BUSINESS
05/03/2016 06:02 pm ET | Updated May 07, 2016

Education Department Secretly Reappoints Top Official Accused Of Harming Students

James Runcie oversees a division that has consistently failed to protect students from allegedly abusive loan contractors and colleges.

Department of Education
James Runcie will serve as the chief operating officer for the Education Department Federal Student Aid Office for the next three to five years.

The Obama administration thinks the Department of Education division responsible for overseeing colleges, managing the student debt crisis and policing loan contractors has done such a good job that it secretly reappointed its chief to a new five-year term.

James Runcie, chief operating officer of the department’s Federal Student Aid office, received the reappointment on Dec. 23 from former Education Secretary Arne Duncan, department spokeswoman Dorie Nolt said. It was one of Duncan’s final acts in office before he left the administration at the end of last year. Because Runcie’s term by law has to be between three and five years, he’s likely to outlast the Obama administration and continue into the next one.

But Runcie’s tenure has been marked by a series of notable debacles -- from the collapse of for-profit college chain Corinthian Colleges Inc. amid a wave of allegations it systematically deceived students about their future job prospects to preliminary findings by the Consumer Financial Protection Bureau that student loan borrowers are routinely mistreated by loan companies Runcie’s division pays and oversees.

Earlier this month, a group of 29 state attorneys general confidentially alleged that one Runcie-overseen contractor, student loan giant Navient Corp., violated state laws banning unfair or abusive practices by paying call center workers based on how quickly they could get struggling borrowers off the phone. Breaking state consumer laws would constitute a violation of Navient’s lucrative contract with Runcie’s division.

At least 1.2 million Americans last year defaulted on federal student loans serviced by Runcie-overseen contractors, federal data show, despite the fact that every one of them was eligible to make monthly payments based on their earnings. More Americans defaulted on the most common type of federal student loan during the final six months of last year than began making payments under White House-promoted income-based repayment plans.

The department didn’t publicize Runcie’s reappointment, unlike his initial hiring in September 2011. Nolt didn’t explain why he was rehired or provide any additional details, despite several requests from The Huffington Post, and Runcie was not made available for an interview. Duncan didn’t respond to messages seeking comment sent to his new employer, Emerson Collective, or the talent group Creative Artists Agency, for which he commands a $40,000 speaking fee. College lobbyists, student advocates and congressional aides active in higher education matters said they weren’t aware of Runcie’s reappointment.

Runcie's division "has made significant strides" in helping borrowers and improving customer service, Education Undersecretary Ted Mitchell said in a prepared statement after this story was published. "Even one default is too many, and much work remains. That’s why Jim’s continued leadership -- especially across a period of transition between administrations -- is so crucial."

Yuri Gripas / Reuters
President Barack Obama and Secretary of Education Arne Duncan in 2012. One of Duncan's last acts before leaving office in 2015 was reappointing James Runcie, despite various student loan issues during his tenure.

Runcie helped shepherd the federal government’s transition from the old bank-based federal student loan program to one in which only the government itself lends directly to students and their parents, saving taxpayers billions of dollars. And his division simplified the Free Application for Federal Student Aid, or FAFSA, helping millions of students.

But over the past few years, lawmakers such as Sen. Elizabeth Warren (D-Mass.) and Rep. Virginia Foxx (R-N.C.) have joined consumer groups in severely criticizing Runcie’s division for a variety of reasons, from missing contractors' allegedly pervasive abuse of federal student loan borrowers to ignoring claims that some giant for-profit colleges were defrauding students and taxpayers.

Meanwhile, Runcie and his top lieutenants receive lavish bonuses and relatively handsome salaries, with one bonus totaling $75,000 last year, nearly double the top bonus three years earlier, federal records show. The typical Federal Student Aid employee is paid more than $100,000 annually, close to 33 percent more than the typical federal employee.

Lawmakers and student loan experts have also assailed Runcie’s division for fostering a culture that ignores criticism and resists oversight.

Federal Student Aid suffers from “deep-seated culture issues” that don’t prioritize supervision and enforcement, said Suzanne Martindale, a staff attorney at Consumers Union who advises the Education Department on student loan issues. “The department has a long way to go to actually consider students as the people they are supposed to protect, rather than colleges,” she said.

Under Runcie’s watch, the federal consumer bureau sued two giant for-profit college chains alleging they misled students about their success at placing graduates in their fields; hundreds of debtors publicly declared they’d stop making payments on their federal student loans; and government investigators from other agencies routinely slammed Runcie’s division for failing to aid distressed borrowers and protect students, or they unearthed evidence of mistreatment that Runcie’s deputies missed.

David Goldman/AP
Shane Satterfield, a roofer who owes more than $30,000 in debt for an associates degree in computer science, holds his Everest diploma in March 2016. "I graduated in April at the top of my class, with honors," he said. "And I cant get a job paying over $8.50 an hour." Corinthian Colleges operated the Everest chain before it filed for bankruptcy in 2015.

Earlier this year, Runcie conceded that even though his division has long had subpoena power to compel dodgy colleges to turn over documents, “we haven’t leveraged that.”

The Education Department has a “see no evil, hear no evil” philosophy toward its loan contractors, said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities.

“You are harming the people you are supposed to be helping, and that has to stop,” Foxx told Runcie in November.

Take Federal Student Aid’s relationship with Navient, the nation’s largest student loan company which formerly was known as Sallie Mae. In contrast to the state attorneys general group, and the federal consumer bureau, which already has told Navient it has amassed enough evidence to indicate the company violated federal law, Runcie’s division has gone out of its way to maintain its relationship with the company.

After federal prosecutors in 2014 accused Navient of breaking the law by intentionally overcharging active-duty servicemembers on their federal student loans, Runcie’s division cleared it of wrongdoing. The department’s inspector general later determined that Federal Student Aid’s findings were based on a bogus investigation, and that the Education Department misled the public when it proclaimed the company didn’t cheat troops.

Anadolu Agency via Getty Images
Students hold placards as they stage a demonstration at the Hunter College, which is a part of New York City University, to protest ballooning student loan debt for higher education and rally for tuition-free public colleges in New York on Nov. 13, 2015. At least 1.2 million Americans defaulted last year on federal student loans.

In that case, Federal Student Aid concluded that Navient committed no wrongdoing without listening to recordings of calls between the company’s customer service representatives and troops who had tried to assert their right to a cheaper loan under the Servicemembers Civil Relief Act. State attorneys general based their still-confidential allegations against Navient in part on a review of call recordings.

“How many borrowers do they have to hurt before we shut down the gravy train?” Warren said in a heavily shared Facebook post last week in reference to state prosecutors’ allegations against Navient and the company’s contract with the Education Department. “It’s long past time for the department to hold Navient accountable for routinely ignoring the law.”

State prosecutors’ allegations against Navient are inaccurate, Navient spokeswoman Patricia Christel said. “The facts are that Navient has a long public and well-documented record of assisting borrowers to successfully manage their student loans.”

Education Department spokeswoman Kelly Leon said the department “won’t hesitate to take action if any servicer is mistreating loan borrowers.” The department has promised to again revamp its contracts with companies such as Navient -- a 2014 fix was supposed to correct bad behavior -- and increase its scrutiny of colleges and loan contractors.

Even the White House has implored Runcie’s division to do more to help student loan borrowers. “We can and should do much more to give students affordable ways to meet their responsibilities and repay their loans,” Obama wrote in a memorandum last year.

The White House is in a “mad scramble to clean up a years-long mess,” Martindale said.

This story was updated with a comment from Education Undersecretary Ted Mitchell.

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