A Questionable Target

With the government facing annual budget deficits exceeding one trillion dollars a year, federal officials appear to be cracking down on borrowers who have defaulted on their federal student loans.

According to The National Law Journal, the U.S. Department of Justice this month unleashed lawyers and prosecutors under the authority of U.S. Attorney Patrick Fitzgerald (yes, that Patrick Fitzgerald) to pursue student loan defaulters. The Department is expected to file “as many as 20 lawsuits a week for the next several months against individuals who defaulted on loans they took out as long ago as the 1980’s,” the article states. Borrowers are being pursued with unpaid balances, according to an example provided by the newspaper, accruing costs of $1.13 per day. Evidently every dollar counts.

At Higher Ed Watch, we do not condone those who willfully shirk their responsibility to pay back their student loans. The government is well within its rights to pursue borrowers who took out federal loans without having any intention of repaying them.

At the same time, we recognize that many, if not most, borrowers who go into default are not looking for a free ride, but simply don’t have the money to repay their loans. Going after borrowers who are truly financially distressed, because they are unemployed or suffer debilitating illnesses, seems especially cruel in this economy. Besides, how much money is the government really going to be able to recover from those who don’t have any to spare?

If the government wants to recover money it has lost in the federal student loan programs, it should turn its sights to funds illegally obtained by a select group of lenders in the 9.5% guaranteed student loan scandal. Up to a billion dollars could be recovered by the Justice Department either by reviving its own still-open cases against lenders like Nelnet, or exercising the authority Congress granted the agency last year, as part of the Higher Education Act legislation, to review any settlements made by the Education Secretary that exceeded $1 million.

We hope the Obama Administration notes that some of the lenders in question have now been audited and may be ready to settle. The Missouri Higher Education Loan Authority (MOHELA), for instance, has offered to return hundreds of thousands of dollars it says it inadvertently overcharged the government on 9.5 loans. The agency blamed the overpayments on the Pennsylvania Higher Education Assistance Agency (PHEAA), which as a third-party servicer prepared the Missouri agency’s claims to the Department of Education. This may be the case with other lenders that relied on PHEAA and Nelnet to make 9.5 claims on their behalf.

The new leadership at the Justice Department is telling Congress it wants to pursue cases where financial institutions have been taking advantage of taxpayers. Recovery of 9.5 illegal claims is a perfect fit with that objective. As a start, department officials should make sure that MOHELA makes good on its offer of restitution.

Too often, the previous administration put the needs of lenders before those of students and student loan borrowers. It may be unreasonable to expect that eight years of momentum can be redirected immediately, but we hope the turnaround is soon coming, not only at the Department of Education but at the Justice Department as well.