DeVos Opens the Door to Fraud and Abuse in Student Loans

Back when Trump was nominating people for Cabinet positions, one story line that developed was that he was picking people whose past involvements indicated that they would undermine the very mission of the departments they would run. Exhibit A was the nomination of Betsy Devos to run the Department of Education. The focus was on her lack of experience with public education and her commitment to private school vouchers.

But as Jonathan Chait pointed out recently, primary education is mainly the purview of state and local governments. The real area of influence for the federal government is in higher education, because of its involvement in student loans. On that score, it is hard to describe the actions of Sec. DeVos as anything other than an attempt to encourage fraud and abuse. Here is what she has done in just the last five months:

  1. Rolled back consumer protections built into contracts with student loan servicing companies
  2. Suspended two key rules that were intended to protect students from predatory for-profit colleges
  3. Appointed Julian Schmoke, Jr. to run the Student Aid Enforcement Unit. Schmoke comes directly from DeVry University, which last year had to pay $100 million over its misleading practices
  4. Ended a program in which the Dept. of Education worked with the Consumer Financial Protection Bureau (CPFB) to investigate student loan fraud.

In other words, DeVos is in the process of rolling back all of the protections the Obama administration put in place to deal with abuses in the student loan servicing process and the fraudulent activities of many for-profit colleges. DeVos’s latest move to end cooperation with CFPB is designed to ensure that not only will the Dept. of Education pull back on protecting students, but also that an independent agency designed to stand with consumers is blocked from doing so as well.

The appointment of Schmoke as the proverbial fox guarding the henhouse isn’t the only time DeVos has hired staff who have trafficked in these very abuses.

One ruling allowing lenders to recover more money from indebted students was issued by Taylor Hansen, a DeVos aide and former lobbyist for the for-profit industry. DeVos’s special assistant is Robert Eitel, the chief compliance officer at a for-profit institution facing multiple investigations for deceptive practices. She has selected A. Wayne Johnson, the CEO of a student-loan company, to run the department’s student loan program. The Department’s General Counsel, Carlos Muñiz, is a consultant who has worked for a for-profit institution that is also facing multiple state investigations for misconduct.

In every instance, what DeVos has done is prioritize the interests of private companies over those of students—who now hold $1.3 trillion in federal student loan debt. Contrary to the claims of the Trump administration, this kind of deregulation is crippling the ability of far too many millennials from contributing to more robust economic growth. So it is not only heartless, it is bad economics.

We’re all used to Republicans making the case that we can cut back on federal programs by going after fraud and abuse. What many of us have known for a long time is that their suggestion applies only to the less fortunate who participate in social safety net programs. When it comes to the fraud and abuse of the upper class, they not only turn a blind eye, but stack the deck in their favor. Those are the building blocks of income inequality.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly.