Dr. Arthur Wayne Johnson, the private student loan company executive selected to head the Federal Student Aid agency (FSA), is affiliated with a company that a federal judge recently described as “very aggressive” about fighting efforts to discharge student loans, court records obtained by Diverse show.
While a student loan company might be expected to aggressively recover borrowed funds, observers say there could be conflicts of interest when a person affiliated with such a company is in line to run FSA. The agency serves 42 million student loan borrowers and administers more than $1.4 trillion in current outstanding federal student loan balances.
“The head of FSA doesn’t make policy, but they definitely implement it,” said Ben Miller, senior director for postsecondary education at the Center for American Progress, a think tank in Washington, D.C.
“And so it matters a lot, from picking contract winners (for servicing student loans) to deciding how tough or lenient to be on oversight, to what data become public, etc.” Miller said.
“I just feel like we don’t know much about this guy,” Miller said of Johnson, U.S. Secretary of Education Betsy DeVos’ recently announced pick to head FSA.
“It could be that he’s gonna be great. He could be terrible,” Miller said. “I feel like I’m not equipped to judge at the moment.”
A U.S. Department of Education spokeswoman said Wednesday that Johnson will separate from his company if he is appointed to FSA.
There is no Senate confirmation hearing involved, but the “hiring process” is still ongoing, the department spokeswoman said.
Diverse was able to glean some hints about Johnson’s business dealings Wednesday from a review of federal court records and an interview with the registered agent and founder of Student Loan Finance Corporation — the student loan company with which Johnson’s company merged in 2014.
U.S. Bankruptcy Judge Michael E. Ridgway — of the District of Minnesota — described the company as “very aggressive” in bankruptcy proceedings in January of this year for a 61-year-old man who was trying to discharge a $6591 student loan from the Student Loan Finance Corporation.
The man — Mark L. Hoium — had borrowed the money to attend Alexandria Technical College in Alexandria, Minnesota but never graduated and stated in court records that he was unable to work due to retinal detachment in both eyes and spinal problems.
Judge Ridgway stated that he was surprised that Student Loan Finance Corporation didn’t show up to contest the case and queried Hoium’s lawyer to assure that he had served the company with legal notice of the proceedings.
“They have typically been known to vigorously — not only show up — but vigorously defend any attempted motion to … discharge their student loans,” Ridgway said, according to an audio file of the hearing accessed Wednesday through PACER, an online federal court case database.
“Even though I know the amount isn’t huge by modern day standards — some $6591 — still they are student loans and I know Mr. Samp personally,” Judge Ridgway continued, in reference to Rollyn Samp, founding agent for Student Loan Finance Corporation, which struck a deal with Johnson’s company — Reunion Financial Services Corporation, a Macon, Georgia-based company — that led to the formation of Reunion Student Loan Finance Corporation, according to Johnson’s resume.
“He’s a lawyer in Sioux Falls and has done quite a bit of bankruptcy work, although I confess I don’t recall him doing a lot of work for this outfit,” the judge said of Samp.
Samp — reached by phone Wednesday — identified himself as counsel for Reunion Student Loan Finance Corporation, although he said he wasn’t speaking on behalf of Johnson and hasn’t spoken with him as of late.
Samp said Student Loan Finance Corporation is far from litigious and suggested that Judge Ridgway must have the company mixed up with some other entity when he referred the company as “very aggressive.”
Among the thousands of clients that Student Loan Finance Corporation has, Samp said that only three having pending court cases against the company, although he said he did not know the names of the litigants because he had only heard of the cases through company attorneys. It was unclear if some of the cases may have been brought at the state level and thus would not be reflected in the federal court database.
Samp also noted that only five percent of the company’s borrowers had defaulted on their loans — well below the rate of 11.3 percent for federal student loans.
Samp said the “merger” between Student Loan Finance Corporation and Reunion was actually more of a licensing agreement.
“I wouldn’t call it a merger,” Samp said. “The legal documents are gonna show a license agreement. Period.
“In lay terms I guess you could call it a merger but legally it was a license agreement.”
He said the agreement is one in which Student Loan Finance Corporation licensed its services for Reunion to offer.
Regarding the case of Hoium — the 61-year-old Minnesota man who sought and ultimately got his student loan discharged through a default judgment — Samp said Student Loan Finance Corporation did not show up to fight the case because it wasn’t worth the time and cost.
Hoium — who indicated in court records that he was eligible to get $453 in disability payments in March 2017 and $607 in Social Security Benefits at age 66 — argued that not discharging his student loan would pose undue hardship.
“That’s a bankruptcy case where the company chose not to appear, which happens thousands of times a day in America,” Samp said. “You don’t think you can get anything, you’re not gonna keep paying lawyers. It’s strictly a matter of legal economics.”
Regarding Johnson, Samp said he decided to strike a deal with Johnson’s company because Johnson is held in high regard in the financial sector.
While some have raised questions about whether Johnson’s business dealings will pose a conflict of interest if he is appointed to head of FSA, Samp said people should conversely ask “whether he may do a great job.”
He said his own company would not have licensed its services to Johnson’s company if Johnson were not held in high regard.
“I know the board of directors vetted him very carefully, along with his other investors, before they decided to do the license agreement,” Samp said. “They had several choices of companies to work with,” Samp said, suggesting that Johnson’s firm stood out from the rest.
Johnson did not return a call left at Reunion Wednesday.
Elizabeth Hill, press secretary for the US Department of Education, on Wednesday defended the decision to appoint Johnson to FSA.
“Dr. Johnson has 30 years of experience in the private sector and is going to be a tremendous asset to the Department and to FSA’s customers,” Hill said in an e-mailed statement.
Hill noted that Johnson “actually went back to get his doctorate when he was 60.”
She stated that Johnson helped to form Reunion Financial Services Corporation after a “collaborative classroom experience during his doctoral program at Mercer University spurred his interest in college affordability.”
“His team wanted to see how analytics might help in providing affordable refinancing options to borrowers who might have the greatest need for lower interest rates (often those in the underserved private student loan marketplace, allowing employed graduates of not-for-profit colleges and universities the opportunity to consolidate their private student loan debt and lower costs),” Hill stated.
“Wayne knows this industry inside and out and has seen first-hand the benefits of serving students and helping them meet their financial and educational goals,” Hill continued. “This is just another reason why we are so excited to have him on the team as we work to put students’ needs first.”
For his Ph.D. in education leadership at Mercer University, Johnson wrote a dissertation titled “Eyes Wide Shut: Understanding Private Student Loan Indebtedness.”
Miller and others said the dissertation shows some potentially encouraging signs that Johnson may be attentive to the needs of student borrowers. Among other things, respondents in the dissertation indicated that a private university’s financial aid officers were “negligent in providing them with sufficient time to consider the loan instruments offered, and the implications of taking such loans.”
“Finally, it was observed that student loans were perceived to have harmed several of the interviewees, particularly in terms of impeding future plans,” an abstract of the dissertation states.
One former Obama Administration staffer said Wednesday that judgment should be withheld on Johnson until more is known about what he actually intends to do.
“The entire private student loan connection cuts both ways,” the former Obama administration staffer said.
“Experience of the market could be good, and if he’s divested from the company, there should be fewer concerns about how his actions might be in favor of student loan companies, although that concern never completely goes away,” the former staffer said.
“But at the same time, if his predisposition is to treat borrowers in a way that isn’t aligned with the best interest of borrowers, that’s obviously problematic.”
Jamaal Abdul-Alim can be reached at [email protected] or you can follow him on Twitter @dcwriter360.