Fireworks Between House and DeVos at Hearing

December, 2019

Washington – There were figurative fireworks at the House Education and Labor Committee's hearing last week on predatory student loans, at which Secretary of Education Betsy DeVos testified.  Given the dire circumstances of many borrowers, it was to be expected.

Here are some exchanges from the hearing that badly need follow-up:

•  The formula for determining partial loan cancellation under a new DeVos "borrower defense" rule, based on borrower earnings, has problems.  Although the Secretary referred to the rule over and over as "scientific," it has clear flaws in its misuse of statistical methods.  The fact that she could not explain the difference between mean and median only underscores the larger problem of the use of variability measures (standard deviations) suited to normal distributions, which earnings distributions are not.  Then there is a problem of the validity of using the earnings data in the first place, as earnings are not well related to the fraudulent actions of the predatory schools, which is the statutory basis for loan cancellation.  The new rule starts from the premise under Chevron that courts indulge federal departments and their rules, but whether this one will pass muster with Judge Sally Kim, who has previously held Secretary DeVos in contempt, is a question yet to be answered.

• As to Judge Kim's contempt of court citation and its $100,000 fine, Secretary DeVos said at the hearing that she personally would not be paying it, nor would the Department, as it was improper in her view and is being appealed.  Clearly, from her demeanor, Secretary DeVos is not taking the matter very seriously.

•  The Secretary went out of her way several times to argue the equivalency of for-profit institutions, even the most notorious ones that have closed, with public and non-profit institutions.  She suggested that if for-profit school victims had claims for loan cancellation, perhaps students at the University of California–Berkeley should have their loans cancelled for being defrauded because a UC employee fudged data on a U.S. News survey for its Best Colleges report.  Shame on that employee, but the Secretary should be doubly ashamed for reductio ad absurdum arguments.

•   Loan servicers got off lightly at the hearing, despite their collections on loans that had been cancelled under borrower defense.  The Secretary chalked this up to loan servicer errors, which she said have been corrected and that victims have since been made whole.  She was reluctant to admit that the resulting erroneous credit scores have incurred lasting damage to borrowers that cannot be undone.  She was determined not to name the Department official who had been in charge of instructing servicers in 2018 not to collect on cancelled loans, per a court order.  Only after being pressed again and again did she come forth with the name of James Manning, whose method of communicating with servicers about the court order was the briefest of informal emails that seem not to have made much of an impression on the recipients.*

•  One reason for servicers not to pay serious attention to Manning's emails (or for him to communicate more formally) was the March, 2018, determination by Secretary DeVos that loan servicers must not respond to state attorneys general acting on borrowers' behalf under state consumer protection laws.  In her view (prompted by industry suggestions), federal privacy law preempts such aid.  Without help from consumer protection advocates, borrowers would be unlikely on their own to resolve unlawful collections.  Although the DeVos attempt at preemption has now been overturned in several courts, at the hearing Secretary DeVos continued to say that the Department would not recognize borrower defense claims assisted by state attorneys general. **  This is obstruction of law enforcement, for which the Secretary needs to be held accountable.

•  Secretary DeVos repeatedly argued at the hearing that her actions were guided by her concern for federal taxpayers, despite the increasingly profligate ways of the president who appointed her.  Granted she does not have control over his devil-may-care personal indulgences at taxpayer expense, but she does have the ability to collect $22.3 million from student loan servicer Navient for false claims against taxpayers dating to a 2009 Inspector General audit.  An administrative law judge ruled in March of this year that the Department must collect the sums due.  Collecting would demonstrate DeVos's concern for taxpayers; not doing so would represent obvious hypocrisy:  one standard for students and their families, a different one for the student loan industry.

Underlying the whole hearing, but never mentioned by anyone on either side of the aisle or by Secretary DeVos, is the fact that for-profit schools and student loan servicers make contributions in the tens of millions of dollars to the political campaigns of members of Congress.  The schools and servicers receive these funds from taxpayers and essentially recycle a portion of the funds back in contributions, to keep the money flowing.  Politicians are loathe to cut them off, even when the federal programs leave a trail of destruction through the lives of student loan borrowers and their families.

Secretary DeVos says everything she does is for students; she repeated it many times at the hearing. It is a good line, but every DeVos decision seems to go in the opposite direction. 

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* See earlier posts about personnel in the revolving door between industry and the Department of Education, including James Manning.  He once signed a letter, which FedLoan Servicing (PHEAA) took as a "joke" that they were in on, as a way for the Department to dispose of a troublesome audit issue.  FedLoan may have thought of this Manning communication about collections as another such less than serious message, inasmuch as Secretary DeVos was known to have signed off on borrower defense cancellations "with extreme displeasure" and had issued a preemption notice to thwart consumer protections for such borrowers.

** The preemption action by Secretary DeVos followed on the heels of a federal appeals court decision, confirmed by the U.S. Supreme Court, that stripped servicer FedLoan of its claimed sovereign immunity.  Such immunity had previously protected FedLoan from borrower and state attorney general lawsuits.  After the loss of sovereign immunity, Massachusetts and New York both sued FedLoan on behalf of their borrower residents.  Those cases are pending.