have filed lawsuits.

As to investigating corruption, two suggestions:

A good spreadsheet analysis can illuminate how much is at stake and who is doing what, when.  I did such analyses on student loan lenders several years ago and was able to determine with considerable precision which revenues were lawful, and which were unlawful but were being slipped by the Department of Education with various degrees of guile.  For example, my estimate of unlawful claims by Student Loan Finance Corporation of South Dakota was $15.4 million; my estimate of unlawful claims at PHEAA was $92.0 million.  Lawsuit discovery subsequently showed the actuals to be somewhat greater but close.  And this was just the tip of the iceberg.

Once a spreadsheet analysis is completed to show where money is moving when, and how, then it can be determined who is doing it and what kinds of discussions must have happened in the C suites of the organizations to make it happen, as well as what conversations must have taken place at the Department of Education either in complicity or to try to uphold the law instead.  For example, I hypothesized a high-level discussion at PHEAA early in 2002 to move certain loans illegally into bond estates that paid higher government subsidies.  PHEAA denied it under penalty of perjury, but discovery in 2017 confirmed just such a communication between the CFO and CEO.  As to the legality of the move and others like it, another discovered email showed that PHEAA's compliance officials were told by their Washington lobbyist not to ask the Department of Education, for fear they would not like the answer.  The lobbyist instead would be asking his "off the record" informant at the Department as to the likely outcome were the question of legality asked.

Likewise, it is not difficult to reverse-engineer the decisions at lenders and servicers to anticipate their illegal moves.  Before they make them, there will be internal emails back and forth about not doing too much for fear of political ramifications and what the headline risk will be if and when someone figures out what they are doing.  Such communications can be hypothesized and then, upon investigation, actually confirmed.  It is not hard, backing in to the decisions and even the internal communications based on letting the spreadsheet numbers talk.   

From such work, a list of personnel can be prepared to show a network of corruption that extends across servicers and government. The list will overlap with people in for-profit colleges as well. Knowing who is in which position where and when can even provide predictions.

It was totally predictable, for example, that a PHEAA "compliance" official would be named student loan ombudsman at the CFPB.  It was totally predictable that the Temporary PSLF effort would not work any better than the original PSLF.  It's not hard to make sure most borrowers never get their due. 

From such work there is also explanatory value in understanding long-term issues at the Department. For example, despite the IG's 2009 finding,* the Department has never collected back over $20 million from Nellie Mae, now part of another servicer, for improper subsidy claims.  Who was once at Nellie Mae, then a consultant for SLFC, then chief of staff for a servicer now in much trouble, with long and deep connections into the Department?  If you are at the IG, GAO, the House, or the media and trying to understand why student loan programs don't work for their intended beneficiaries, and you don't know the names of those who make sure they don't, then you are not doing your job.

Enough with the reports and the outrage.  I don't want ever again to read reports or articles without names.  Identify who is responsible, and debar them from government and government contracting.** Charge perjurers with perjury.  Act as though thousands of student loan borrowers and families have their very futures hanging in the balance, because they do.

* The link to this finding no longer works.  It disappeared sometime between August 16, 2019, when it was active as a part of an earlier blog, and September 7, the date of this blog.  Lucy has apparently picked up the football yet again just as Charlie Brown approached to kick it.  The reference to the IG report on Nellie Mae is also contained in the former CFPB student loan ombudsman's testimony to Congress in 2014.  

**It's been done before at the Department of Education.  After OIG and DOJ reviews, Eugene Hickok and Matteo Fontana were fined and banned from government for their conflicts of interest.  Secretary Margaret Spellings also saw to it that three officials, whose conflicts and actions she believed were detrimental to the Department's mission and credibility, resigned:  Theresa Shaw was not retained as COO of Federal Student Aid; Assistant Secretary Sally Stroup abruptly returned to House staff; her replacement Diane Auer Jones likewise was terminated (only to return under Secretary DeVos). 

German State Elections

September, 2019

Berlin -- The German states of Brandenburg and Saxony voted last weekend, where results showed a continuing trend toward the far-right AfD party.

Nevertheless, the center-right CDU prevailed in Saxony and the center-left prevailed in Brandenburg, although both parties were weakened and may have difficulty forming governing coalitions.

The Greens and the centrist FDP also gained modestly in each state.  Much of the AfD gains came at the expense of the leftist Die Linke party.  Some analysts suggested that those inclined toward authoritarianism were shifting among themselves.  Most of the election commentary centered on the fear of immigrants as the main issue in the voting.

Not immigrants themselves.  Just fear of immigrants.  I was struck by a report in Der Tagesspiegel about the small town of Hirschfeld, on the border between the two states.  It gave the AfD its largest victory at 50.6% of the vote.  It has no immigrants.  The nearest immigrant lives twelve kilometers away.

This comports with voting patterns in the U.K. and the U.S., where immigration issues are most potent where actual immigrants and refugees are fewest.

It seems relevant to note that my hometown of Lincoln, Nebraska, has more immigrants and refugees per capita than any other city in the U.S.  It has been accepting refugees for decades; they and the city do well together. 

Hong Kong, Then and Now

September, 2019

Washington -- In June of 1967, USS Rainier (AE-5) entered Hong Kong harbor for a few days of rest and recreation after several weeks on the line in the South China Sea.

I was an officer on the ship, one of thirteen.  The watch bill permitted only a few of us to leave the ship at any one time, but Lt. (j.g.) George Raines (a Morehouse Man in college) and I took the first opportunity to go ashore, check into the the Hong Kong Hilton, and take long, hot showers.  We took a sampan over to a floating restaurant for dinner and slept in the next day.

We awakened to the English-language South China Morning Post as it was tossed into the hotel hallway.  It came as a shock to learn that war had broken out in Israel and that the USS Liberty, a U.S. Navy ship, had been attacked with the loss of 34 killed.

All was not peaceful in Hong Kong, either.  From our ship we had seen debris from the Chinese Cultural Revolution float down the Pearl River from the mainland.  Dead, bloated cattle.  Some sailors said they saw human corpses.  There were fears that China's Gang of Four would try to extend the Cultural Revolution into Kowloon and Hong Kong island itself.

The British ruled Hong Kong on a lease from China with 30 years yet to run, but there were also protest riots in the streets against the British.  Nearby Macau had fallen from Portuguese control just a few months earlier.

Hong Kong was not a democracy in 1967 and the British were slow to implement reforms to give the local population more say in its government.  When the lease was up in 1997, Hong Kong became part of China under the "one country, two systems" approach.  From the standpoint of 1967, this was a dubious proposition given what we knew about China at the time, and what we knew of Hong Kong's desire for democracy.

Five decades later, it is proving to be difficult to keep Hong Kong democracy down.  Hurrah for their bravery and persistence.

In the summer of 1968, I came back to Hong Kong on another ship, USS Arlington (AGMR-2).  With a much larger crew and more sailors on liberty, the ship's watch bill assigned me to Shore Patrol duty, with a nightstick, to help keep order in the Fenwick Street Pier area, a notorious sailor strip.  As I recall, it was Navy policy not to arm Shore Patrol from the fleet with guns, and wisely so.  Nightsticks.

The center of unrest in 1968 was the USA, with the assassinations of MLK and RFK, and in Europe, with student-led unrest challenging governments in Germany and France.  Hong Kong that year seemed peaceful in comparison.

The upper photo below is our Hong Kong floating restaurant in 1967.  The middle photo is USS Arlington in Hong Kong in 1968.  It is a long range communication ship; notice the antennas.  This was back in a time when electronic communications were carried over radio waves, bounced off an ever-shifting ionosphere.  Later that year, we would provide communications for the recovery of Apollo 8.  The bottom photo shows Hong Kong harbor from Victoria Peak: I am in civvies, in a shirt made by Hong Kong tailors.

Get Your Hands Dirty, Nebraska Farmer

September, 2019

Lincoln -- Amid a recent avalanche of news stories from coast to coast about how farmers are having second thoughts about what President Trump is doing to their export markets, appeared this gem:  "We need to get back to farming instead of worrying about politics," said a Nebraska farmer.  

With all due respect, no.  Your politics put the market-destroyer in power, and it is your politics that will have to be the remedy.  Furthermore, it's not just export markets that he is destroying, and you know it.  It's soil conservation programs; solid science at USDA; health and nutrition.  Above all, it's basic truth and decency.

You are going to have to get your hands dirty in politics, my fellow Nebraska farmer.  You will have to start talking to your neighbors in your social circle in small town cafés, veterans' halls, churches, schools, and across fence lines.  Here is what you could say to start the conversation:

"Friends, it was a good ride we had, thinking that this TV entertainer had all the answers, that he would set everything right with his deal-making skills, his business acumen, his bringing into government all the best people.  We should have known better.  In fact, we did know better.  We knew deep down that a bankrupt, a philanderer, a big talker, a man with no experience in government, would not be good for us....  

"Now it's time to make our voices heard that we have come to our senses.  We need to look at alternatives and support those who will represent us and our values.  This will mean looking at candidates, at all levels, regardless of party, evaluating proposals, contributing to campaigns, and volunteering to help get good, competent, experienced people elected....

"It's time we get our hands dirty and get to work in the political process.  Only then we can wash our hands of a false leader who has misled us."

Such talk is starting to happen.  Will rural America signal candidates that minds are open once again and ready to engage?  Surely so; what more could it take?