Bringing Order Out Of Chaos

January, 2023

Washington — After the chaos of the House speaker's election, the nation needs to see a demonstration that the House can pass meaningful legislation under its new leadership and new rules.  It needs quickly to bring an important bill through a standing committee, through the House Rules Committee, and pass it with a roll-call floor vote to send to the Senate.

Anything less invites suspicion that we are still facing insurrection in the Capitol.   

A good choice for the purpose is the restoration of bankruptcy rights for student loan borrowers, which has bipartisan, bicameral support.  It has backing across the ideological spectrum and from the chairman of the Federal Reserve.   Members of the House Freedom Caucus have voiced their favor.  Both houses have legislation for the purpose already drafted from last year. 

This is substantive legislation and a key step in resolving the nation's student loan mess.  Passage could be a factor in breaking the impasse over student loan cancellations, not only by providing another option for borrower relief, but especially by disincentivizing lenders and servicers, whose revenues depend on perpetuation of debt, from preying on the most vulnerable.   

The nation's media are focused on conflict, most notably over how to raise the federal debt ceiling in a few months, doubtless a profound problem.  Stoking conflict, however, is not what the nation needs right now.  We need an answer to the question of whether the Freedom Caucus is bent on bringing down the government, as sometimes seems the case, or actually making it work.  

Bankruptcy restoration legislation presents a rare opportunity not only to help resolve a policy issue, but to resolve procedural issues of the highest possible order.  

Identifying the Biggest Rural Losers

December, 2022

Washington — After the mid-term elections, which saw rural voters across the nation vote overwhelmingly for Republicans, a friend and colleague of mine asked pointed questions:

"Many people, especially Democrats, make the assumption that rural voters are only hurting themselves by voting Republican so consistently, but does actual evidence support it?   Can the relationship be graphed and if so, would presenting it make any difference to voters?"

So I went looking for answers.  A good baseline year, I thought, would be 1960, when rural areas were still well-populated with small farms, when agricultural policy under President Eisenhower followed much of the framework established in the New Deal by President Roosevelt, and when Democrats were competitive in rural areas in federal, state, and local elections.  The baseline should be well before President Nixon installed Earl Butz as Secretary of Agriculture, who set a new course* for farmers: "Get-big-or-get-out" and "plant fencerow-to-fencerow."  Many in rural America embraced the slogans and have been voting Republican ever since.  President Trump's Secretary of Agriculture, G.E. "Sonny" Perdue, phrased it this way: "In America, the big get bigger and the small go out."  The economic and health consequences of these Republican policies have been profound, as farm consolidations and rural depopulation have been proceeding accordingly.     

I have not found a study with a baseline that looks back to pre-Butz years, but an impressively rigorous, peer-reviewed work encompassing the last five presidential elections has recently been published.  Analyzing mortality rates, with an abundance of graphs, it concluded:

...Americans living in counties that voted Democratic during presidential elections from 2000 to 2016 experienced lower age adjusted mortality rates (AAMRs) than residents of counties that voted for a Republican candidate, and these patterns were consistent across subgroups (sex, race and ethnicity, urban-rural location). The gap in overall AAMR between Democratic and Republican counties increased more than sixfold from 2001 to 2019, driven primarily by changes in deaths due to heart disease, cancer, lower respiratory tract diseases, unintentional injuries, and suicide. These patterns were similar when we assessed mortality rates by state governor election results, with evidence of an increasing gap between Republican and Democratic voting areas over the study period.  

The authors suggest many causal factors to explain the relationships they found.  They did not look at rural population declines (as in "get out") as a direct factor, which should be explored in further research.  Closed hospitals aren't saving lives.  

The study ended before the Covid-19 pandemic began, which hit rural areas especially hard. Provocative headlines such as "How Many Republicans Died Because the GOP Turned Against Vaccines" suggest the trends will only worsen when new data are added. 

Rather than join a Democratic chorus saying rural Republicans are stupid for killing themselves, I think it's time to look at Democrats' own responsibility for the calamitous state of affairs.  

In the 1970s, Republican Senator Robert Dole and Democratic Senator George McGovern began a decades-long collaboration on rural policy in the Senate Agriculture Committee, through periodic iterations of the Farm Bill.  Dole's primary interest was production agriculture (farm subsidies), while McGovern's focus was nutrition (food stamps, school lunches).  Their combined efforts attracted the political support of rural Republicans and urban Democrats, which defused urban versus rural conflicts.  

Over the years, however, successor politicians came to simplify the tradition into a raw political understanding that Republicans set rural policy and Democrats are indulged on food stamps (SNAP) as a trade-off.  

What has been lost is that both Dole and McGovern had strong interests in the priorities of the other, and shaped legislation accordingly.  Dole was sincerely committed to nutrition, as was McGovern to farm supports.  Now the positions have hardened:  Republicans show little interest in SNAP other than to cut funding; many Democrats have lost interest in nutrition as well, devoting their efforts to ensuring that SNAP recipients can buy the same junk food as others do.  Worse, Democrats have lost interest in rural policy, often not campaigning for the rural vote, leaving rural America to its fate.  

Democrats may find satisfaction in shaking their heads at the reckless obtuseness of Republican voters, but Democrats have fared much worse politically under the trade-off.  They lost the presidency in 2016 and the House in 2022 to a failure to compete effectively in rural areas.  Republican politicians have won disproportionate political power by leveraging the rural vote.  

Meanwhile, rural Republican voters themselves have paid a disastrous price, many giving their very lives.  That's clear from any study of the conditions and the ongoing, downhill trends in rural America.   

Democrats bear some of the responsibility, to the extent they have given up on rural America.  A good way to own up to it would be to begin anew on the 2023 Farm Bill with no assumptions of political trade-offs.  Democrats must offer an aggressive set of proposals to address the ills of rural America and prepare to fight for them within the current structure of the Farm Bill.  (Don't know any?  Ask, and we'll provide you some, and lead you to others.) 

In other words, for the sake of everyone, blow up current misguided political expectations associated with the Farm Bill reauthorization.  And announce it now, through the highest levels of House and Senate elected leadership — looking at you, Hakeem Jeffries and Chuck Schumer. 

____________________________________________

*Ag policy writers Rosenberg and Stucki argue that Earl Butz was not a pivotal figure in that he did not inaugurate the programs his critics say he did, because they were well underway before he became Secretary, in part under Democratic auspices.  While this is a useful perspective, it was under Butz that corporate agriculture — Big Ag — completed a highly visible capture of federal ag policy and has never since loosened its grip.  Butz himself, who served on Big Ag corporate boards, was proud of it.  

 

 

      

The MOHELA Strategy and the Nebraska AG

December, 2022

Lincoln — Last week, I explained in the Nebraska Examiner why the Biden administration's student loan cancellations make good sense for the Nebraska economy and expressed displeasure that the Nebraska attorney general is trying to block the well-justified loan relief.  

The motivation of Nebraska's attorney general is now partially explained by reporter Michael Stratford of Politico.  The lawsuit was planned by Phil Kerpen, a political operative with close ties to Koch brothers' organizations, who determined that the Missouri student loan lender and servicer MOHELA might have hard-to-achieve legal standing to bring a lawsuit against the loan relief:

Seizing on the harm to loan servicers that work for the Education Department, like MOHELA, was “the best opportunity to bring a successful lawsuit,” said Phil Kerpen, a conservative political organizer who leads American Commitment and was an early proponent of the strategy and circulated the idea in conservative circles.

How that strategy was circulated to the Nebraska attorney general, with an explanation of why he should front for MOHELA's interests above those of his own Nebraska citizens, would make for a good freedom of information request.  For its part, MOHELA denies* communicating with the Missouri attorney general to file the lawsuit, but there are five other plaintiffs, led by Nebraska, that might have been the conduits to carry out the strategy, not to mention other go-between organizations in Kerper's network.  

MOHELA has a history of unsavory behavior, as described in federal and state audits of the quasi-governmental organization.  It built up wealth in the period 2003-2006 by making false claims against federal taxpayers in the tens of millions of dollars.  The Missouri state auditor has identified its federal "Special Allowance" revenues over the period, increasing from $16.2 million, to $21.8 million, to $51.2 million, to $101.1 million in the last year of the false claims.   

A Kearney & Company audit, under federal auspices in 2007, actually showed that the rapid increases in MOHELA revenues resulted from illegal manipulations of student loans among bond estates, in the hundreds of millions.**  

The Missouri state auditor explained what MOHELA did with the bonanza of revenues: spent lavishly on its executives and employees in salaries, bonuses, vacation time, retreats, automobiles, and no-bid contracts, much of which was decided in violation of open meeting requirements.  See the audit showing where the money was going: https://auditor.mo.gov/press/2007-56.htm.

MOHELA's behavior was not unique.  It was duplicated at other lenders and servicers, two of which (Navient and PHEAA) have now belatedly been terminated as federal contractors because of bad loan servicing.  But they still own federally guaranteed student loans and, if the Politico reporting is correct, are eager to see the MOHELA-based strategy succeed. 

The case Nebraska v. Biden should be dropped, or settled honorably.  It is headed to the U.S. Supreme Court on a course to waste money and make bad law, however it is decided. 

________________________________

* MOHELA, recipient of a huge new federal contract to take over the servicing of the Public Service Loan Forgiveness program from PHEAA, would not want to be seen conspiring with the Missouri attorney general to deny benefits to many of the same borrowers who were deceived by PHEAA, whose approach to loan servicing was to keep borrowers in debt in perpetuity, because that's how they made their money.   

** Available on request.  

Unfortunately, My Election Predictions Came True

December, 2022

Lincoln — It's time to match up my election predictions with reality.  Before the 2022 elections, I made two predictions.

The first prediction:   

Democrats will lose races they should have won.... Their failure to be competitive in culturally rural precincts will doom many of them.  It is not that they will lose in these areas, but that they will lose by such wide margins that they cannot make up for the losses elsewhere.  

I talked to two Nebraska congressional candidates about this, months before the election when they still had time to do something about it.  Tony Vargas, in the 2nd District, and Patty Pansing Brooks in the 1st, were both excellent candidates and each listened carefully, even though their purpose in calling me was fund-raising.   

Tony Vargas said he agreed on the importance of the rural areas and that he was going to make a special effort in Saunders County to cut the size of his expected loss there, as well as in the rural parts of Douglas and Sarpy Counties.  He quickly said, however, that he was going to win because of his large margins in North Omaha and particularly South Omaha. 

I replied that he needed to lose only 40-60 in the rural areas and anything exceeding that would result in a defeat.  Also, we discussed how Republicans were making a big effort, especially in South Omaha, to lose by less than expected.  

After the votes were counted, Tony Vargas won Douglas County by 52-48 but lost Saunders 25-75 and Sarpy 35-65.  Had he lost Saunders and Sarpy by 40-60, he would not have won as I predicted, but it would have been extremely close and he would have won had he been able to do slightly better in urban Omaha.  In other words, it was the Republican strategy to cut losses in South Omaha that worked better than the Democratic effort to cut losses in rural areas.  

Patty Pansing Brooks also agreed that cutting her losses in rural counties was important — I offered the 40-60 goal.  She said that she was searching for a way to reach it.   I said that showing up in those counties and listening was absolutely necessary, but she also needed a message that would resonate with rural voters.  She asked what I thought that could be, genuinely interested in getting campaign advice beyond the sources who seemed to be telling her that she could win by maximizing urban, pro-choice votes in Lancaster and Sarpy Counties.  

I said rural voters would respond to a candidate who was truthful with them about the failure of Republicans' get-big-or-get-out agriculture policy, how a half-century of it has depopulated rural Nebraska, closed schools, hospitals, and nursing homes, polluted soil and water, destroyed supply chains, and tragically increased rural deaths-of-despair to alarming levels.  And that she would try to reverse it, starting with bold and creative proposals in the 2023 Farm Bill.  She probed my advice on how to reach rural voters with several good questions, apparently because she had not heard this before from within her campaign and its supporters, either national or local.

Patty Pansing Brooks lost counties other than Lancaster by 29-71, dooming any hope that big wins in urban areas could pull out a win for her.  Even losing 40-60 in those counties would have left her about 13,000 votes short. 

The second prediction: 

[P]ost-campaign analysts and pundits will either blame other factors [for losses, beyond the failure to compete for the rural vote], such as not campaigning more ideologically to the left or to the right, or that it is impossible to compete for such votes anyway.  

Almost on cue, Nebraska Democrats started a public squabble about ideology after the election, with arguments about Democrats' campaigns being too far left on an ideological scale to win.   Of course that was the Republican argument, so it seems counterproductive for Democrats to concede it without pushback.  

But most voters aren't steeped in political theory and don't know right from left as much as they care about what's happening in their own lives.  What too many voters in culturally rural areas perceive is that Democrats don't care and have nothing to offer on any scale.  

Democrats have not helped themselves post-election by skipping over the heartland in their choices for House leadership posts.  Democrats are signaling that rural policy doesn't matter by demoting the Iowa caucuses in the 2024 presidential race.  Republican elected officials at federal and state levels are doing great damage to rural America, but Democrats have lost their voices, and it doesn't look as if they'll be getting them back soon.  

I wish my predictions had been wrong.  Tony Vargas and Patty Pansing Brooks are experienced state senators, outstanding persons and candidates, and one or both should be in Congress.  If only national Democratic leaders cared more about rural collapses, across many states, Democrats would have a sizable House majority. 

Nebraska v. Biden: The Amici Briefs

December, 2022

Lincoln —  There are many good reasons why Nebraska should drop its lawsuit against the Biden administration's student loan cancellations.  No court has yet agreed that Nebraska has standing to sue, and now comes the news that Nebraska's economy is headed into decline in 2023.  

A move by Nebraska leadership to withdraw the lawsuit would be a huge help to the Nebraska economy, a boost of billions of dollars in increased capacity for over two hundred thousand Nebraska borrowers to grow in-state roots, households, and families.  

This unavoidable point is being raised in one of several new amici curiae briefs presented to the U.S. Supreme Court.  A coalition of 21 amici writes:

Without cancellation, a borrower’s ability to pay for basic necessities, invest in affordable housing, or buy items like a car will be minimal; in contrast, cancellation allows borrowers to save for a down payment or make larger purchases. In turn, these purchases put money into the economy and provide more tax revenue to the Plaintiff States.   [Emphasis added]

These revenue benefits to the plaintiff states are more than enough for the Supreme Court to throw the case out for lack of any plaintiff''s standing.  The court may see this as an opportunity to signal potential state government plaintiffs, everywhere, that speculative, circuitous arguments about irreparable harm, merely to challenge policies states don't like — or want to politicize — will not be sufficient to upend decades of jurisprudence on requirements for standing.   

Another amici brief, from law school deans and constitutional lawyers across the country, pushed back against the idea that the Department of Education's cancellations raise "major questions" beyond what is already authorized by statute, as if the case were similar to what the high court recently determined on major questions in EPA v. West Virginia.  The constitutional scholars write:

The Department is not asserting jurisdiction over matters not previously within its purview or trying to regulate topics Congress never assigned to it; it is acting in the center of its statutory authority. The Secretary’s HEROES Act waiver and modification authority falls squarely within the responsibilities Congress has vested in the Secretary. For example, in tasking the Department of Education with carrying out the purposes of the federal student loan programs, Congress already authorized the Secretary to modify “any . . . provision of any note evidencing a loan” made under Title IV and to “compromise, waive, or release any right, title, claim, lien, or demand,” among other powers. 20 U.S.C. § 1087hh(1)-(2). Given that Congress expressly authorized the Secretary to modify, compromise, or release federal student loan debt, the Department’s use of its HEROES Act authority to do exactly that hardly represents a “transformative expansion” or “radical or fundamental change” in its power. West Virginia, 142 S. Ct. at 2609-10.... [Emphasis added]

This presents an opportunity for Chief Justice John Roberts to find a middle ground majority within the court for narrower rulings, as he has tried to do in the past, most notably in sustaining the Affordable Care Act by determining that Congress was properly using its power to tax when it established penalties against the uninsured.  Here, the question is much easier:  the HEROES Act aside, the Secretary of Education already has explicit statutory powers to cancel student loans.  Thus, this is the perfect opportunity for the court to put guard rails around its sweeping West Virginia decision.  

It should not be lost on anyone that dragging out this lawsuit also hurts the federal treasury.  The sooner it is resolved for borrowers, the sooner a majority of borrowers go back into loan repayment, many with more manageable debt that facilitates repayment, and the sooner borrower accounts can be closed if their balances are within the cancellation targeting limits. The longer it drags out, the more unmanageable the student loan program becomes and the more inequities arise.  Why should a repayment pause extension, to accommodate the Nebraska lawsuit, benefit higher income borrowers at the expense those who are victims of appallingly bad loan servicing and debt traps, and who badly need immediate remediation?  

Nebraska Governor-elect Jim Pillen is being left with many messes on his hands by his predecessor, not the least of which is a weakened economy that needs student loan cancellations to turn it around.  Moreover, without the cancellations, many borrowers will be leaving the state to seek better opportunities elsewhere, despite Pillen's rhetoric about keeping more Nebraskans at home.  Why stay in Nebraska, where water is increasingly poisoned by nitrates, where opposition to immigrants is holding back industry, where state government has become an instrument of one monied family, and where the attorney general spends his time looking for divisive, counterproductive lawsuits to join or to lead, like Nebraska v. Biden.   

Governor-elect Jim Pillen and Attorney General-elect Mike Hilgers should huddle and resolve to look for multiple-win opportunities in litigation.  Dropping the opposition to student loan cancellations would be a win for the Nebraska economy, for aggrieved borrowers, for equity, and for the federal treasury.  Seldom do any two Nebraskans have the chance to make such a positive contribution to the state and to the whole country.  

They should announce now that they will drop the lawsuit.   

  

Nebraska AG: Please Drop the Lawsuit

November, 2022

Lincoln — As a Nebraskan, I want to make a case for Nebraska to withdraw as a plaintiff in the current student loan cancellation lawsuit, Nebraska v. Biden, which is headed to the U.S. Supreme Court.  Instead, our state attorney general should follow his statutory duty to protect student loan borrowers under Nebraska consumer protection law.  

First, Nebraska does not have standing as a plaintiff, according to a recent federal district court decision in the Eastern District of Missouri, where the case was filed.  The Eighth Circuit, on appeal, did not take issue with this ruling; instead, it found that another plaintiff may have standing and therefore proceeded with the case on that basis, not on Nebraska's standing.

The district court judge ruled that standing must involve irreparable harm to the plaintiff, beyond speculation.  The Nebraska attorney general, Doug Peterson, unconvincingly claimed that state government pensioners in Nebraska would be hurt by loan cancellations because the Nebraska Investment Council (NIC) would lose money on student loan investments known as SLABS.  He cited a Bloomberg news service article as authority, but clearly the article only suggests investors are likely to shift their investments, not suffer losses.  An obviously better authority is Fitch Ratings, an established Wall Street ratings firm, which explains that the Biden loan cancellations are likely to be helpful to SLABS investors, as they reduce maturity risks. 

Did the attorney general actually discuss his views with the NIC, and did the NIC concur?  That would be good to know.    

Other harms that might befall Nebraska, Peterson argued in vain, were associated with the amount of the cancellations not being taxable, diminishing Nebraska's potential state tax revenues.  Presumably Nebraska could tax them as income if it wanted, but has chosen not to, and for good reason.  Does Nebraska want to tax loan cancellations of the lowest earners, the disabled, the defrauded, the deceased?  Surely not.  This harm argument is not only speculative, it comes at a time when Nebraska's tax coffers are in record surplus, due primarily to federal tax stimulus programs associated with the pandemic.  

Second, consider what the Nebraska attorney general is trying to stop with his lawsuit: student loan relief well-targeted to an estimated 232,100 or more Nebraska borrowers, amounting up to $2.72 billion for Pell grant recipients, at $20,000 per borrower, and up to an additional $96.1 million for other lower and middle income borrowers, at $10,000 apiece.   

These cancellations would help Nebraskans who invested in themselves through education, who have experienced difficulty paying for college because of tuition levels never faced by previous generations, which enjoyed greater tax subsidies keeping tuition moderate.  The cancellations would be good for the Nebraska economy, as low and middle income borrowers begin to get out from under their student loan debts to start families, buy homes, establish businesses, and put away funds for their own children's education.  

Any apocryphal cases of blue-collar taxpayers paying, through loan cancellation, for the education of high-income, white-collar professionals, are de minimus because of the targeting, especially to the Pell population.  Do those who make such arguments against cancellation also object to college tuition charges without means tests?  Again, surely not.  (Where do their children go to college?)

Let's also take a closer look at the debt borrowers have accrued, to understand more of the real issues behind the need for loan cancellations.  A significant part of the debt is not what borrowers took on to pay for tuition, but debt that has been added to their accounts for higher than necessary interest, interest capitalization when borrowers needed temporary relief from monthly payments, negative amortizations when borrowers entered into income-based repayment programs, and excessively high fees associated with loan administration.  The number of borrowers who have paid off more than their original principal, but still owe more than they originally borrowed, illustrates the problem.  

It is not well-known or properly appreciated that until the pandemic repayment pause, borrowers had actually paid $114 billion into the federal treasury above the cost of the loan programs.  That borrowers could now get some of this back in cancellation should be considered a rebate for overcharges.  The overall effect of the Biden cancellations on the federal budget, if a rebate is factored in, is only 10% to 20% of the cost of the 2017 Tax Cut, the benefits of which were targeted to those in the upper incomes.  

Nor is it well-known, although thoroughly documented by government auditors, that many borrowers have been misinformed, deceived, and defrauded by their loan servicers.  I have reviewed the paperwork of borrowers who fall into this category; they have tried conscientiously to resolve their issues, but have been stonewalled at every turn.  I have also personally* tried to solve problems on their behalf, without success, so I know how impossible it can be to get out of student loan hell when no one will act to make things right.  

Too many of us think that borrowers took on their loans willingly to pay tuition, with full confidence and knowledge of the terms of the loan programs, so they should simply pay them back — end of story.  But even those who take this view, like Nebraska congressman Mike Flood, allow that relief may be owed to borrowers who have been "gouged," as he put it.  

That would be a good place for Nebraska attorney general-elect Mike Hilgers to start his term of office.  He should drop Nebraska from the lawsuit against cancellations and, instead, follow the lead of other state attorneys general who have used their consumer protection laws to help borrowers out of messes that have been created through no fault of their own.  Such lawsuits have helped to drive corrupt and abusive servicers like Navient and PHEAA from business as federal contractors.  

That is my request as a Nebraska taxpayer.  There is no good reason why Nebraska taxpayers should be paying the salary of an attorney general to block justified loan relief for hundreds of thousands of Nebraska borrowers, let alone millions of borrowers across the nation.  Keeping people in debt with the mistaken idea that it makes money for state government is not the attorney general's job.  He should instead be Nebraska borrowers' advocate against a loan system run amok.  

Finally, it does not reflect well on Nebraskans that there is every appearance that Nebraska v. Biden is driven by politics, not policy.   The case has turned into a political sideshow, as if the current and future financial viability of many thousands of Nebraska individuals and households can be ignored.  The right thing for Mike Hilgers to do is to demonstrate that he will be an attorney general for all Nebraskans, not a political puppet driven by a national dark-money agenda, and withdraw Nebraska from the lawsuit accordingly.  The case should go forward with other plaintiffs, if they can establish** standing, and eventually be sorted out without misuse of Nebraska taxpayer dollars.   

________________________

*Borrowers as a last resort have occasionally asked me for help, as they are aware of my years of litigation working against fraud and abuse in student loan programs.  See blogposts here and here, and Dan E. Moldea, Money, Politics, and Corruption in U.S. Higher Education, 2020.  

**The Eighth Circuit enjoined the Biden loan cancellations this month because a three judge panel concluded that Missouri might have standing as a plaintiff out of its relationship with the loan servicer MOHELA.  However, MOHELA is not an arm of the state of Missouri under a Fourth Circuit precedent that provides a four part test for determination.  See U.S. ex rel. Oberg v. PHEAA, 2015.  The Supreme Court carefully reviewed the case, asking the U.S. Solicitor General for guidance, then denied cert to PHEAA in January, 2017.  

Midterm Predictions 2022

November, 2022

Washington — Being a political scientist, I am sometimes asked for election predictions.  This has become more frequent since I correctly forecasted both the 2016 and 2020 presidential race outcomes. Most others missed badly on at least one of them.  

My success could be the result of what I hope is careful attention to empirical evidence, rather than randomness.  If I have any bias, it is an overabundance of willingness to seek out views contrary to my own to determine what might be resonating, for good or ill, with the voting public.  

The main prediction I'll make for the 2022 midterm elections is that many Democrats will lose races they should have won, because of faulty campaign strategies.  Their failure to be competitive in culturally rural precincts will doom many of them.  It is not that they will lose in these areas, but that they will lose by such wide margins that they cannot make up for the losses elsewhere.  

A corollary prediction is that post-campaign analysts and pundits will either blame other factors, such as not campaigning more ideologically to the left or to the right, or that it is impossible to compete for such votes anyway.  

They are wrong.  Many voters do not have a firm grasp of left and right, but make their candidate choices on the basis of factors that do not match up with what they profess ideologically.  Attractive candidates who listen and relate to voters will be competitive, because remarkably few voters pay much attention to political theory.  Intentional, anti-ideological pragmatism would go a long way toward closing these election gaps, if offered.  

As to the impossibility of Democrats competing in culturally rural areas, such thinking needs to be challenged by candidates who know where Republicans are vulnerable.  Republican shortcomings are truly profound throughout culturally rural areas.  Their failed agricultural policies have driven farmers off the land, weakened small towns, closed hospitals and nursing homes, increased cancers and dietary diseases, and led to alarming numbers of deaths of despair.  Democrats who don't understand this and neglect to address these weaknesses have sealed their own fate. 

A final prediction is that Democrats will once again fail to understand that pushing policy positions before their time has come, before groundwork is carefully laid, can be counterproductive to achieving the election victories necessary for their adoption.  Many worthy Democratic goals and causes will be going down to defeat in this election because of counterproductive strategies.  This is not a call to go slow, but to learn how to get things done successfully.  

Because I make these predictions doesn't mean I like them, or that I'm unwilling to entertain contrary views.  I'd welcome analyses that challenge any of the above.  

 

A Possible Way to Reverse the FFEL 'Betrayal'

October, 2022

Washington —  Although the Biden administration's student loan cancellation plan has, so far, survived several attempts to kill it in court, it has come at a high price.   Hundreds of thousands of FFEL borrowers feel betrayed that they will see no relief because, to counter plaintiffs' claims of standing to sue, the Biden administration abruptly took away FFEL borrowers' eligibility to claim cancellation benefits after consolidating their loans from FFEL into DL.  The FFEL borrowers had been assured that they were eligible right up to the very day the promised benefits were withdrawn.   

This "gut-punch" to FFEL borrowers may have been needless.  Standing has a high bar, as Judge Henry Edward Autrey explained in his decision to dismiss six states' requests for injunctive relief against the cancellations.  Plaintiffs must "show a concrete and particularized injury for the purposes of standing," he wrote, pointing out four times that "speculative" injury did not qualify for standing.  

Make no mistake: any injury to the plaintiffs from FFEL consolidations and cancellations is highly speculative.  Fitch Ratings, the Wall Street company that rates student loan asset-based securities (SLABS), even considers the Biden plan to be "positive" for SLAB owners like the plaintiffs.  Why DOJ did not make this argument for the Biden administration is inexplicable.  It is commonly understood in industry; cancellations will reduce maturity risk.  

During oral argument, at 1:06 onward, Judge Autrey even tossed up a softball question to DOJ, inviting a full swing at how speculative the plaintiff's alleged injuries were, in reality.  DOJ instead touted the argument that it was cutting off borrowers' benefits, needlessly giving credibility to the plaintiff's assertions that cancellations would be bad for SLABS.  In his written decision, unfortunately, Judge Autrey conformed to DOJ's sole argument that removing the borrower benefits settled the question.  

This will make it all that much harder for the Biden administration to make amends with the FFEL borrowers, as it says it wants to do.  

There is a possible way back, to undo the damage.  First, when the case is appealed, DOJ needs to make the case that the standing question is not solely a function of making FFEL borrowers abruptly ineligible.  

Second, there is the matter of statutory parity between FFEL and DL programs.  Parity prevents termination of FFEL benefits if DL borrowers are eligible for them.  

A new case on the parity question, Rosenberg v. Deutsche Bank, has been filed in the Southern District of New York.  It cites 20 U.S.C. 1087e(a)(1)-(2) of the Higher Education Act:

Notwithstanding any other provision of this part, loans made to borrowers under this part that, except as otherwise specified in this part, have the same terms, conditions, and benefits as loans made to borrowers under section 1078 of this title [FFEL Loan Program], shall be known as “Federal Direct Stafford/Ford Loans”.

And argues:

...the United States Court of Appeals has ruled that, by enacting the statutory parity provisions in the HEA requiring that all federal student loans under the FFEL Loan Program and the Direct Loan Program “shall have the same terms, conditions, and benefits”, it is clear that (a) “Congress created a policy of inter program uniformity” between the FFEL Loan Program and the Direct Loan Program and (b) “Congress’s instructions to the DOE on how to implement the student loan statutes carry this unmistakable command: Establish a set of rules that will apply across the board.” See Chae v. SLM Corp., 593 F.3d 936, 944-45 (9th Cir. 2010).  [Case 1:22-cv-07567 Rosenberg v. Deutsche Bank, Southern District of New York] 

This is also the historical position of the Education Department.  It would be good to return to it.

Time is short before an upcoming appeal of Judge Autrey's decision in the Eighth Circuit, but DOJ should also draw a distinction between the amount of cancellations at issue and the cost of cancellations to taxpayers.  There is a huge difference, as explained in a previous blog post.  This is potentially important in determining whether the cancellations cross a "major questions" line.  Judge Autrey suggested that the case brought by the six states might succeed on the merits, if the plaintiffs had standing, but his rationale was based on the assumption that taxpayers would be bearing all of the costs.  That assumption is speculative and unwarranted.   

Weak State AG Arguments for Standing

October, 2022

Washington — Six state attorneys general have asked a federal district court in Missouri for injunctive relief to prevent President Biden's announced student loan cancellations from harming the financial interests of lenders, loan servicers, and investors in their states. They have suggested various injuries in an attempt to demonstrate that they have legal standing to bring their case.

Among the alleged irreparable harms are potentially fewer loans to service, more loan consolidations from commercial- to government-held loans, and decreased income from investments in student loan asset-based securities, or SLABS. The six AGs' argument is that borrowers should be kept in their current debt status to avoid loss of revenue streams to those who hold, service, and invest in that debt.

It is important here to take note that other, more consumer-oriented state attorneys general — and the federal Consumer Financial Protection Bureau — have successfully brought suits against several student loan holders and servicers for the benefit of borrowers, taxpayers, and better program management.  They have been able easily to distinguish between perpetrators and actual victims.  

A question of immediate importance, as the new case goes to court in Missouri, is whether any alleged future harm has been offset by federal assistance that continues to benefit the entities identified by the six plaintiffs. A look at the record shows that past and ongoing federal help has been extraordinarily solicitous to these lender, servicer, and investor interests.

• Loan consolidations. Historically, many loan consolidations were in the reverse direction of the plaintiffs' alleged harm. For several years, private lenders, through the use of direct marketing to borrowers, moved billions of dollars of loans from federal to private ownership, generating federal subsidies for the new owners. Although direct marketing tapered off by the time of the Great Recession, in part because of evidence that industry marketers were improperly accessing the U.S. Department of Education's NSLDS lists of borrowers, many of these consolidation loans still populate current SLAB investments. Federal authorities eventually determined that borrowers were often misled by misinformation from the marketers — misuse of federal logos, for example — but no remediations were ever made to borrowers or taxpayers. If the Biden actions now encourage borrowers to consolidate loans in the other direction, any harm must be weighed against this history, as well as the fact that consolidation and call risk are inherent constants in the securities markets.  Some experts even say that SLABS will be helped by the cancellations.*

• False subsidy claims. Beginning as early as 2002 and continuing for several years, many student loan holders made false subsidy claims by moving new loans in and out of older, more lucrative bond issues. The Education Department (ED), after its Inspector General determined that the practice was illegal, ceased paying the false claims but only prospectively, allowing claimants to keep years of illegal proceeds, estimated at the time to total $600-$800 million. Among the loan holders keeping proceeds were those in Iowa, Missouri, and Arkansas, states that now claim harm from future loan cancellations.

Iowa. When the Iowa Student Loan Liquidity Corporation (ISLLC) was independently audited by Kearney & Co., it was found to have been making claims on loan principal of $412 million rather than the legally eligible $78 million. This was not a surprise because ISLLC had been identified several years earlier by ED's regional reviewers for making false claims. Those findings were overruled by ED political appointees, however, and remained out of public sight until discovered much later in litigation.

Missouri. When the Missouri Higher Education Loan Authority (MOHELA) was audited by Kearney & Co., it was found to have been making claims on $226 million principal rather than the legally eligible $43 million. In agreeing with the audit findings, the MOHELA CEO wrote to the auditor: "MOHELA will work diligently to assure corrective measures are taken regarding this issue. Below is a statement from AES/PHEAA..," (another servicer which he went on to blame for causing the false claims). Although professing innocence and corrective action, MOHELA did not return any of the illegal proceeds because ED, incredulously, did not require it.** When PHEAA's many servicing troubles finally caught up with it in 2021 and its federal servicing contracts ended, MOHELA became the new servicer for many of PHEAA's loans, gaining major new contracts from ED. This greatly expands MOHELA's servicing revenues at the same time the Missouri attorney general alleges harm to MOHELA in the new lawsuit.

Arkansas. The Arkansas Student Loan Authority (ASLA) asked not to be audited by an independent auditor for its false claims, on the condition that it would end all future claims for the more lucrative subsidy. ASLA returned approximately $6 million in false claims to the U.S. Treasury, out of an estimated $12 million at issue.

• ECASLA. During the Great Recession, student loan securities markets collapsed despite federal guaranties backing the loans. In order to provide liquidity for borrowers in the bank-based FFEL system, Congress in 2008 authorized the Secretary of Education to provide assistance to the industry. ED offered several different financing opportunities, which resulted in over $100 billion of FFEL loan volume to save the industry. 

• Pre-emption. In 2018, after a federal appeals court ruled that state student loan authorities were not protected by sovereign immunity, opening the door to lawsuits from borrowers and state attorneys general who sought to protect their borrowers under state consumer protection laws, the Secretary of Education determined that the federal Higher Education Act pre-empted such litigation. Until this determination was subsequently overturned by multiple courts, many loan servicers were protected from the consequences of failing to give borrowers the benefits to which they were legally entitled.

The six AGs' assertions of irreparable harm are dwarfed in comparison to the historical and ongoing largesse showered on student loan entities. A stronger case could be made that squandered federal resources should be clawed back and more borrower debt should be cancelled to compensate for documented predations committed by lenders and servicers. The idea of a few state AGs keeping borrowers in debt as long as possible, to sustain revenue streams for ethically-challenged appendages of a superannuated industry, is repugnant. 

______________________________

* Fitch Ratings, contrary to the six AGs' claim of irreparable harm, suggests that loan cancellations will actually have a positive effect on SLABS:

"As Fitch has previously communicated, student loan forgiveness that includes FFELP loans would have a positive effect on some FFELP ABS trusts exposed to maturity risk, as student loan forgiveness of any amount would generate a one-time prepayment that could reduce maturity risk for the most vulnerable trusts. High levels of cash flow would, in most cases, pay down the senior-most bonds with the closest maturity dates. Maturity risk has been the main driver behind ratings downgrades in the sector, given the underlying loans have at least a 97% federal guarantee against default of principal and accrued interest."

** MOHELA, according to the Missouri state auditor, went on a lavish spending spree instead of returning the false claims.  See https://auditor.mo.gov/press/2007-56.htm.

CBO Cost Estimate Needs Work

September, 2022

Washington —  The Congressional Budget Office has offered an estimate of the cost of President Biden's need-tested student loan cancellation plan, announced last month.  Calculated on a "present value" basis looking out thirty years, the estimate is $400 billion.  The White House quickly compared the smaller number to the $2 trillion tax cut enacted in the previous administration, which was targeted at corporations and those in the upper tax brackets.  That may be a good perspective, but there's much more to the calculation that needs to be explored.  

CBO appropriately cautioned that its estimate is "highly uncertain."  Present value scoring is inherently problematic because it is only as good as its economic forecasting models. But present value scoring is required under the Credit Reform Act of 1990, so that's where CBO starts and ends its analysis, unfortunately.* 

Another way to look at the question would be through old-fashioned cash-basis fund accounting, looking at what we know — or should know — about the nation's student loan portfolio and applying the Biden policy to how it impacts federal Treasury revenues and expenditures, without a lot of out-year guesswork.  This approach also has the advantage of raising questions that are not addressed by CBO but are nevertheless important to get to matters of who is paying how much for what.

•  According to GAO, the federal Direct Loan program was a money-maker for the Treasury between 2010 and the onset of the pandemic, in the amount of over $114 billion.  This is mostly borrower-paid interest above the cost of the program and, if returned to borrowers through cancellations, is not a taxpayer cost but analogous to a rebate to borrowers for overcharges.  

•  Uncollectible student loan debts have already been written off in significant amounts that may or may not be a part of cost calculations.  Neither CBO nor the White House has offered a clear explanation as to how these amounts are accounted for, how much has already been covered by excess program revenues, and how calculations are being made to ensure the amounts are not counted twice.  

•  Amounts of borrower remediations for loan servicer fraud, abuse, and misinformation are likewise not a part of current estimates, as far as I can tell.  In April, the Biden administration offered waivers to many borrowers for the purpose of providing them borrower benefits to which they were entitled but improperly denied by servicers.  How these remediations interact with other cancellations is unclear, as they are authorized under more than one statutory authority and should not be duplicated in estimates.  Their totals could be large and not a cost to taxpayers, because the sums were added to borrowers' accounts improperly and their removal is a correction, not a cost.  (A way to get at estimating potential remediations is to determine how much of the total borrower debt is principal and how much has been added by capitalized interest and negative amortization.  If these numbers have been published, I'm not aware of them.  CBO should try to make this determination, because distinguishing between what students borrowed for college and what has subsequently been added is fundamental to understanding student loan issues.)  

•  Consideration should be given to the fact that the Biden cancellation policy could reduce the number of borrower accounts by nearly half, cutting costs of administration.  

• Consideration should be given to savings achieved by ending payments to FFEL loan holders when accounts are paid off.  This includes SLABS.**

•  Consideration should be given to how the Biden cancellations will positively affect the nation's economy.  When the cost of tax cuts is considered, advocates often claim — irresponsibly — that the cuts pay for themselves.  At best, the economic effects might cover a third of the revenue loss.  Doubtless, however, there is some effect, so for consistency in arguments over economic effects, a responsible estimate should be applied against the cost of the Biden cancellations.  

When the above factors are considered, my conclusion is that the CBO estimate is not only "highly uncertain" but likely overstates taxpayer costs significantly.  In any case, I'd like to see numbers attached to the above factors so everyone could be more confident in making estimates.  

In recent days, the Biden cancellations have been challenged in federal courts, which raises even more questions.  It's possible a case could go to the Supreme Court, which seems eager to apply its new "major questions" doctrine to overrule executive branch actions.  The Supreme Court could find that the Heroes Act justification for the cancellations is insufficient to support a major question, in part because of the amount of money involved in the cancellations, threatening Congress's constitutional power of the purse.  

This is why costs estimates need to be refined and sorted out over who is paying for what.  The Supreme Court does not need another decision based on factual mistakes, as was an infamous decision a few years ago.  

Does the Biden administration have a Plan B, or Plan C, in case Plan A is enjoined?   Would it use 20 U.S.C. §1082, rather than the Heroes Act, to support its action?  Would it change the amount of the cancellations to be based on a retroactive reduction of interest, for which there is empirical justification, or retroactive elimination of capitalized interest, which is the source of so much borrower grief and is at the heart of servicer misconduct?  Those actions could still be targeted, to make them need-based.  

Remediating improper servicing, cutting fees and rates to fulfill program purposes, targeting Pell-eligible borrowers with cancellations, and reducing the number of costly accounts and unnecessary subsidies are essential to good program management, an explicit obligation of the Secretary under the law, not actions for an activist judiciary to impair.***  To those of us who have looked at student loans over the decades, from many different angles, the only "major question" is how the corruption-tainted loan imbroglio has been tolerated so long without relief and reform.   

Critics of the Biden administration are on firmer ground when they note that nothing in the administration's student loan package addresses the need to restore borrowers' bankruptcy rights, which has bipartisan support, or to control college costs.  That's where attention needs to be focused.  It's not too late to add them to the package.

____________________________

* Nobel laureate Joseph Stiglitz writes: "Although the broad estimates of the total amount of canceled debt can be big—some reach hundreds of billions of dollars—these figures derive only from budgeting practices for how credit programs like student loans are recorded. The government and budget analysts calculate a number that is known as 'the present discounted value of foregone payments'...but it is a very poor guide for understanding what actually happens...."

** Student Loan Asset-Based Securities contain substantial numbers of loans with dubious ownership and balances, resulting from lender and servicer deception and misinformation.  See, for example, the earlier blog post about an actual case, at https://viewfromthreecapitals.blogspot.com/2022/07/new-taxpayer-burdens-from-student-loan.html  See CFPB corroboration of servicer issues as well.   

*** A lawsuit brought by six state attorneys general alleges that lenders, servicers, and investors in their states will be harmed by losing profits from student loans that may be consolidated or cancelled by the Biden actions.  The AGs are taking legal action to keep borrowers in debt so these parties can continue to profit indefinitely from well-documented program mismanagement and borrower misfortune.  This is a weak foundation on which to build a "major question" for the Supreme Court.