Special Notice 18

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.

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©2019 William J. Dodwell
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