There’s big money in America’s $1.5 trillion in student loans — and a lot of it doesn’t go just to students.
Much like Wall Street, the student loan financing industry is an interlocking web of well-paid CEOs and lobbyists who move easily among the U.S. Department of Education, student loan servicing firms, and the halls of Congress.
With presidential candidates such as Sens. Bernie Sanders and Elizabeth Warren proposing student loan cancellations, student lenders and servicers are now drawn into America’s political conversation. And while the servicer CEOs don’t make Wall Street salaries, they still profit handsomely, while lobbyists tilt the system against borrowers who lack influential advocates.
Exhibit A: Washington insider Kathleen Smith.
The Pennsylvania Higher Education Assistance Agency, known to student borrowers as FedLoan, snagged Smith as director of federal relations in April, paying her $235,000 a year and making her the 43rd highest-paid state employee, salary data show. The highest-paid was James Grossman, the chief investment officer at the Public School Employees’ Retirement System, who gets $445,948.
Smith once worked as a top official at the Education Department, staffer on the Senate committee responsible for higher education policy, and president of the powerful student-loan lobbying firm Education Finance Council. Her predecessor, Scott Miller, also was one of the top-paid state employees, earning $315,416, or almost as much as the FedLoan CEO.
FedLoan and other loan servicing firms are girding for battle over the U.S. Department of Education’s next long-term contract to service student loans — which would include fees paid to these companies for serving the loans and tracking payments, loan status, and customer service metrics.
The debt-servicing system, say critics, is gamed against student borrowers.
“The student-loan lobby claims to support students and their families,” said Seth Frotman, executive director of the Student Borrower Protection Center and former top student loan official at the Consumer Financial Protection Bureau. “But the reality is that executives are profiting enormously off of a broken system that leaves so many borrowers crippled in debt. Over the decades, we’ve seen a revolving door of lobbyists peddle policies designed to exploit the pursuit of the American dream.”
Others say a solution isn’t simple because of the complexity and massive scale of student debt. Universities know that government will cover rising tuition.
Robert Kelchen, assistant professor of higher education at Seton Hall University, said the U.S. Education Department essentially “is one of the nation’s banks, and it works with companies to service these loans.”
One option would be for the Education Department to directly lend the money to students and service those loans. But Kelchen said he’s skeptical the agency could pull it off. The other option would be for the Education Department to choose one company to service all student loans, which would reduce the need for different companies to lobby for their interests in Washington.
One thing not in doubt: The student loan complex rewards its top people handsomely.
The Inquirer has put together a list of student loan servicer CEOs, their salaries, and some of the key lobbyists in Washington who are invested in keeping the industry in status quo. The list relied on data from Allied Progress, a consumer watchdog group that’s been critical of the Trump administration, nonprofit IRS filings, and OpenSecrets.org, which tracks lobbyist and political donations.
FedLoan and Navient are among the nation’s largest student loan servicing companies.
FedLoan pays its CEO, James Steeley, $330,000, which is low compared to for-profit Navient CEO Jack Remondi’s $6.9 million annual salary.
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Great Lakes-NelNet, recently merged companies, were led by Richard George of Great Lakes, who made $1.06 million in 2017, and NelNet CEO Jeffrey Noordhoek, who took home $1.8 million in 2018.
Navient CEO Remondi’s salary is the highest among the country’s student loan servicers.
Before President Barack Obama nationalized the student loan business in 2010, Navient’s predecessor, Sallie Mae, was the government’s only major competitor in student lending. Navient was spun out of Sallie Mae in 2014, and Remondi ultimately was named CEO.
Former Navient and Sallie Mae lobbyist Scott Buchanan left after many years at both loan servicers and now heads Washington-based SLSA, the Student Loan Servicing Alliance, which lobbies for federal and private loan servicers and lenders.
This month he testified in front of Congress that SLSA members include nine contractors to the Department of Education, all loan servicers. One is a state agency, six are nonprofit agencies, and two are for-profit corporations.
He also complained that servicers are paid relatively little by their federal government bosses.
“As student loan servicers, we are paid approximately one-fifth of what a mortgage servicer is paid on average to handle a consumer loan that is often far simpler to service in terms of payment options or complexity,” Buchanan testified, calling it a “policy decision of how much and where the federal government wants to invest in the student loan program.”
And yet the CEOs of these servicers — whether for-profit or nonprofit — have rewarded themselves.
Christiana Thornton, CEO of GSRM (Granite State Management & Resources), was awarded over $812,000, according to 2019 data, and her predecessor, Rene Drouin, earned the same amount in 2017.
Student loan servicers contribute so much money to political candidates that the industry has its own category on the campaign-finance tracking website OpenSecrets.org.
Loan servicers spent over $4.4 million lobbying Congress in 2018, down from $5.5 million in 2017, according to OpenSecrets.org.
If nothing else, the CEO salaries and lobbying dollars show just how fiercely the student loan industry will fight legislation it opposes. While servicers lobby for simplification of the loan servicing industry, some such as FedLoan have also donated to water down or eliminate state laws regulating services.
FedLoan spent more than $350,000 in recent years supporting those who lobby against state protections for Pennsylvania students, according to a 2018 study by the American Federation of Teachers.
What’s one possible solution? Force all colleges — public and private — to have some skin in the game on graduation rates, loans, and defaults, said Albert Lord, now-retired head of Sallie Mae, the predecessor to Navient.
Although inflation averages about 2 percent annually, “average student loan balances have grown disproportionately since government took over.… Loan balances are solely the result of tuition growth, totally unrelated to education quality," he said.