“Filling the swamp with higher education exploiters has severe negative financial consequences not only to college loan holders, but also to the public treasury.” (Photo: Joe Brusky/flickr/cc)
The Trump administration is imposing dire consequences on both students and taxpayers.
President Trump ran on promises to “drain the swamp” of special interests and corporate lobbyists in Washington, DC, but higher education policy in his administration is a quagmire of Okefenokee proportions.
Just to review the latest developments to emerge from the dismal places in his administration:
• His Department of Education contracted with a college student loan service company with financial ties to Education Secretary Betsy DeVos
• His Department of Justice sided with a college loan service firm that a state attorney general says has violated college student loan debt forgiveness rules, and
• His Department of Veterans Affairs gave a reprieve to a for-profit college that also has ties to personnel deep in the muck of DoEd headquarters in L’Enfant Plaza.
These developments continue the trend in the Trump administration, and with Republicans on Capitol Hill in general, to favor the interests of the predatory college loan and for-profit college industries at the expense of students, families, and the American taxpayer.
Filling the swamp with higher education exploiters has severe negative financial consequences not only to college loan holders, but also to the public treasury, and according to a new report, the fallout to taxpayers is likely worse than what’s widely understood.
College Debt Collector Tied to DeVos
The Trump administration didn’t start the sordid business of contracting with for-profit companies to help the federal government collect overdue student loans.
But the Obama administration at least made an effort to be more selective in choosing collection firms with clean records and taking steps to prevent them from charging high fees and abusing debt holders. The Trump administration, on the other hand, has reversed those policies and abandoned safeguards that could prevent bad actors from getting federal contracts.
Officials in the education department say the reversals were enacted to cut “red tape,” but it doesn’t add to the department’s credibility that a loan service company chosen to receive one of these lucrative contracts happens to have financial ties to Secretary DeVos.
As the Washington Post reports, the company, Performant Financial Corp., “is linked to LMF WF Portfolio, a limited liability company that DeVos as an investor.” The contract is worth up to $400 million.
During her confirmation, Senate Democrats grilled DeVos about potential conflicts of interest arising from her overseeing contract bids worth millions of dollars to companies she had financial connections to.
DeVos was required to divest her holdings with Performant, but the decision to award a contract to the firm seems even shadier due to the “marginal” management rating Performant has for its previous work under the Obama administration.
Other loan firms that applied for contracts are now suing the department for exhibiting bias in its selection process.
Trump Doing Loan Servicers’ Bidding
An even bigger concern is that DeVos and her department are awarding new loan service contracts at all without adopting any new reforms to prevent these companies from gouging loan holders and running up the bill to the federal government.
In reporting about the Performant deal, a journalist for Dow Jones quotes student loan borrower advocates who compare student debt collectors to firms working for the Internal Revenue Service that, in 2017, collected $6.7 million in tax payments but invoiced the government $20 million for their services.
While the Trump administration puts into place personnel and procedure that benefit the college student loan industry, his Justice department is actively engaged in preventing any other branches of law enforcement from holding the companies accountable for cheating borrowers and running up expenses to the public.
As Reuters reports, the Trump administration recently intervened in a lawsuit brought by the Massachusetts Attorney General that accuses a company that handles over a quarter of the nation’s outstanding college student debt for “deceptive practices” and overcharging students.
Massachusetts accuses the loan servicer, Pennsylvania Higher Education Assistance Agency, of causing public workers and teachers in the state to lose benefits and assistance provided by the federal government, including a program that forgives student loans after 10 years of public-service employment.
In defense of the loan company, Trump’s DoJ filed papers telling the judge to dismiss the charges because Massachusetts doesn’t have standing to pursue claims against the company. Should the judge comply, this would establish a terrible precedent for future actions against abusive college loan debt collectors.
Favors for For-Profit Colleges
When the Trump administration isn’t sticking up for college loan servicers, it’s doing all it can to help for-profit colleges – the sector that benefits the most from federal college loans – avoid accountability for breaking rules and pushing disadvantaged students, many who are military veterans, into taking out huge loans for degree programs they mostly never complete.
As the Chronicle of Higher Education reports, during the Obama administration, for-profit college Ashford University, that relied heavily for its revenues on GI Bill benefits, was threatened with losing its eligibility to obtain millions of dollars from the federal program because of noncompliance with licensure requirements. But Trump’s Veteran’s Administration recently gave Ashford a reprieve, pending legal action that could resolve the noncompliance.
The VA’s decision could be on the up-and-up, but it doesn’t help that Ashford’s parent company, Bridgepoint Education, has run into trouble for illegal practices before, including deceiving students into taking out loans that cost more than advertised, collecting federal loan money even though the vast majority of students drop out, and rewarding corporate executives and shareholders with huge profits reaped from public funds.
The VA’s decision looks all the more suspect based on the presence of former Bridgepoint employees in DeVos’s education department. As David Halperin writes in one of his many investigative reports on the for-profit college industry, DeVos has in her department two employees with Bridgepoint connections – Robert Eitel, who was Bridgepoint’s chief compliance officer before joining the department as senior advisor, and Linda Rawles, an attorney chosen to help craft rules to govern student debt relief. Talk about foxes attending the henhouse.
This recent action by the VA extends the Trump administration’s reputation for favoring the for-profit college industry, a perception demonstrated last year when DeVos and her department suspended rules that would have allowed student-holders defrauded by Corinthian College, and other for-profits, to have their loans forgiven. In retaliation, more than one-third of states have filed lawsuits.
It Gets Worse
The Trump administration’s efforts to fill the higher education swamp in Washington, DC has dire consequences not only for the students who are shackled with crippling levels of debt but also for the American taxpayer.
A new comprehensive assessment of student debt and default over a 20-year span finds disturbing trends that indicate student debt burdens and the consequences from those debts are worse than what previous studies have found.
This analysis by Brookings finds, for instance, that as many as 40 percent of student loan holders are likely to default, and the cumulative rate of default over the 20-year span analyzed is far higher than previously measured.
The default rate is far worse for students who take out loans for degree programs offered by for-profit colleges. The default rate for students entering for-profit programs is nearly four times the rate of those students entering public programs – 47 percent versus 13 percent. This discrepancy between the two sectors is getting worse. For a cohort of 100 students who began attending a for-profit college in 1996, 23 defaulted within 12 years of starting their programs, compared to 43 for the cohort entering a for-profit program in 2004.
The loan default rate among black students is at “crisis levels,” the analysis finds. The default rate among black graduates is more than five times the rate of white graduates (21 versus 4 percent). Here again, the for-profit sector makes the problem worse. Black students who drop out of for-profit colleges default at a rate of 67 percent compared to only 4 percent for white graduates who never attended a for-profit and complete their degrees.
Default rates are accelerating across nearly all sectors of college entrants – for-profit or public, dropouts or degree holders. But when the results of the for-profit sector are separated out, default rates have risen at only “modest” levels.
For this reason, and others, the analysis recommends “robust efforts to regulate the for-profit sector.” Yet the Trump administration is doing the exact opposite.
Because the Brookings analysis is confined only to college loan holders who default, there is an even bigger problem with student loan debt being overlooked here.
All those students who haven’t defaulted deserve attention too. Student debt levels have reached nearly $1.4 trillion and now have become the second-largest source of household debt, after housing, and the only form of consumer debt that continues to grow since the Great Recession.
But the most important point here is that the cost of student loan debt and the malfeasance of the for-profit college industry hurt everyone by bleeding the public treasury, directing huge amounts of economic capital to unproductive ends, and diminishing the opportunities for a whole generation of young adults to realize their life goals.
The Trump administration is hard at work doing everything it can to make this situation worse.