Modern-Day Hero: Jon Oberg, Former G-Man In The U.S. Dept. of Education

The New York Times' Sam Dillon has unearthed a rarity: a career civil servant in the U.S. Department of Education who is also a hero - Mr. Jon Oberg.

In the mid-1990s, Oberg discovered loopholes whereby non-profit lenders made millions by taking advantage of 1980s-era student loan subsidies. As best as I can read the situation, the lenders had only to finance their loans with tax-exempt bonds in order to profit from a government-subsidized higher interest rate of return for each loan given. The difference between the bond cost and the guaranteed rate of return (9.5%) appears to have been significant. Anyway, after years of being thwarted in his attempts to make superiors aware of the situation, the DOE finally closed the loophole with a simple rule change this past January.

Following are some excerpts from Dillon's column, interspersed with my commentary:

"When Jon Oberg, a Department of Education researcher, warned in 2003 that student lending companies were improperly collecting hundreds of millions in federal subsidies and suggested how to correct the problem, his supervisor told him to work on something else. The department 'does not have an intramural program of research on postsecondary education finance,' the supervisor, Grover Whitehurst, a political appointee, wrote in a November 2003 e-mail message to Mr. Oberg, a civil servant who was soon to retire. [Whitehurst continued:] 'In the 18 months you have remaining, I will expect your time and talents to be directed primarily to our business of conceptualizing, competing and monitoring research grants.' "

TL: If I may paraphrase Grace talking to Ed Rooney about Ferris Bueller, this article is going to make Mr. Roo- err Whitehurst, "look like an ass."

- "For three more years, the vast overpayments continued. Education Secretary Rod Paige and his successor, Margaret Spellings, argued repeatedly that under existing law they were powerless to stop the payments and that it was Congress that needed to act. Then this past January, the department largely shut off the subsidies by sending a simple letter to lenders — the very measure Mr. Oberg had urged in 2003."

TL: So let me get this right. Mr. Oberg tries to do something right, and a Republican appointee cites governmental proceduralism to block his initiative. Hmm...

- "The story of Mr. Oberg's effort to stop this hemorrhage of taxpayers' money opens a window, lawmakers say, onto how the Bush administration repeatedly resisted calls to improve oversight of the $85 billion student loan industry."

TL: A "window." Now that's an understatement.

- "The department failed to halt the payments to lenders who had exploited loopholes to inflate their eligibility for subsidies on the student loans they issued. . . . The subsidy payments that Mr. Oberg uncovered are another corner of the lending system on which the department long failed to act, critics say, letting millions of dollars flow from the public treasury to about a dozen lenders."
- "The department now says it did not fully understand the extent of the maneuvers the loan companies were making to get the subsidies until last September, when its inspector general investigated and issued a report detailing manipulations carried out by a Nebraska lender, Nelnet. The audit recommended that the department recover $278 million from the lender, but education officials instead reached a settlement allowing Nelnet to keep the money but cutting it off from further subsidies that it claimed it was eligible to receive."

TL: Ah, the classic "I did not know" defense. The Department did not "understand" because it refused to explore the entreaties of ITS OWN EMPLOYEE!

- "Mr. Oberg, now retired, has a master’s degree from the University of Nebraska and a doctorate in political science from the Free University of Berlin. He is a former Navy officer, university professor, and aide to Senator J. James Exon, a Nebraska Democrat, from 1979 to 1984. He was an Education Department liaison to Congress under the Clinton administration."

TL: I'm sure that the only regret of the present DOE administration is that they forgot to look at Mr. Oberg's resume when they came into power.

- "The subsidy payment issue that came to preoccupy Mr. Oberg grew out of decisions Congress made in the 1980s to ensure that low-cost student loans were available at a time when the economy was souring. Lawmakers guaranteed nonprofit lenders a rate of return of 9.5 percent on student loans that were financed by tax-exempt bonds to protect the companies from spiraling costs."

TL: As usual, it's always a good intention that's exploited. Then again, why is government protecting businesses from risk at the expense of consumers? Aren't banks already insured?

- "Congress eliminated much of the subsidy program in 1993 because interest rates had dropped, but at that time retained the 9.5 percent return for existing loans. By 2002, lenders had devised ways to inflate the volume of loans for which they received the 9.5 percent subsidies. Congress closed one loophole in 2004, but lenders found others. Congress further restricted the subsidies in 2006."
- "In 1997, the Clinton administration proposed legislation to eliminate all references to the subsidies from the Higher Education Act in an effort to rein them in. Mr. Oberg took the legislation to Sally Stroup, who was then serving as senior aide to the Republican chairman of the House education committee. 'Sally told me there was no way that language was coming out,' Mr. Oberg recalled. 'She didn't give a reason — just forget it.' Ms. Stroup, who went on to become an assistant secretary of education in the Bush administration, and who is now back as an aide on Capitol Hill, did not return several phone calls and messages left for comment."

TL: Ah, on one side of the aisle, a party traditionally associated with the giving of subsidies (i.e. Democrats) advocates that a bank subsidy be dropped, but the other side of the aisle, associated with disavowing subsidies (i.e. Republicans), vigorously disagrees. I love the ironies of politics.

- "In 2000, Mr. Oberg transferred to the department’s research operation, and two years into the Bush administration, began to review the government filings of Nelnet and other lenders. He found that not only were payments to lenders rising rapidly, but also that the base amounts of the loans lenders were claiming as eligible for the 9.5 percent subsidies were exploding. 'Several big lending agencies were gaming the system,' Mr. Oberg said."
- "He notified the Education Department’s inspector general's office. He also told his superiors but felt they were brushing him off. So in November 2003, he wrote a memorandum for general distribution throughout the department warning that lender manipulations could cost the government billions unless stopped, and he recommended that the secretary could end the abuse with a letter to lenders clarifying government rules."
- "That is when his supervisor, Mr. Whitehurst, director of the department's Institute for Education Sciences, stepped in. Mr. Whitehurst said that he had forwarded Mr. Oberg's memorandum to appropriate senior officials, whom he declined to identify, but acknowledged that he 'wasn't real happy' because he considered Mr. Oberg's research to be outside his job description. 'Plus, I didn't understand the issues,' Mr. Whitehurst said recently. 'In retrospect, it looks like he identified an important issue and came up with a reasonable solution. [No kidding!] . . . But it was Greek to me at the time — preferential interest rates on bonds? I didn't know what he was doing, except that he wasn't supposed to be doing it.' He told Mr. Oberg to stop because he wanted him to be monitoring grants, not lending practices. Officials also rewrote Mr. Oberg's job description, documents show, barring him from further research into the subsidies" (bold mine).

TL: Mr. Whitehurst "didn't understand." This just doesn't hold water. Mr. Oberg warns about billions being lost because of a loophole, but rather than explore the issue - or take it to someone who could translate (from "Greek" to "Republicanese") - Mr. Whitehurst has Mr. Oberg's job description rewritten. Was it a ghost that rewrote that description, Mr. Whitehurst?! How childish.

- "Mr. Oberg said he decided to continue his research in his free time because, 'If you tell some people they can't do something, they want to do it all the more.' "

TL: Awesome.

- "Ms. Spellings did not reply to a memorandum Mr. Oberg sent her about waste in the loan program just before his 2005 retirement, Mr. Oberg said."

TL: Typical. One more feather for Ms. Spellings' cap.

- "A 2004 report by the Government Accountability Office urged the department to rewrite its regulations to save billions of dollars in future loan subsidy payments. But Ms. Stroup, who had once worked for one of the lending companies that is now under investigation for the subsidies, argued in response that it would be simpler for Congress to clamp down with new legislation."

TL: Wait. Surely I'm not reading this correctly. Ms. Stroup is saying that it would be easier to write new legislation than to institute a simple rules change? Again, oh brother. I hope someone is investigating Ms. Stroup's finances.

Well, at least the rule change was finally made - after ten years. Interesting stuff. - TL