July, 2020
Washington – Coming up next Monday, July 13, is an opportunity to strike a blow against U.S. Department of Education corruption, which has thrived under Secretary Betsy DeVos.
That is the day the House "Labor H" appropriations bill will come to the Appropriations Committee for full committee markup. Potentially at issue will be the opaque DeVos plan, called Next Gen, to award student loan servicing contracts to politically-connected entities with demonstrably poor records, at the expense of those with better records.
DeVos has already made five new awards to servicers that have worse (or no) records compared to the best of the current servicers. Although some of these awards can be justified depending on the criteria used to grade performance (MOHELA, for example, scores high or low depending on the criteria chosen), the awards also look as if politics played an outsized role in the selection.
Perhaps the most important contract yet to be awarded is the one for the common portal all borrowers will use to interact with the complicated, horribly error-prone student loan repayment system. How many applicants remain in contention is unclear, but DeVos has eliminated one by a joint effort of two experienced servicers. Others have apparently dropped out, seeing the political handwriting on the wall.
A servicer that looks poised to get the huge contract is PHEAA, also known as FedLoan or AES. PHEAA is the subject of lawsuits against it for poor servicing by the attorneys general of Massachusetts and New York. It is also a frequent subject of Dan Moldea's new book on corruption in U.S. higher education, for which I gave a lengthy interview based on first-hand knowledge of perjury and obstruction involving PHEAA.
PHEAA may be in line to get the contract because its Washington lobbyist, David Urban, in 2016 was head of the Trump campaign in Pennsylvania, where PHEAA is headquartered. Its director of federal relations is Kathleen Smith, a former top aide to DeVos at the Department of Education and textbook case of revolving-door conflict of interest. Smith, also a former employee of PHEAA, was instrumental at the Department in cutting off record-sharing between servicers and the Consumer Financial Protection Bureau and in orchestrating a legal strategy known as "preemption" to try to protect PHEAA from borrower lawsuits and from state government regulation.
It was on the latter point that the State of Connecticut came into conflict with PHEAA, which may lead to trouble for the servicer. The chair of the House "Labor H" subcommittee is Rosa DeLauro of Connecticut, who may well use her position to challenge what looks like a Trump-DeVos set-up to award a huge contract, and all its jobs, to Pennsylvania right before the election.
My interest in this is three-fold:
• Borrowers deserve better. PHEAA's record on programs such as Public Service Loan Forgiveness and TEACH has been condemned repeatedly by GAO and the Department's Inspector General.
• Corruption must be challenged, not rewarded. The Department of Justice, compromised as it is under Attorney General William Barr, will provide no remedies.
• Lincoln, Nebraska, my domicile and the home to another student loan servicer, will lose hundreds of jobs under the Trump-DeVos scheme, as it is engulfed by the rising Trump swamp. Local congressman Jeff Fortenberry, like the rest of the all-Republican Nebraska delegation, is terrified of tweets from the head of his party so he can only hope that Rosa DeLauro or other Democrats on the Appropriations Committee will come to Lincoln's rescue. This should be a lesson to voters always to diversify congressional delegations by party.
