//  4/14/17  //  Commentary

Betsy DeVos has a curious framework for determining when accountability and past performance are important. She appears to think that people, but not institutions, should be judged based on performance.  According to Devos, only persons (not constitutional persons, but the flesh-and-blood kind, especially teachers) should be judged based on strict metrics. You see, the government is bad at everything so the track record of successful school districts is irrelevant to her. And corporations, especially those tasked with the education of our youth, can’t be judged based on their past performance because . . . profits?

Thus, in her confirmation hearings, she refused to commit to enforcing Obama-era rules holding schools accountable for the outcomes of their graduates (as measured by gainful of employment). Before then, she fought rules holding charter school accountable for student outcomes, even though poor student outcomes in neighborhood schools were the whole argument for why charters were necessary in the first place. The Detroit Free Press described her as “willfully impervious to the relevant data.” None of this is surprising: she helped launch the education industrial complex and has made buckets of money in the process. The for-profit education sector loves her.

Predictably, on Tuesday, she took steps to wipe out Obama-era accountability and servicing rules in the student loan market. There was a lot in these rules aimed at aligning federal student loan servicing with basic customer expectations—requiring student customers to have basic stuff like accurate information and access to all the repayment options that they are legally entitled to pursue.

DeVos is reported as having said the Obama-era memos were “inconsistent and full of shortcomings.” Taking these claims at face value, the right path would be to keep the valuable consumer protections and fill whatever holes DeVos’s team has found. But the industry complained that the rules would make servicing too expensive. Good servicing is expensive and difficult. Just ask the mortgage industry. Fortunately, we can easily pay servicers more to service loans if their costs are going up. We don’t have to scrap accurate servicing at the altar of profit.

Really though, this claim that the memoranda made servicing too expensive is bunk. DeVos and friends either don’t understand how interest works or are trying to confuse you about it. Interest on loans does four things: 1) it protects against inflation; 2) it compensates lenders for the risk of default; 3) it covers servicing costs; and 4) it pays profits to keep lenders in the business of lending. Since servicing costs are the only factor that is truly under lenders control, lenders typically have to keep those down to keep profits up. In theory, this equation wouldn’t apply to student loans since the government shouldn’t be profiting off financial aid (whether it does depends on how you measure).

Since even Donald Trump agrees that profit is not the goal for student loans, we should just pay what it costs to get servicing right, which would include some profit for servicers). Current interest rates are likely high enough to do that, or could be raised if need be. Sure, servicing is an “expense” for taxpayers in the classic economic sense of all government dollars being fungible and the reality that it costs money to service loans. But again, it’s an expense with a dedicated line of funding and a line of funding that should not go toward anything else. In other words, we can easily pay for accurate servicing, but DeVos is choosing not to.

Five years into the servicing compliance business, I’m still nonplussed that there is a political valance to accurate servicing requirements. But here we are. DeVos’s action are another example of the Republican administration brazenly throwing constituents of all stripes under the bus so their friends in the financial services industry can profit. The most demoralizing part of her decision to rescind the memos is that green lighting more sloppy servicing isn’t the real scandal.

The real scandal is about the servicing contracts. Today, the federal government makes most student loans directly then contracts with private companies to help service those loans. Other student loans carry a federal guarantee (basically, the student loan equivalent of federal mortgage insurance) and are therefore subject to federal servicing rules. Ten companies currently hold servicing contracts, which is a pain for borrowers since our fragmented federal lending programs often require borrowers to take out several separate loans each semester.

As a result, borrowers have to interact with several different servicers to make timely loan payments even though all of those loans are technically federal student loans. The various consolidation programs paired with servicers’ tendency to trade servicing rights faster than Bill Belichick trades players in the off season means that borrowers have little guarantee of continuity over the life of their loan. Not so much a big deal if you are organized and keep your loans on a vanilla schedule. But a huge deal if you need to be in regular contact with your servicers to recertify (and recertify, and recertify) your eligibility for an alternative payment schedule.

This dystopian regime was poised to get a little better in 2019 when those servicing contracts end. The new round of contracts was set to push servicing onto a single portal for borrowers, limit servicing transfers, and give the government a chance to eliminate servicers who had proven that they were not up to the task. Specifically, the now-rescinded memoranda had required that DOE consider servicers’ past performance before selecting a contractor to help service loans. This is huge.

Some servicers, noticeably Navient (f/k/a/ Sallie Mae) have a terrible track record. Navient has been sued by the CFPB and various states for mishandling borrowers. Worse still, rather than show appropriate contrition and make some vague promises to do better like their mortgage industry equivalents, Navient has taken the position that “[t]here is no expectation that the servicer will act in the interest of the consumers.” If government contractors aren’t acting in constituents’ interest, then how is the government acting in constituents’ interest? Under the memoranda, Navient was unlikely to have its contract renewed. Considering past performance was one small step toward making the contractors to whom this government function was delegated accountable to the citizens it served. But DeVos doesn’t care about accountability, so she rescinded the guidance.

By rescinding these memos, DeVos is signaling that she does not care about how servicers treat students. She doesn’t care how the government treats citizens, she cares that government contracts are profitable. This isn’t surprising: student lending is an industry in which she has deep ties. In this administration, patronage and profits trump performance.


Proving that Mick Mulvaney Compromised CFPB Enforcement

12/6/18  //  In-Depth Analysis

By Mark Totten: A quick dive into the data shows Mulvaney has curbed enforcement and, as a result, compromised the agency’s mission.

Take Care

Versus Trump: Trump The Racketeer?

11/1/18  //  Uncategorized

On this week's episode of Versus Trump, Jason and Charlie talk about a new lawsuit alleging that Trump and his children were part of a racketeering enterprise that engaged in fraud in connection with their supposed endorsement of a multi-level marketing operation. Listen now!

Charlie Gerstein

Civil Rights Corps

Jason Harrow

Equal Citizens

Versus Trump: Trump Versus Facebook

8/23/18  //  Commentary

On this week's episode of Versus Trump, Jason and Charlie talk about an unusual and surprising case where the Trump Administration has filed a brief in support of fair housing advocates who have sued Facebook for its part in enabling discriminatory advertising. Listen now!

Charlie Gerstein

Civil Rights Corps

Jason Harrow

Equal Citizens