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.
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* 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).
