WASHINGTON HEEDS MY WARNING ABOUT STUDENT LOAN EXPOSURE? By William J. Dodwell May 6, 2019 The Wall
Street Journal reported that the Trump administration hired McKinsey &
Co. to investigate the accounting methods adopted for reporting the profitability
of the federal student loan program. In
particular, McKinsey is charged with estimating the potential loan loss
exposure in the student loan portfolio in connection with a possible sale.
As it happens,
in 2015 I published a white paper entitled, “The Developing Federal Student
Loan Debacle and the Real Cost to Taxpayers” detailing the anomalous accounting
methods of the CBO and Department of Education that grossly understate loan defaults
reported to the public. See my report at
http://ssrn.com/abstract=2653119. I sent this paper to John Crudele of the New
York Post, who dedicated a portion of his column to my thesis without
attribution. I also sent it to still Chairman
of the Senate Budget Committee, Senator Mike Enzi, R-Wyo., and then Chairman of
the House Budget Committee, Congressman Tom Price, R-Ga. In addition, I sent the report to The Wall
Street Journal Editorial Page Editor, Paul Gigot, along with a request to write
an op ed piece on the topic. Not
surprisingly, I never heard from any of those recipients, but a couple of subsequent WSJ
editorials some time later seemed to have drawn from my paper.
Interestingly, I was
prompted to write the piece when I heard presidential candidate Donald J. Trump
suggest that the sizable reported profits of the student loan program be
applied to defraying costs for student borrowers. Knowing that the portfolio really posed a
potential multitrillion-dollar cost to taxpayers, I began writing. In view of the McKinsey contract, now Trump apparently
knows the truth about misleading accounting at the CBO and Education Department. Might I be presumptuous about my possible influence
here? Well informed citizens can make noise in Washington from scoops
appropriately documented and suitably disseminated to have
an impact beyond the ballot box. This
intervention should be encouraged. . ©2019 William J. Dodwell |