Washington’s Cold Shoulder for Defrauded Students and Soldiers

Richard Eskow

President Obama signed an executive order Monday limiting student debt payments to 10 percent of their income, telling an audience in the East Room of the White House that he and his wife only paid off their law school loans about ten years ago. “This is why I feel so strongly about this,” the president said. “This is why I’m passionate about it.”

We’ll take him at his word, although it means disregarding the principle that says that those who truly feel passionately about something rarely feel the need to declare it. We’re glad he feels so strongly about an issue that is both an economic crisis and a moral challenge.

But it’s a shame President Obama wasn’t one of an estimated 60,000 service members who were reportedly cheated by a Sallie Mae loan servicer named Navient. If he had been, perhaps he would be equally passionate about his Department of Education’s willingness to continue working with a company that reportedly defrauded members of the United States armed forces out of their student-loan benefits.

In fact, Navient may be on the verge of getting a much bigger contract.

Loan Sharks

According to a consent order filed in court last month, Navient’s fraudulent behavior included cheating active-duty service members by concealing from them their eligibility for lower-cost loans. Navient also refused to lower their interest rates after being notified in writing to do so. In some cases its employees lied to service members, telling them they needed to have served overseas to quality for lower-cost loans. The evidence against Navient led to Justice Department and FDIC involvement, and the matter was finally settled in court on May 13.

That’s the good news.

The bad news? It was yet another one of those genteel Justice Department/regulator deals where no individual wrongdoers were brought to account, shareholders must pay the cost of these individuals’ misdeeds, and the lawbreaking companies “neither admit nor deny” their crimes – in this case, against young people who served in the military and were aspiring to improve themselves through higher education.

That “neither admit nor deny” clause allows Navient to remain eligible for future government contracts. The Huffington Post’s Shahien Nasipour reports that the Education Department chose Navient as one of four finalists for a contract that is currently valued at $880 million. Navient’s finalist status was made public on May 30, less than three weeks after the Justice Department/FDIC settlement.

Public Money, Private Greed, Soft Justice

$880 million is a lot more than the $80 million fine that will be shared by Navient’s shareholders and the shareholders of Sallie Mae. That’s right: We said “shareholders.” Sallie Mae has been a private corporation for quite some time. Navient, its loan servicing arm, was spun off when this for-profit corporation became a bank. It’s publicly traded, too.

What have we learned so far from this story? We’ve learned that the Justice Department believes that certain kinds of crimes commit themselves, since they never seem to find any human beings who have perpetrated these frauds. As long as they don’t indict individual wrongdoers, criminally inclined executives will have no reason not to keep breaking the law. They’ll get rich, and someone else (their shareholders) will pay the fine if their crimes come to light.

We’ve also learned that privatization, that bipartisan scourge of government at all levels, often allows greed to corrupt well-intentioned government activity. In 2010 we detailed some of the degradation in Sallie Mae’s mission, along with some of its executives’ self-serving lobbying, in a piece called “Sallie Mae’s Jets.” (Yes, they had two of them, for executive use.) Back then we said that Sallie Mae was “the poster child for the moral and operational bankruptcy of the … privatization craze.”

It still is.

Still in Charge

President Obama’s self-proclaimed emotion about student loans has certainly proven useful. The student loan program has improved during his presidency, at least marginally. (We’ll need profound reform to solve our student loan crisis.) Among the improvements are the Pay As You Earn program, whose expansion he announced this week, which restricts total student loan payments to 10 percent of a borrower’s income. This week the president expanded that restriction to many more student loan holders.

But even that program has its difficulties. As Anya Kamenetz notes, only 1.6 million of the nation’s 37 million student debt holders have signed up for the current program. Anecdotal sources tell her that “borrowers who do hear about the program and try to sign up often run into obstacles and obfuscation from the companies that service their loans.”

That’s highly plausible. After all, those borrowers are dealing with Sallie Mae, and in many cases with Navient as well. And it could get worse. As Nasipour observes, the recent announcement about bid finalists means that “a borrower’s entire interaction with the Education Department – from the moment she takes out a loan to the day she pays it off – could solely be through Navient.”

What’s that old saying about “leaving the fox in charge of the hen house”?

Empathy Deficit

A generation is being victimized by the twin burdens of student debt and youth unemployment. But our nation’s leaders still seem more concerned about the plight of bankers and bank servicers than they do about the plight of bankers’ victims.

It’s good when our leaders get passionate about the right causes. It’s even better when they get passionate about causes that haven’t involved them personally, especially when they’re called upon to defy the wealthy and powerful. That gift is called empathy, and it’s supposed to be one of the Democratic Party’s strengths.

Speaking of which: Nasipour reports that he asked the administration to comment and was told by White House spokesman Matt Lehrich, “We’re not going to participate in your ongoing attempt to slander Arne [Duncan, the Education Secretary]. Thanks for reaching out.”

Now that’s what we call a passionate response. But somebody should tell the administration: This isn’t about you. It’s about 60,000 defrauded service members. It’s about all the other student loan holders who are being placed at the mercy of executives like Navient’s. And it’s about the “bipartisan” obsession with privatization at any cost, even if it means sacrificing innocent people on the altar of profit.

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