The Future of Federal Student Loans

The U.S. student loan system, now exceeding $1.7 trillion in debt and affecting over 40 million borrowers, is facing significant challenges. As political pressures rise, the management of student loans could be significantly altered. A combination of potential privatization, the elimination of the U.S. Department of Education (ED), and a new role for the Department of the Treasury raises critical questions about the future of the system.

U.S. Department of Education: Strained Resources and Outsourcing

The U.S. Department of Education (ED) is responsible for managing federal student loan servicing, loan forgiveness programs, and borrower defense to repayment (BDR) claims. However, ED has faced ongoing issues with understaffing and inefficiency, particularly as many functions have been outsourced to contractors. Companies like Maximus (including subsidiaries like AidVantage) manage much of the administrative burden for loan servicing. This has raised concerns about accountability and the impact on borrowers, especially those seeking loan relief.

In recent years, ED has also experienced staff reductions and funding cuts, making it difficult to process claims or maintain high-quality service. The potential for further cuts or even the elimination of the department could exacerbate these problems. If ED’s role is diminished, other entities, such as the Department of the Treasury, could assume responsibility for managing the student loan portfolio, though this would present its own set of challenges.

Potential for Privatization of the Student Loan Portfolio

One of the most discussed options for addressing the student loan crisis is the privatization of the federal student loan portfolio. Under previous administration discussions, including those during President Trump’s tenure, there were talks about selling off parts of the student loan portfolio to private companies. This would be done with the aim of reducing the federal deficit.

In 2019, McKinsey & Company was hired by the Trump administration to analyze the value of the student loan portfolio, considering factors such as default rates and economic conditions. While the report's findings were never made public, the idea of transferring the loans to private companies—such as banks or investment firms—remains a possibility.

The consequences of privatizing federal student loans could be significant. Private companies would likely focus on profitability, which could result in stricter repayment terms or less flexibility for borrowers seeking loan forgiveness or other relief options. This shift may reduce borrower protections, making it harder for students to challenge repayment terms or pursue loan discharges.

The Department of the Treasury and its Potential Role

If the U.S. Department of Education is restructured or eliminated, there is a possibility that the Department of the Treasury could step in to manage some aspects of the student loan portfolio. The Treasury is responsible for the country’s financial systems and debt management, so it could, in theory, handle the federal student loan portfolio from a financial oversight perspective.

However, while the Treasury has experience in financial management, it lacks the specialized knowledge of student loans and borrower protections that the Department of Education currently provides. For example, the Treasury would need to find ways to process complex Borrower Defense to Repayment claims, a responsibility ED currently manages. In 2023, over 750,000 Borrower Defense claims were pending, with thousands of claims related to predatory practices at for-profit colleges such as University of Phoenix, ITT Tech, and Kaplan University (now known as Purdue Global). Additionally, some of these for-profit schools were able to reorganize and continue operating under different names, further complicating the situation.

The Treasury could also contract out loan servicing, but this could increase reliance on profit-driven companies, possibly compromising the interests of borrowers in favor of financial performance.

Borrower Defense Claims and the Impact of For-Profit Schools

A large portion of the Borrower Defense to Repayment claims comes from students who attended for-profit colleges with a history of deceptive practices. These institutions, often referred to as subprime colleges, misled students about job prospects, program outcomes, and accreditation, leaving many with significant student debt but poor employment outcomes.

Data from 2023 revealed that over 750,000 Borrower Defense claims were filed with the Department of Education, many of them against for-profit institutions. The Sweet v. Cardona case showed that more than 200,000 borrowers were expected to receive debt relief after years of waiting. However, the process was slow, with an estimated 16,000 new claims being filed each month, and only 35 ED workers handling these claims. These delays, combined with the uncertainty around the future of ED, leave borrowers vulnerable to prolonged financial hardship. 

Lack of Transparency and Accountability in the System

While the U.S. Department of Education tracks Borrower Defense claims, it does not publish institutional-level data, making it difficult to identify which schools are responsible for the most fraudulent activity. 

In response to this, FOIA requests have been filed by organizations like the National Student Legal Defense Network and the Higher Education Inquirer to obtain detailed information about which institutions are disproportionately affecting borrowers. 

In one such request, the Higher Education Inquirer asked for information regarding claims filed against the University of Phoenix, a school with a significant number of Borrower Defense claims.

The lack of transparency in the system makes it harder for borrowers to make informed decisions about which institutions to attend and limits accountability for schools that have harmed students. If the Treasury or private companies take over management of the loan portfolio, these transparency issues could worsen, as private entities are less likely to prioritize public accountability.

Conclusion

The future of the U.S. student loan system is uncertain, particularly as the Department of Education faces the potential of funding cuts, staff reductions, or even complete dissolution. If ED’s role diminishes or disappears, the Department of the Treasury could take over some functions, but this would raise questions about the fairness and transparency of the system.

The possibility of privatizing the student loan portfolio also looms large, which could shift the focus away from borrower protections and toward financial gain for private companies. For-profit schools, many of which have a history of predatory practices, are responsible for a disproportionate number of Borrower Defense claims, and any move to privatize the loan portfolio could exacerbate the challenges faced by borrowers seeking relief from these institutions.

Ultimately, there is a need for greater transparency and accountability in how the student loan system operates. Whether managed by the Department of Education, the Treasury, or private companies, protecting borrowers and ensuring fairness should remain central to any future reforms. If these issues are not addressed, millions of borrowers will continue to face significant financial hardship.

Pending FOIAs Regarding the University of Phoenix

The Higher Education Inquirer is awaiting five Freedom of Information Act (FOIA) responses from the US Department of Education (ED) regarding the University of Phoenix. All of these pending requests were made in 2023. 

ED has already provided important and substantial information, including an estimate of $21.6B in student loan debt by more than 900,000 University of Phoenix debtors and tens of thousands of Borrower Defense fraud claims, many that have already been settled in favor of the student debtors in Sweet et al. v Cardona. 

To any organization considering an acquisition of the school, we suggest that they read this information as part of their due diligence. 

Copies of this article have been sent to University of Idaho President C. Scott Green and Idaho Governor Brad Little. 

23-02053F

R

The Higher Education Inquirer is requesting a digital copy of the most recent Program Participation Agreement between the University of Phoenix and the US Department of Education.  This request is being made for transparency and accountability related to a proposed sale of the University of Phoenix by Apollo Global Management and Vistria Partners.  The most current potential buyer is the University of Idaho, which will create a new organization that will issue bonds.   (Date Range for Record Search: From 06/22/2016 To 06/22/2023)

23-02283-F

The Higher Education Inquirer is requesting the Fiscal Year 2022 equity value of the University of Phoenix.  The number may be rounded to the nearest ten million dollars. We would also like restricted and unrestricted cash numbers for the school if they are available.  IPEDS has the equity value numbers up to FY 2021.   (Date Range for Record Search: From 06/01/2022 To 07/16/2023)

23-02345-F

The Higher Education Inquirer is requesting a copy of the completed Pre-Acquisition Review application the University of Idaho has submitted for the acquisition of University of Phoenix.  The review was mentioned in the Idaho Statesman, by Jodi Walker, a University of Idaho spokesperson.   (Date Range for Record Search: From 05/01/2023 To 07/23/2023)

23-02537-F

The Higher Education Inquirer is requesting any and all correspondence between the US Department of Education and the University of Idaho, 43 Education, or NewU regarding a proposed purchase of the University of Phoenix. This includes any and all information about a Pre-Acquisition Review. The University of Idaho created NewU and 43 Education as an intermediary organization to shield itself from liability.   (Date Range for Record Search: From 05/11/2023 To 08/11/2023)

23-02548-F

The Higher Education Inquirer is requesting an estimate of the total number of cases and the total dollar amount of Borrower Defense to Repayment claims against the University of Phoenix that were approved in the Sweet v Cardona settlement.   (Date Range for Record Search: From 01/01/2023 To 08/14/2023)

University of Phoenix: An Albatross for Idaho?

The University of Phoenix will be back in Idaho District Court in 2025 unless Apollo Global Management can find another buyer for the school. Apollo Group, the primary owner of the University of Phoenix, has been trying to unload the school for years.  

Although the University of Phoenix appears to be a profitable institution, it has potential liabilities, including hundreds of millions of dollars in Borrower Defense to Repayment (fraud) claims that the US Department of Education could claw back from the parent owner. While this risk may be seriously reduced over the next four years, that danger could rise again under a progressive administration. 

As of 2023, there were approximately 73,000 Borrower Defense claims against the school. More than 19,000 Borrower Defense claims were approved for student debtors who attended the University of Phoenix and were part of the Sweet v Cardona settlement. Many of the remaining claims are still awaiting a decision from the Department of Education.  

University of Phoenix debtors are saddled with an estimated $21.6 Billion in student loan debt. 

The University of Phoenix has been involved in a number of lawsuits over the last decade. In 2019, the Federal Trade Commission and the University of Phoenix settled a claim for $191M for deceptive employment claims, but the school denied any wrongdoing.

Seventh Quarterly Report under Settlement Agreement in Sweet, et al. v. Cardona (US Department of Education)

The latest report regarding Borrower Defense to Repayment settlements has been published. National Student  Loan Data System records indicate that discharges have been fully processed for at least 195,5908 Class Members eligible for relief. Refunds have been fully processed for at least 194,782 Class Members eligible for relief.  

Borrower Defense to Repayment is a debt forgiveness strategy for consumers if they believe they were defrauded by a school and can document that fraud. The Project on Predatory Student Lending (PPSL) has provided assistance to thousands of consumers defrauded by for-profit colleges and still offers help. 

For consumer support regarding about Borrower Defense claims, we also recommend joining the r/Borrower Defense group on Reddit.  

Sweet v Cardona Borrower Defense Update

The most recent update to the Sweet v Cardona Borrower Defense to Repayment case is here.  This video was taped September 26, 2024.  A transcript of the meeting is also available. 

According to Rebecca Ellis of the Project on Predatory Student Lending, "we think that this is substantial compliance in our eyes with the August 31st deadline. It's a very small number of loans still outstanding that have these particular complications."  About 870 loans from the automatic relief group are still awaiting discharge. However, several thousand refunds are still awaiting processing from the US government and student loan servicers. 

Student loan debtors have a community on Reddit at r/BorrowerDefense where more than 12,000 members exchange information and provide support. 

University of Idaho acquisition of the University of Phoenix has become a Monty Python sketch

The University of Idaho continues to spend money on the possibility that it (or the State of Idaho) may buy the University of Phoenix from Apollo Global Management. According to Kevin Richert at Idaho Ed News, the University of Idaho has already spent $14.2 million on this purchase, with the chance of a money back guarantee--sort of.

Over the last year, University of President C. Scott Green has accepted the ridicule of Saturday Night Live and the questioning of the NY Times. In addition to investing his reputation on the deal, Green has spent thousands of his personal dollars trying to line up allies in the Idaho Legislature to help him out. But some of them have already lost their election bids. 

Phoenix has told President Green what a great buy this is for the University of Idaho, seemingly unaware that this is a school that is not well, with almost a million student debtors holding more than $21 billion in student loan debt.  

In addition, more than 73,000 University of Phoenix student loan debtors have filed for debt forgiveness, alleging the school has defrauded them--and that of that group, 19,000 are getting immediate relief from the Sweet v Cardona case--something the owner or future owner may be liable for. 

What more does President Green need to know before pulling the plug on this deal? Are there that many Idaho politicians that can be bought and sold?  We don't think so.

This sir, is a dead parrot. And for those who do not know the cultural reference...

Related links:

New Data Show Nearly a Million University of Phoenix Debtors Owe $21.6 Billion Dollars 

ED Completes Pre-Acquisition Review for University of Phoenix Deal. University of Idaho Continues Hiding Details of Transaction Fees, 43 Education "High-Risk" Bonds.

How University of Phoenix Failed. It's a Long Story. But It's Important for the Future of Higher Education.

Fraud Claims Against University of Phoenix Continue to Mount

University of Phoenix articles 

Borrower Defense articles

New Data Show Nearly a Million University of Phoenix Debtors Owe $21.6 Billion Dollars

The Higher Education Inquirer has just received a Freedom of Information Act (FOIA) response from the US Department of Education, stating that about 971,000 current student loan debtors who have attended the University of Phoenix have accumulated an estimated $21.6B in debt. The FOIA is Department of Education FOIA 23-02912-F. These debt numbers are consistent with a previous HEI analysis. 

We have been unable to learn whether this accumulated debt includes the hundreds of millions in debt that has already been forgiven--and that its present and future owners may be liable for. In 2023, we reported that approximately 73,000 debtors from the University of Phoenix had filed borrower defense fraud claims, and that more than 19,000 cases were granted immediate relief in the Sweet v Cardona settlement.

Through another FOIA request, we also discovered 6,265 consumer complaints in the Federal Trade Commission database made after its current owners took over. In 2019, the FTC and the University of Phoenix settled a claim for $191M for deceptive employment claims. It would appear that Phoenix has not done enough to clean up its act.  

The Higher Education Inquirer has been working for more than six years to get data about the school's noncompliance with the Department of Defense Tuition Assistance (TA) program, where servicemembers have been systematically preyed upon--and where Trump officials and their surrogates worked to cover up malfeasance by subprime schools--including the University of Phoenix. We hope to report on this topic later.  

The University of Phoenix is presently owned by Apollo Global Management and Vistria Group, who have been unsuccessfully trying to sell the school for at least three years. Previous potential suitors, held to secrecy, have included Tuskegee University, UMass Global, and the University of Arkansas System. 

Apollo Global Management is currently negotiating with the State of Idaho, which would incur $685M in debt to acquire the school. State officials are wary of the deal, and those with strong principles are unlikely to approve. But it's possible that other politicians may change their minds: if they or their families are properly compensated, directly or indirectly, for taking the risks to their reputations and careers. 

Related links:

ED Completes Pre-Acquisition Review for University of Phoenix Deal. University of Idaho Continues Hiding Details of Transaction Fees, 43 Education "High-Risk" Bonds.

How University of Phoenix Failed. It's a Long Story. But It's Important for the Future of Higher Education.

Fraud Claims Against University of Phoenix Continue to Mount

University of Phoenix articles 

Borrower Defense articles

Ahead of the Learned Herd: Why the Higher Education Inquirer Grows During the Endless College Meltdown (Dahn Shaulis and Glen McGhee)

The Higher Education Inquirer (HEI) continues to grow without financial support and without paying for advertising or SEO help. The reason is that HEI continues to provide useful information for folks who follow US higher education. We do it in the spirit of Upton Sinclair and others pejoratively known as the muckrakers. And we gladly take the label. 

For years, the higher ed herd dismissed warnings of looming financial crises, but HEI accurately foresaw the revenue declines and unsustainable models forcing college closures, and the downside of the online pivot (including online program managers and robocolleges). We also saw a decade of enrollment declines with no end in sight. 

HEI has published a number of articles that provide value to higher ed workers (including adjuncts), future, present, and former students (including the tens of millions of student loan debtors), and other folks affiliated with the higher ed industry (including workers at edtech and financial companies). We called it the College Meltdown. 

 

We have examined a number of groupings in the industry (from community colleges and for-profit schools to elite universities and everything in between) and issues (to include student and worker protests, student loan debt, and violence on campus).  We highlight those who are trying to good, like David Halperin (Republic Report), Gary Stocker (College Viability), Mark Salisbury (TuitionFit), Helena Worthen (Power Despite Precarity), Theresa Sweet and Tarah Gramza (Sweet v Cardona), and Ann Bowers (Debt Collective). 

HEI has also had the good fortune of getting outstanding contributions from Randall Collins, Bryan Alexander, Robert Kelchen, Phil Hill, Gary Roth, Bill Harrington, and others. Bryan Alexander's contributions have been extremely important in highlighting the existential threat of global climate change and the civil strife that accompanies it.

While honest reporting is important to us, we do take sides, just as other outlets do (most others take the side of big business and government). We are for the People, and we hunt for corruption that undermines democracy. We have examined companies (like Guild, Maximus, and EducationDynamics) that few others will bother to examine. We continue to follow subprime for-profit colleges that have morphed into subprime state universities (like Purdue Global and University of Arizona Global) and other bad actors in higher ed (like 2U and the University of Phoenix). 

We value history, the real unvarnished history, not the tales, myths and lies that have been repeated to children for generations and used as indoctrination at all levels of society. And we value those who look honestly at the present and the future, those not trying to sell themselves or their hidden agendas. 

As Howard Zinn proclaimed, you can't be neutral on a moving train. And US higher education, we fear, is a train moving away from America's hopes and dreams of diversity, equity, inclusion, and justice, towards a less utopian, more dangerous, place.