Has the Department of Education
become a predatory lender?
Is the Office of Federal Student
Aid (FSA) a captured agency?
Consider these facts:
1. For well over a decade, key
FSA staff have largely comprised former executives from Sallie Mae,
The Education Finance Counsel (Trade Group), The Pennsylvania Higher
Education Assistance Agency (PHEAA), and other lending interests.
2. After the HEA amendments in 1998, The Office of Federal
Student Aid (FSA) started refering to the schools and lenders
supposed to be overseeing "Financial Partners", and put former
Sallie Mae executives in charge of the oversight office renamed as
3. The large lenders like Sallie Mae, the entire guarantor
industry, and even the Department of Education are
actually making money
from defaulted loans!
4. The default rate is 1 in 3
- probably greater- and has been for years, but instead of
public about this huge risk, FSA chooses to reference a misleading
default metric in virtually all of its press releases. This
effectively convinces the public that the default rate is low,
when in fact it is as high or higher than the subprime home mortgage
5. FSA fails, for years, to warn Congress
about the astonishingly high default rate, thereby greenlighting the
repeated and dramatic increases in the federal loan limits.
College tuition skyrockets, along with national student loan debt
6. A whistleblower who uncovered an illegal
used to bilk the government out of billions of dollars literally has
tosue the Department to get them to attempt to
recover this ill-gotten cash in lieu of the Department's
solution: to let the lenders decide how much they need to repay
7. FSA is repeatedly
warned by the Inspector General that its
"Financial Partners": office is vulnerable to conflicts of
yet no meaningful change is made as a result.
8. Within a month of an Attorney General's investigation
uncovering all manner of illegal relationships between
schools and lenders, it is found that a key oversight manager
( head of the "Financial Partners" office) was holding
stock in one of
the companies he is has oversite charge of. The head of FSA then
leaves the department and later joins ECMC, a student
loan company which specializes in litigating against borrowers in
bankruptcy court) Both Individuals are
former Sallie Mae executives.
9. When it is discovered that the Department was giving
companies (ACS ) contracts to staff the FSA Ombudsman's office
a neutral entity), FSA never acknowledges that a conflict
exists, and allows the problem to fester for years with no
investigation, and no changes.
10. During the same time period, when the
corporate markets for securitized student loans comes under threat, FSA
moves with lighting speed to design and implement a bailout
for student loan companies, completing the process in a matter of
11. While the entire Federal lending system
is overhauled to loan
directly to students, the absence of core consumer protections,
and the draconian collection powers given to the system remain
Furthermore, the same private, predatory entities from the old
program are given the same positions
in the new system (as both servicer and collector), virtually
guaranteeing that the same predatory dynamic will persist, and probably
be exacerbated with these companies now having fewer channels
available to make money.