Monday, May 4, 2015

A Conflict of Interest at the U.S. Department of Education Keeps Students on the Hook

A conflict of interest can be viewed as two conflicting roles, wherein the one entailing more public responsibility is compromised or eclipsed by the other. The ongoing temptation itself may be sufficient grounds ethically to end or transfer the potentially exploitive role. In other words, sometimes the solution is as simple as ending the potentially encroaching task or role. When the institution is a governmental agency, selecting or creating another agency to perform the task is one alternative; privatizing it is another. Either way, deconstructing an institutional conflict of interest by separating problematic role-combinations is advisable even in cases in which the more private-benefits role has not corrupted the more public-benefits role. The U.S. Department of Education provides a useful case in point.

As of 2015, the U.S. Department of Education both funds and collects student loans. In addition, the agency decides which schools can have their students apply for the loans. With student-loan debt standing at $1.2 trillion (held by 40 million people), the magnitude of potential harm from a conflict-of-interest would be huge. Just such a conflict may have been behind the department’s decision to pressure Corinthian, a for-profit education company, to sell most of its campuses to ECMC, a student-loan collection agency, rather than go bankrupt. Had the latter occurred, the department would have had to let the 16,000 students out of their student-loans—nevermind that ECMC had no experience running colleges. “At this point the department is primarily a debt collector, but it’s supposed to protect students from predatory colleges while simultaneously making money as a mass issuer of loans,” Luke Herrine of the Debt Collective said.[1] The conflict of interest lies in the department putting its debt-collection/money-making role above the governmental responsibility to the public and the students. In other words, the conflict of interest involves shirking the role of wider responsibility in favor of one in which private benefit is foremost.

The department’s role in determining which colleges can apply for student aid is also potentially exploitable. According to Luke Herrine, “(T)he department first makes the loans that lets students go to these fraudulent for-profit colleges, and then when the students can’t pay back the loans, the department goes after them.”[2] That is, the department has a financial incentive to approve potentially-fraudulent for-profit “colleges” and to minimize the number of students for whom debt-forgiveness must be given. Arranging for Corinthian to sell its worst campuses to a loan-collective agency permits the Department of Education to get out of having to forgive the student loans of those students of those campuses. Had those colleges closed, the department would have had to forgive the student loans.

That the department was indeed exploiting students for private (i.e., departmental) gain at the expense of acting in the students’ interest is evident from the fact that the department did not discharge any of the $480 million of forgiveness that the Consumer Financial Protection Bureau negotiated as part of the sale to ECMC.[3] Had the White House or Congress transferred the debt-collection function to another agency, the Department of Education would not have had an incentive to ignore the CFPB’s negotiated terms. Deconstructing an institutional conflict of interest can be that simple. I suspect that the failure to take institutional conflicts-of-interest seriously enough—especially when the exploitation is still only potential rather than actual—keeps such a simple solution from being implemented.

1. Tamar Lewin, “For-Profit Colleges Face a Loan Strike by Thousands Claiming Trickery,” The New York Times, May 4, 2015.
2. Ibid.
3. Ibid.