The Casual Acceptance of Fraud and Deception in Federal Student Loans

May, 2022

Washington — What would you make of the following email exchange if you came across it as a federal official who had taken an oath faithfully to uphold the law?  That question once presented itself to federal investigators who became aware of it in the course of subsequent litigation.   

The exchange starts off as a question from one student loan lender, Tennessee-based EdFinancial, to another, the Pennsylvania Higher Education Assistance Agency.  EdFinancial is contemplating moving loans among different trusts to generate more federal taxpayer subsidies for itself.  It asks PHEAA, whose software it uses to make subsidy claims, if such claims would be legal.  PHEAA official Diane Freundel passes along the question to PHEAA's liaison to the federal Education Department, Scott Miller:

"Scott, EdFinancial has asked us some questions...how we programmed our system....  Tom Renard made an off-the-record call to Angela Baker at the Dept - she's our...contact and we frequently ask her off-the-record questions.  She didn't know the answer....  Since you have the Dept of ED contacts, I said I would run it by you.  Do you know the answers....  If not, would you be willing to run them by [ED] policy as hypothetical questions from one of our clients (EdFinancial doesn't want their name used)? Thanks!"

Miller replied:  "This issue, and some like it, are currently under scrutiny within ED -- they came up in their audit of Iowa's sec. market (which uses our servicing system).  We are currently plotting strategy on this issue....  In the meantime, please don't ask ED for its opinion -- it's likely to be an answer we don't like.  Thanks!"  (emphasis added)

Several obvious red flags should have gone up immediately to subsequent readers of the exchange, which was intended never to be revealed to lawyers and investigators at the Education Department or the Justice Department.  Why didn't the lenders simply ask ED for a determination, or did they have something to hide?  Why is there an established off-the-record system between lenders and ED officials?  Why is strategy being plotted around the subsidy claims?  Is this the way EdFinancial and PHEAA always do business, never to seek answers they "don't like," especially when the higher subsidies in question could amount to hundreds of millions of dollars for them?

In the past year, both EdFinancial and PHEAA got news they undoubtably did not like.  EdFinancial was required by the Consumer Financial Protection Bureau (CFPB) to enter into a consent agreement and pay a million dollar fine for lying to borrowers.  EdFinancial put out a statement that it vehemently disputed the federal agency's action and that it settled only so it could devote more of its efforts to helping borrowers.  (Note to EdFinancial:  no one with knowledge of student loan servicing believes that.)  

PHEAA's too-clever strategies have likewise caught up with them, the denouement coming at a 2021 U.S. Senate hearing when their CEO dissembled under oath.  A few weeks later, PHEAA announced it would no longer be a federal student loan servicer.  There is now a massive federal effort underway to clean up the student loan servicing wreckage left behind by PHEAA.  It may take years.

In view of what has happened, another red flag should now go up with more questions:  When did the above email exchange take place, and what did federal officials do when they learned of it?  

It occurred in 2005.  To the best of my knowledge, federal officials who, upon its discovery, should have investigated it further, did nothing.*  The subsidies in question were reiterated by ED in 2007 to be illegal but most lenders never had to pay any of their false claims back. The experience taught the industry the lesson that, in student loans, no bad deeds ever go punished, so to speak.**    

It's been clear for two decades that borrowers and taxpayers have been exploited by unscrupulous people in the student loan arena.  It's still going on.  The National Association of Student Financial Aid Administrators (NASFAA) last week put out a white paper on needed reforms.  Many of its recommendations are good, but they are heavy on blame of others and light on reining in the exploiters.  This is to be expected, as three of the four "experts" who helped with the white paper are high on the list of people who contributed to the nation's student loan debacle in the first place.  Two of them are former PHEAA officials, including even the aforementioned Scott Miller.  (NASFAA does its own reputation, which has hardly recovered from lender payoff scandals in 2007, no good by giving voice to discredited, long-standing perpetrators of student loan dysfunction.)

It may be too late to take action on scandals that should have been investigated long ago, but not too late to learn lessons from them, particularly that casual acceptance of such dealings often leads to even bigger problems later, as in the sad cases of EdFinancial and PHEAA.  Now is the time for our country to consider major changes in the way we finance higher education, to rid us of the plague of schools, lenders, and loan servicers that have ruined the lives of so many borrowers.  It's time to look at how other countries make higher education affordable without attendant corruption. 

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*Other discovered emails at PHEAA showed a scheme, begun in 2002, to claim higher federal subsidies, but not so great as to draw attention to them.  The scheme was known to political appointees at ED who provided PHEAA with inside information as to how to avoid adverse findings by Inspector General audits.  See Dan E. Moldea, Money, Politics, and Corruption in U.S. Higher Education (2020), pp. 128-129.   

**Worth noting: the one lender that had to pay back a significant amount went on to make changes in its board of directors and instituted a code of ethics.  It is now ranked higher as a servicer than entities that were not required to repay any of their false claims.

 

  

Don't Overlook These Student Loan Cancellation Basics

May, 2022

Washington — President Biden has signaled that he is considering cancellation of federal student loans for certain borrowers in amounts yet undetermined.  Which has become the subject of many news articles, op-eds, and cartoons, but an understanding of the issues involved (especially costs to taxpayers) has not been a prerequisite for much of the commentary.  

Here are points to keep in mind:

1.  Millions of borrowers have been the victims of unscrupulous loan servicers, which have channeled borrowers into repayment choices that aided their own bottom lines at the expense of the borrowers'.  Cancelling these amounts, which have ballooned borrowers' balances, constitutes a removal of deceptive and improper* charges, not a cost to taxpayers.    

2.  Borrowers' interest rates and origination fees have always been set well above the government's cost of money, to have borrowers themselves pay for the program's administration, including estimated write-offs.  The federal student loan program has actually been making money for the government for many years before the Covid-related repayment pause.    

3.  Many Americans who attended public colleges in the past paid relatively low tuition, heavily subsidized by taxpayers.  In recent decades, taxpayers have benefited as the cost of postsecondary education has been shifted onto students and their parents, most of whom have had to cover the costs with student loans.   If there are taxpayer costs for the President's student loan cancellations above and beyond the considerations identified above, it is tribute toward generational equity.  

4.  Much student loan debt has been incurred by those who attended schools that should never have been approved by the federal government for participation in federal student loan programs.  The victims of these schools —overwhelmingly low-income — are unlikely ever to be able to repay their debts, so it is best to cancel the loans to relieve an unjust burden from the already  disadvantaged.  A simultaneous purge of low quality schools from continued eligibility must accompany the loan cancellations, for substantial out-year taxpayer savings.** 

5.  For debt that is not cancelled (the President wants to target the relief), borrowers should have bankruptcy protection restored, to treat student loan debt the same as other debt.  Some have argued that student loan borrower benefits, such as income based repayment options, remove the need for bankruptcy protections, but that obviously has not worked out because loan servicers have steered unwitting borrowers away from taking advantage of such benefits.  

The Secretary of Education has broad powers under current statutes to carry out student loan cancellations, remediations, and loan compromises.  It is hard to estimate with precision how much can be done at no net taxpayer cost, but it is much more than is commonly acknowledged by critics of cancellation, many of whom are unaware of the basics of student loan finance.  To the extent any cancellations would begin to cost taxpayers, the expenditures should be considered a bargain if they lead to borrower victims getting back to being productive members of society and an overdue crackdown on substandard schools.  These factors should be scored by CBO and OMB over ten years to determine taxpayer impacts on both revenues and expenditures. 

What is still lacking is more attention to fixing accountability for how we got into the federal student loan mess in the first place, which is necessary so that we do not repeat the same mistakes.  Under law, the Secretary of Education is responsible for "sound management and accountability" in the loan programs.  Better management seems to be in the works; more accountability must follow. 

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* Example:  “EdFinancial’s failure to tell the full truth to borrowers, so it could pad its bottom line, highlights a systemic problem with loan servicing,” CFPB Director Rohit Chopra said.... “When student loan companies lie about cancellation and repayment programs for borrowers, they are breaking the law.”  https://www.washingtonpost.com/education/2022/03/31/edfinancial-cfpb-sanctions-student-loans/

** Unfortuntately for borrowers and taxpayers alike, many of those in Congress who oppose student loan cancellation support federal subsidies for substandard schools.   

Empower Fleeing Russians

April, 2022

Washington — American foreign policy should seek more aggressively to divide the honorable Russian people from Vladimir Putin, weakening him and increasing the chances of his ouster. 

We in the West should embrace and assist the many Russians who have left their country over the war with Ukraine.  Among those fleeing are Russians of many talents and accomplishments who want to help shape a future, non-autocratic government for their homeland, including talented cyber professionals who know how to penetrate Putin's blackout of honest news reporting within Russia.  

It is counterproductive for the West to react to Putin's atrocities by banning all things Russian, which provides the dictator with talking points that the West is out to destroy Russia.  On the contrary, embracing Russians who represent the best of their culture and civilization is essential to ending Putinism. 

But how?  One way is to replace the current Russian government in organizations such as the OSCE with alternate national representation.  Another is to enlist international institutes and organizations to hold conferences at which exiled Russians would be given prominence.  The West could use the opportunities to re-assess its relationship with Russia, providing visions of a post-Putin world that would broadly appeal to Russians now living in an ostracized and collapsing autocracy.  

The West must do more than condemn war crimes and supply weapons for Ukraine's defense.  It must work quickly and purposefully with Russians fleeing their country to end the Putin regime.      

 

Offer a Post-Putin Foreign Policy Now

April, 2022

Washington — We in the West made regrettable decisions in the immediate post-Cold War years, which have now been laid bare.  Russia should not have been viewed as a defeated great power to be transformed into an image of the West, but as a great civilization newly freed to enrich the world alongside other great civilizations.  

That would have helped to channel Russian nationalism toward cultural expression and exchange, not military competition.  Great power theory, as expounded most notably by Mearsheimer, should not have been the basis of Western foreign policy.  It has led the Kremlin to define itself in military terms and to engage in brutal attempts at conquest, to recover its lost great power status.*  

Great civilization theory is not necessarily preferable, as offered by Huntington, who sees clashes of whole civilizations also in military terms.  But an alternative to Huntington, known as dialogue of civilizations, offers outlets for expression that do not depend on military conquest.  Two decades ago, the United Nations endorsed such an approach as advanced by Köchler, but it did not take root.

I recall watching the Sochi Olympics on television in 2014 with a sense of foreboding, which I shared with others then, and often since.  Host country Russia offered an opening ceremony based on the history of its remarkable civilization.  Television commentators cut away for commercials, with the promise of rejoining coverage when the Cold War defeat of the Soviet Union would be presented, to see if Russia would concede its fall as a great power.  Nothing could illustrate better the Western view of seeing the world as great power military contests.  

Russia President Vladimir Putin invaded Crimea soon thereafter.  

It is too late to offer a dialogue of civilizations approach to Putin, a war criminal who, as President Biden suggests, must not remain in power.  But it is not too late to offer a vision of what U.S. - Russia relations could be based upon in a post-Putin era.  Offering a foreign policy based on mutual appreciation of great civilizations, not great power militaries, could speed the day of Putin's departure.  

It would also provide an opportunity for the U.S. to define how we see the uses of this approach worldwide, especially as a non-authoritarian alternative to the increasingly obvious failure of great power theory.   

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*Anne Applebaum writes provocatively: "Now wondering if the Russians didn't actually get their narrative from Mearshimer [sic] et al. Moscow needed to say West was responsible for Russian invasions (Chechnya, Georgia, Syria, Ukraine), and not their own greed and imperialism. American academics provided the narrative."     

Conduct Humanitarian Rescue Exercises Now

March, 2022

Washington — To end the war in Ukraine as quickly as possible and to give hope to those now suffering, an ad hoc coalition of willing nations should mount immediate humanitarian rescue training exercises in adjacent countries.  The exercises would pre-position food, water, shelter, and medicines for delivery into besieged Ukrainian cities along with the military defenses necessary to suppress attacks on the missions.  

The exercises would include training to support the gathering of war crimes evidence by the International Criminal Court.  The exercises would be conducted through multilateral agreements, not under the aegis of the UN or NATO, and would best be located in Poland and Romania.   

These training exercises would signal Russia that large-scale humanitarian rescue efforts are being prepared in earnest, and that if Russia interferes, it will risk battlefield losses by its already under-achieving military.  The self-defense of humanitarian missions to protect civilians is countenanced under international law.  Military readiness to engage any attack on a humanitarian mission would be an integral part of the exercises.  

The nations best suited to the exercises are a combination of both members and non-members of NATO and the ICC, such as Poland, Romania, Finland, Sweden, the Netherlands, the U.S., the Baltic nations, Hungary, Slovakia, France, and Turkey.  

The conduct of such exercises would also demonstrate that the opposition to Russia's invasion of Ukraine is not limited to economic sanctions and actions only through existing alliances, which adds to the reasons Russia should end the war before its options deteriorate further.   

Kyiv, 1971

March, 2022

Berlin — One ray of hope in the Ukraine war appeared a few days ago:  American and Russian militaries have set up a communications hotline to avoid going to war by accident.  The U.S. European Command in Stuttgart operates one end of it, as that is also the location of the NATO supreme allied commander. 

The Stuttgart site is actually in the suburb of Vaihingen and was once the German Kurmärker Kaserne, built in 1936.  It became an American post in 1952.  I worked there a half century ago. 

And traveled from there, including to Ukraine.  These are photos from an April, 1971, trip to Kyiv.   The red banner, if I'm reading it correctly, says Glory to the Communist Party of the Soviet Union.  The National Opera House presented Aida. 

    

Look to the International Criminal Court

March, 2022

Berlin — Although I'm not physically present in Berlin at the moment, my thoughts are there because of the Russian invasion of Ukraine.  Refugees are flooding into the city.

Memories are there, too, such as the time after the Berlin Wall came down and we hosted a young couple from Halle who were eager to travel outside East Germany.  Especially poignant is a memory of visiting the Soviet Army officers' club in Wünsdorf, south of Berlin, as soldiers were departing in 1990 to go back to Russia.  A few Americans and Germans were invited for lunch; I was among them.  We were all hopeful for better relations in the future.  

Now we are at an impasse, with no clear path to stop the killing in Ukraine.  Here is my suggestion:

If the International Criminal Court, which has already started an investigation, would move against Putin for war crimes, that would put an unexpected factor into the mix. If the West then remains solidly united and demands Putin's ouster as a condition of lifting sanctions, which are hurting Russia badly, it could motivate Russian oligarchs and generals to remove him. With Putin out, a ceasefire could be achieved between Russia and Ukraine, leaving the Ukraine government intact.  Sanctions could be lifted.  Territorial disputes could be referred to the International Court of Justice.

This does not require any UN, NATO, or individual country's action.  It limits Putin's nuclear targets because no military actions are involved, against which to retaliate.  It would send a strong message to others who might want to start territorial wars, like China.

Biden's Student Loan Dilemma

February, 2022

Washington — The Biden administration is coming under much criticism for not following through on the president's pledge to cancel up to $10,000 of student loan borrowers' debt.  Inevitably, there is also much criticism from those who oppose any such cancellation whenever the subject is broached.

Complicating the situation is the looming date of May 1, when a repayment pause (due to the pandemic) expires.  Polls show a majority of borrowers unable to resume repayment and thousands or even millions more borrowers may go into default.  Those who wish the president ill are delighting in his dilemma:  extend the pause at taxpayer expense to aid borrowers indiscriminately, regardless of need, or enforce repayment for forty million borrowers in an election year, putting many individuals and families into financial distress.  

A solution is possible if it is better understood why so many borrowers are in trouble.  They might not be in trouble if they were only paying principal and interest on their loans.  Many borrowers are saddled with debt added by their loan servicers, often under dubious circumstances.  According to a multitude of audits, reviews, and investigations over the years, servicer misinformation, ineptitude, and outright deception are the sources of significant borrower debt.* 

Although servicers have been required in some cases to repay the federal government for their failures, there has been little effort to make borrowers themselves whole, to remediate throughout all federal student loan programs for borrower benefits denied.   

The Secretary of Education has the statutory power to modify loans for the good of the federal student loan program, in the nation's interest.  He should do so as remediation to borrowers for debts they should not have incurred, had the programs been conducted with statutorily required "sound management and accountability."  

He also has the statutory power to provide incentives to repayment, which he should use to help struggling borrowers, especially those whose debts could be reduced back to principal and interest.  Cancellation of servicer-added debt plus an interest rate cut could make enormous difference to millions of borrowers. 

The following three actions by the Secretary, or something similar, would de-fuse the situation and bring a significant measure of justice to aggrieved borrowers.  None requires congressional authorization or appropriation.    

1.  Modify federal loans by cancelling debt that has been added to principal and interest by loan servicers. 

2.  As the pandemic repayment pause ends, offer borrowers an incentive to get back into repayment by reducing their interest rates henceforth to the government's cost of money.  

3.  Give borrowers not in repayment up to one year of administrative forbearance to request a repayment option that they can afford with no loss of earned benefits, with interest set at the government's cost of money from the date of entering repayment. 

I've been looking closely at one individual borrower's problems with multiple servicers over the years.  ACS did not provide her with required documents; Great Lakes did not exercise due diligence over a consolidation; AES denied her requests for a repayment plan she could afford and gave her misinformation.  The complaints, so far, have fallen on deaf ears, despite clear evidence of what went wrong.  She would now be close to paying off her loans, had it not been for the servicers' errors of commission and omission.  

Recently, CFPB issued a statement warning against servicer "deception," which is exactly the right word.  The Bureau is right to do so, but warnings can only go so far.  Borrowers need and deserve remediation when they have been deceived.  This should not be done on a borrower-by-borrower or state-by-state basis, but across the board by the Secretary, because it is a widespread problem.    

Now is the time to do it, while the nation awaits a decision on what the Biden administration is going to do about the student loan crisis.  Targeted remediation, already authorized by law, will do much to move the discussion from repayment deadlines toward justice for abused borrowers.    

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*Recent example from a January 14, 2022, settlement approved by the Department of Justice:  "...during the period from January 2006 through December 2016, CES knowingly submitted, or caused to be submitted, false claims to the Department of Education resulting from CES’s failure to make required financial adjustments to borrower accounts or packets of borrower accounts, following a request by a borrower to enter into a deferment or forbearance, [or] participate in an income-based repayment plan...." 

 

    

Why the Nebraska Environmental Trust Lawsuit

February, 2022

Lincoln — In early 2020, the Nebraska Environmental Trust (NET) board, a state agency, took several unusual actions that caught my attention.  

The board was preparing to make millions of dollars of infrastructure grants to for-profit companies in the ethanol industry, violating statutory prohibitions.  The board was coming up with the funds by cancelling grants for conservation easements, a proper, popular, and traditionally funded purpose.  It was proceeding to do this with fewer votes than necessary under its own bylaws.  According to a newspaper account, one of the board members cautioned his colleagues about private communications among board members prior to the vote, raising a possibility that these actions were being taken in violation of the state's open meetings laws.  

Those four red flags made me think back to my own work in Nebraska government many years ago, which involved making certain all payments that went through the fiscal machinery of the state were properly vetted, through the pre-audit process.  I wondered if in 2020 there were still such checks and balances, given recent, multiple findings of mismanagement in state government.  No one I talked to had any confidence that these grants would be stopped, as the board's plan clearly was developed with the governor's imprimatur.   His department heads and appointees were pushing it; he had previously replaced a board member to get another vote on the board against conservation easements, which he openly and vociferously opposed.    

That left a lawsuit by citizens and taxpayers as the only remedy.  W. Don Nelson, a friend and colleague of mine for many years and former publisher of the conservation-oriented, good government newspaper Prairie Fire, came to the same conclusion.  Together, we filed a lawsuit in 2020 against the Trust board. 

From the outset, I was also concerned that the proposal looked like a pay-to-play arrangement, at least with the ethanol industry and perhaps with opponents of conservation easements.  Ethanol interests had made large political contributions to the governor's campaign fund and would, under these grants to the ethanol industry, be getting back their investments many times over.  

I contacted the Nebraska Accountability and Disclosure Commission (NADC) to ask if Nebraska law requires disclosures in cases like this, which give the appearance of pay-to-play, especially since the political contributions continued well after the 2018 elections.  The answer:  yes, if in doubt, public officials are required to make potential conflicts-of-interest filings for the commission to review.  There had been no filings, however, despite two five-figure ethanol industry contributions to the governor during the very time he and his appointees on the Trust board were developing their proposal for millions of dollars in grants to the ethanol industry at the expense of NET conservation grants. 

By 2021, the lawsuit proceeded to a stage in which depositions and discovery could soon be taking place, to determine where the ethanol grant proposal had come from and how much it had been discussed by the Trust board and others privately, before the public became aware of it.  Because the proposal had been advanced most prominently by Jim Macy, director of the Nebraska Department of Environment and Energy, he would have been a primary focus.  

His department, however, became embroiled in 2021 in a massive environmental catastrophe involving pesticide-treated grain at the AltEn ethanol plant in Mead.  The Trust board quickly and quietly dropped the ethanol grant proposal — bad optics was likely a factor — but in so doing it prevented us from getting to the bottom of who and what was behind the proposal. 

Dropping the ethanol grant proposal also deflected obvious questions as to why the NDEE director had been spending his time advancing ethanol industry interests rather than properly regulating them.  And AltEn was an unmitigated environmental disaster involving not only NDEE's failure to protect the public, but failures by other agencies represented on the Trust board as well.  Steven Wellman, the director of the Department of Agriculture, and Gary Anthone, director of Public Health, both had separate regulatory authority over AltEn but did little to explore how their respective departments could face up honestly to the dimensions of the disaster.   

Because the Trust board had dropped the ethanol grant proposal, we had our day in court only on questions of board compliance with its own bylaws and with the state's Open Meetings Act.  When the judge's rulings soon pointed toward our ultimate victory at trial, settlement talks began.  When the board finally demonstrated it would henceforth follow the rule of law procedurally, we settled for reimbursement of attorneys fees pertaining to those issues. 

Although the lawsuit succeeded in that it stopped the illegal ethanol grants, enforced the Trust board's compliance with the Open Meetings Act, and required reimbursement of attorney's fees in settlement, it did not resolve the question of why it took citizen action to bring this about.  Citizens should not have to step into the breach to see that state government functions properly.

Going forward, the success of the lawsuit should encourage others to do the same to protect public interests and enforce the rule of law.  Ideally, agencies will take note before that becomes necessary.  

In other words, Trust board members got caught.  Will they now go straight?  

There's not much indication that they will.  A dark cloud hangs over Nebraska state government in that no parties so far have acknowledged an understanding that they must be held accountable for the lows to which the state has sunk both substantively and procedurally in these matters of public health and protection of our natural resources.   

Moreover, it is not encouraging that bills have been introduced in the legislature to place even more state government boards under greater control by the governor.  It is likewise not encouraging that there have been no investigations of linkages between political contributions and favorable government treatment of the industries from which they came, both in terms of look-the-other-way regulation and outright paybacks in subsidies.  The NADC's growing reputation as toothless seems well-deserved.  

Finally, there has been no adequate explanation as to why state agencies have repeatedly tried to excuse themselves from responsibility for an environmental disaster by claiming lack of authority, only to find they indeed had the authority because their own records show they actually, affirmatively permitted it all to happen.  Conversely, the very same agencies had no hesitation to grasp at expansive authority in the contemporaneous scheme to fund millions in ethanol grants from termination of conservation grants. 

The hypothesis waiting to be investigated is that the state agencies have all along been oriented toward reciprocating political favors, rather than doing the job expected and required of them by citizens and taxpayers, under law.  

 

   

Loan Servicer Victims

February, 2022

Washington — Occasionally student loan borrowers in trouble track me down in the hope I can somehow help them.  They know I have had success in court against lenders and servicers.  In most cases, however, the borrowers are up against such formidable forces arrayed against them that there is no hope of resolution, even if the borrower has been denied proper servicing and consumer protections supposedly guaranteed by statutes and regulations.  

Some servicers are not only unapologetic about their mistreatment of borrowers, they flaunt behaviors that put their own financial interest above all else.  One servicer boldly stated, "there is no expectation that the servicer will act in the interest of the consumer."  Another servicer called directives by a Secretary of Education a "joke," and called Department of Education employees "pathetic" and "weak-minded."

In recent days, however, I've been looking at a borrower's case because her experiences are so typical and it presents another opportunity to peer into the predatory lending and servicing world. 

She first borrowed in 1989 and by 2002 had accumulated over $80,000 in student loans in the FFEL (bank-based, government subsidized) loan program.  In 2005, she requested and was granted a Direct (government) loan consolidation, but within a few days she was contacted by a private finance company specializing in loan consolidation that re-consolidated her loan back into the FFEL subsidized system.  The company was one of several that operated "boiler room" telephone banks to contact borrowers to get their lucrative taxpayer subsidies back into FFEL for their own benefit.  She now thinks, based on the sequence of events, that the company improperly obtained inside information about her first consolidation before it was ever fully completed, putting her at an information disadvantage when cold-called.  In the trade, this became known as "two-step" consolidation, which was indulged by the Department of Education until 2007.  

The benefits of the FFEL re-consolidation were nil, but the borrower remained in FFEL until 2020, when she consolidated back to the Direct program to take advantage of the repayment pause implemented during the Covid pandemic.  Over those fifteen years, her career as a physical therapist had good and bad times, as did her personal financial situation.  When unable to make loan repayments, she contacted her FFEL servicer (as told to do by the Department of Education) and asked to be put into repayment plans that lowered her monthly bills.  Invariably, the servicer put her into forbearance instead, during which interest accrued and was capitalized to add to her principal loan balance.   Once she was advised, incorrectly, that her loan was private and not eligible for any lower repayment options.  On other occasions, upon inquiring about various income-driven options offered in the Direct program, she was mis-advised that she would not qualify for any of those, because she was in FFEL.  

To date, over three decades, the borrower has made payments on her loans totaling nearly $70,000, but her principal is now almost $90,000.  She is now temporarily disabled and sees no clear way she will ever be able to pay off her loans.  Had she been properly advised of programs that cancelled loans in exchange for public service, she could have moved to Direct consolidation and worked in healthcare's non-profit sector, but she was always told she was not eligible.  Had she been properly advised by her servicers with an eye toward what was best for her, not for them, she likely would be completely out of debt.

There are thousands, if not millions, of similar stories among student loan borrowers.  Multiple investigations, audits, and reviews have corroborated this sorry situation.  

This all has come about not only as a cost to borrowers, but to taxpayers as well.  Federal taxpayers have unnecessarily paid billions in subsidies to the boiler room companies, making some of the owners billionaires themselves.* 

The Secretary of Education needs to step up and use his powers, expressly provided by law, to modify these loans.  My suggestion is to reset the loans at the original principal, less amounts repaid to servicers for any purpose, plus interest at the government's cost of money as an incentive to repayment.  Following this statutory path would target student loan relief to those who are most likely to need it, remediate damages done by unsound program management, and reestablish a modicum of trust and accountability going forward.

It's time for the Department of Education to be tough-minded for a change, and not cower before the challenge to set things right for exploited borrowers.  

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*Robert DeRose, as an owner of Student Loan Xpress, was subsequently caught up in a scandal that brought about the firing of the financial aid directors at USC, UT Austin, Columbia University, and Johns Hopkins University.  Xpress also gave company stock to a regulator at the Department of Education, who was dismissed but whose decisions favorable to the company were never reversed.  Cary Katz, an owner at College Loan Corporation, became a Las Vegas poker institution and a major source of political contributions to extremist groups and candidates.