Navient and the Zombie SLABS Meltdown (Bill Harrington*)

I look forward to reviewing the quarterly and annual Student Loan Portfolio reports, courtesy of Dahn Shaulis and the College Meltdown. The biggest student loan company Navient (NAVI) is melting down too. In the year-to-date, NAVI has underperformed the S&P 500 by 33%! Since spinning out from Sallie Mae in April 2014, NAVI has underperformed the S&P 500 by 137%! (The S&P 500 is up 92% and NAVI is down 45%.)

NAVI's standing is even worse than the trading suggests, in large part because the company still finances itself with the type of asset-backed security ("ABS") deals that birthed and prolonged the 2008 financial crisis. Big Picture: Navient valuations of its student loan ABS deal are exceptionally generous (and that assessment is itself exceptionally generous). The most fantastical valuations are those of the many Navient ABS deals with long-dated maturities as far in the future as 2080, as well as the deals with embedded flip-clause-swap-contracts. Navient’s complete reliance on crisis-causing finance is a governance failure with real dollars-and-cents credit costs — costs that Navient vendors such as auditors, counsel, and credit rating companies ignore.

I pointed out the credit costs of Navient’s failed governance to the credit rating company Moody’s Investors Service in my critique of Moody’s proposed global credit rating methodology for ESG. Moody’s issued a comment request on the proposal and I replied. The non-profit research Croatan Institute, where I am a senior fellow, posts my submission. See pages 10-16 for some of the most egregious Navient governance failures that should spell credit rating downgrades for the ABS and for Navient the company.

Responsible Investor published my op-ed “Moody's ESG overhaul won't have any actual effect on credit ratings...” on October 19. The op-ed highlights the governance failure of Moody’s in proposing a worthless ESG overhaul and links to my methodology critique.

I’ve forwarded the critique of Moody’s ESG proposal to regulatory entities such as the SEC Office of Credit Ratings and the Office of Credit Rating Agency Supervision at the European Securities and Markets Association that should be holding Moody’s (and DBRS, Fitch Ratings, and S&P Global Ratings) feet to the fire. 

Likewise, I’ve forwarded my critique of Moody’s methodology to law enforcement, including the attorneys general of New Jersey and New York. Both have acknowledged receipt and review of my critique. Finally, I’ve let Moody’s know that I’ve alerted the regulators, law enforcement, and many others. Moody’s knows that a lot of eyes are watching how it finalizes the ESG proposal. If Moody’s improves the ESG methodology even a little, that could be a BIG problem for Navient. Here’s hoping.

*Bill Harrington is a Senior Fellow at Croatan Institute, “an independent, nonprofit research institute whose mission is to harness the power of investment for social good and ecological resilience by working at the critical nexus where sustainability, finance, and economic development intersect.”

A Letter to the US Department of Education and Student Loan Servicers on Behalf of Student X (Heidi Weber)

[Editors Note: Whistleblowers like this author, Heidi Weber, are an essential part of a democracy, shedding light when there is little transparency, and demanding justice and accountability when it is in short supply.  Her podcast, Whistleblower Revolution, is available at https://whistleblowerrevolution.com/ ] 

November 5th, 2020

TO: THE UNITED STATES DEPARTMENT OF EDUCATION, THE US SECRETARY OF EDUCATION, US CONGRESS and ALL FEDERAL SUBSIDIZED AND UNSUBSIDIZED STUDENT LOAN LENDERS

In the Interest of Student X (DOB x-x-xx) regarding GLOBE UNIVERSITY (closed)

To whom it may concern & the above-mentioned recipients,

My name is Heidi Weber, and I am the higher education whistleblower, that spoke up, regarding fraud and deceptive practices I witnessed while being a Dean at Globe University and its sister chain, Minnesota School of Business. I was retaliated against and endured a long legal process resulting in a 7-day jury trial against the large for-profit chain with campuses in several states. [see full Background story attached to this letter]

Fortunately, in my case, truth prevailed, and that jury verdict, along with my evidence, opened the door to scrutiny from the MN State Attorney General, State and Federal Higher Ed Departments, ultimately, forcing the schools to cease operations.

I’ve been invited and still speak at universities, business groups, non-profits, and even in the halls of Congress regarding this sector, what it’s doing to our country and imploring change. Recently, my story was featured as the season one finale of CBS Whistleblower with Alex Ferrer. I also, host a national podcast, and am a consultant and trainer on employee relations/engagement.

THEREFORE, I FEEL I HAVE EARNED THE RIGHT TO BE HEARD, not only on the topic itself, but especially, as an advocate of the students of Globe University/MSB, directly.

As I write this, the owners had retained a group of high dollar attorneys who are still a lengthy process representing them in bankruptcy court, after claiming & filing bankruptcy, days after being court ordered to give thousands of students their money back. Meanwhile, those private owners and senior corporate stakeholders have delayed proceedings, transferred assets, and still enjoy lavish homes and vacation/retirement properties after making hundreds of millions over the years on the backs of people just wanting a promising future.

Instead, they have stolen the futures of those students and grads who haven’t been able to and still cannot, utilize a degree from these schools. A degree that has become even more worthless, many times being a strike against the grad, as the school’s activities have come to light.

What I, and every other American, finds disturbing, is the fact that,

THE OWNERS CAN LEGALLY FILE FOR BANRUPTCY TO GET OUT OF JUDICIAL ORDERS TO PAY STUDENTS BACK, NEVER BE HELD FINANCIALLY OR MORALLY ACCOUNTABLE, AND CONTINUE LIVING WEALTHY LIFESTYLES, YET, THE PEOPLE THEY PREYED UPON, and DEFRAUDED, WHO CANNOT TRANSFER THOSE CREDITS and GRADS WHO CANNOT WORK IN THEIR FIELD, (much less EVER GET THAT TIME BACK), ARE NOT ABLE to FILE BANKRUPTCY OR EVER GET OUT FROM UNDER THE CRUSHING DEBT.

This is a LIFELONG SENTENCE for most of these people, many of which had few opportunities to begin with and struggled to sacrifice already.

I know this.

I had them in my classrooms. Vets, single parents, minorities, immigrants, young people who had little means, and no other options, to finally be “sold” their dream. I loved being a teacher and grew to know many of their stories, before being promoted to Dean.

“Find their pain” and “Sell them their dream.” 

In fact, those were some of GU/MSB mottos, in their admissions representative training manual which I presented as evidence at my trial, and the AG utilized in hers also.

Student X (AND the OTHER STUDENTS AND GRADS) DO NOT DESERVE TO BE SWINDLED OUT OF THEIR FUTURES, burdened with crushing DEBT.

THEY SHOULDN’T BE FORCED TO PAY for these schools’ crimes, loss of credibility and poor reputation in the public as a result.

I would ask, why are you allowing this to happen to so many of our kids, active military and vets, who are the future of our country? Further, why are we, the taxpayers, paying for it?

Please give Student X the same chance as every other American, the freedom to work hard toward the American Dream without being punished for a bait and switch of lies and fraud, pinned to them forever.

It affects all of us. Our country is strong because we showed future generations that here, anyone can better themselves, be treated fairly, and become vital members of our communities; that everyone has the chance at life, liberty, and the pursuit of happiness.

Please discharge her student debt from Globe University.

I stood up for them.

I sacrificed my career and have endured hard times. I still do, but I also, earned my nickname of “the unstoppable” Heidi Weber. I won’t stop until these schools are held accountable and MY students get justice and their futures back.

It’s long overdue!

This is your chance to make a real difference too. Please start by discharging Student X's student debt.

Sincerely with Conviction & Gratitude,

Heidi Weber

Whistleblower, Advocate, Legal Client Coach, Employee Relations Consultant, Speaker and Higher Ed commentator Contact: xxxxxxxxxxxxxxxx

Host of “The Whistleblower Revolution Podcast” available everywhere you listen. https://WhistleblowerRevolution.com


Background

Globe University was a large For-Profit College/University chain in the Midwest that is now closed and in currently in bankruptcy courts, in an attempt to delay and avoid post trial court orders to repay thousands of students. GU/MSB (Globe U/Minnesota School of Business) had approximately 11,000 students across several states, in 2011, and were at the height of their enrollment, when Heidi Weber, a Dean came forward and filed a whistleblower complaint against the schools. After reporting to the school’s corporate leaders, several issues of deceptive and fraudulent practices that she had uncovered, witnessed, and received from students, she was subjected to retaliation, & wrongful termination. Heidi and the school went head to head, through a long “david vs goliath’ legal battle and a 7-day public jury trial. She prevailed with a unanimous jury verdict, and modest jury award. It has become a landmark case for two reasons. First, it was the first very public whistleblower trial loss by a national for-profit college chain that showcased many of the issues that the entire sector still battles today. As such, it opened the door to many other similar cases being filed across the US. Secondly, it was the catalyst to another long legal battle with the State of Minnesota and State & Federal Dept of Higher Ed that consequently resulted in GU/MSB being permanently disqualified from receiving any more Federal funded student grants and loans. Additionally, resulting in the large for-profit chain losing a trial brought by the Attorney General of MN, who subpoenaed Heidi as a key witness. At the same time, the National Accrediting body that GU/MSB and several other for-profit colleges used, and were accredited under, ACICS, was dissolved. This, along with their funding cut, left GU/MSB no choice but to close its doors at over 20 campuses. Even after several convictions and court losses, the school’s leadership still deny any responsibility of wrongdoing. The same private owners still own a few schools under different brands and still lobby to be allowed to reopen.

*[GU/MSB were never regionally accredited. They never even applied as they did not meet the criteria and standards for Regional Accreditation like all State Colleges/Universities and traditional private institutions are accredited through. Each regional body requires high educational standards and the State and Traditional institutions rigorously work to adhere and maintain those standards to show their commitment to providing quality and credible education to potential students, employers and their communities. One main purpose of accreditation is to ensure that schools are held to strict standards and the delivery of education is at the same level between schools. This is how they evaluate and accept transfer credits because they know if the other school is Regionally Accredited, the courses, method and delivery meet the level and match hours making transitions seamless for the student. The other main purpose is to assure financial and Federal funding of student loans and grants that the school is worthy and adhering to their requirements to receive funding. Also, the accrediting institutions evaluate and enforce standards as an outside neutral party which is to avoid and alleviate conflicts of interest and/or “pay to play” schemes by the schools themselves. It is set up very different in the for-profit Sector. ACICS and ACCSC were the two main “National” accreditors for that entire realm generally. For years, the two national accreditors jockeyed back and forth as to which was larger or had the most schools under it, and both shared many of the same personnel who would float between the two. ACICS was a peer review organization, meaning that the schools themselves, were responsible for policing and doing audits on each other. As long as their “fees” were paid, rarely were any of its members held back or forced to meet strict requirements. Consequently, the larger schools with the most campuses were able to monopolize and dictate the direction and activities of the accreditor.]