Education Secretary Betsy DeVos said this week she plans to appoint Arthur Wayne Johnson, the chief executive of a private student loan company, to run the federal government’s trillion-dollar financial aid operations.
The announcement Tuesday did not mention Johnson’s role as founder and chief executive of Reunion Student Loan Finance Corporation, based in South Dakota.
Rather, DeVos praised a dissertation Johnson, 61, completed last year through a weekend PhD program at Mercer University in Atlanta.
“He actually wrote the book on student loan debt,” DeVos said in a statement.
The announcement came almost a month after James Runcie abruptly resigned as chief operating officer of the Office of Federal Student Aid (FSA). Runcie, as he left with three years remaining in his term, warned of what he described as brewing management problems within the Education Department. He complained in a letter to staff of being “encumbered from exercising” his “authorities to properly lead.”
DeVos, in a statement, called Johnson “the right person to modernize FSA.” She added: “He will bring a unique combination of CEO-level operating skills and an in-depth understanding of the needs and issues associated with student loan borrowers and their families.”
There was no indication in her statement on when Johnson will start. The appointment, when it occurs, will not be subject to Senate confirmation.
Johnson had another career path in mind as recently as April when he applied to become the superintendent of the Hamilton County public school system in and around Chattanooga, Tenn.
“At this point in my career, my goal is to engage in a position with great meaning,” Johnson wrote to the county board of education on April 14, applying for the position. “To fulfill on this goal, I made the decision to transition to the academic world in an education leadership role.”
It was a stark departure for Johnson, who had started his career as a financial consultant and ascended to executive-level positions with credit card and banking firms before starting his own student loan company in 2013.
That company, Reunion Student Loan Finance Corporation, targets the “underserved, premium quality segment of the private student loan market” to refinance debt into lower monthly payments, Johnson wrote on his résumé. The company’s website promotes Reunion as providing a “fast, smooth and efficient refinancing experience.”
Johnson was one of five finalists for the Hamilton County job, but some were skeptical because of his lack of classroom experience. An hour before the school board voted last week, Johnson withdrew from consideration, according to the Chattanooga Times Free Press.
Reunion was incorporated in South Dakota in December 2013, with Johnson listed as “Director/Chief Executive Officer,” according to state business records. Reunion merged with Student Loan Finance Corporation in 2014, according to Johnson’s résumé. A Reunion representative on Wednesday said Johnson remains the chief executive but will step down once he begins the five-year term at the department.
Johnson’s ties to Reunion may rankle some liberal lawmakers and advocacy groups who worry about the Trump administration ceding student lending to private companies that do not offer borrowers as many consumer protections as the federal government. Some are concerned that aside from his doctoral research on student debt, Johnson has limited experience.
Johnson told Hamilton County school officials in April that to prepare for a transition to a career in academia he recently invested time to obtain a doctorate in educational leadership from Mercer. According to the school’s website, classwork for the degree is mostly conducted online, with three weekend commitments each semester consisting of Friday-night and Saturday seminars.
Johnson’s dissertation, titled “Eyes Wide Shut: Understanding Private Student Loan Indebtedness,” explored whether students have adequate “decision-making competence” to take on major debt commitments, especially through private loans that have less favorable repayment options, according to a portion of the 159-page document that is available online.
In the paper, Johnson says he looked at a sample from “a single private university in the United States” and applied the “Theory of Bounded Rationality.”
According to an abstract, Johnson said the paper found loan officers at the college were “willfully negligent in informing students about the characteristics of their student loans” and students there believed their loans had “harmed several of the interviewees, particularly in terms of impeding future plans.”
Ben Miller, senior director for postsecondary education at the left-leaning Center for American Progress, questioned Johnson’s qualifications.
“DeVos just appointed someone to run what is essentially one of the five largest banks in the country and the only thing we know about his views on the subject is [his] dissertation,” he said. “Going from possibly running a school system with 44,000 students to an office that serves 43 million borrowers is a heck of a jump. Kind of like interviewing for a minor league job and then getting asked to coach the Golden State Warriors.”
In a statement Tuesday, Johnson said he has “a profound appreciation for and recognition of the critical role FSA plays in advancing educational attainment” and expressed his “deep and sincere commitment to the millions of current and future Federal Student Aid clients.”
The Federal Student Aid office, which manages $1.2 trillion in student debt and provides more than $150 billion a year in federal grants, loans and work-study funds to college students, has been the subject of widespread criticism amid rising student loan defaults and consumer complaints. Audits by federal watchdogs have called into question the effectiveness and competency of the student aid office because of its management of third-party companies charged with handling student loan payments or collecting on past due accounts.
Many lawmakers blamed Runcie for not being being responsive to problems identified in audits or by borrowers. Congressional Republicans want to subpoena him to answer questions about the high rates of payment errors in the direct loan and Pell Grant programs–a matter that Runcie said a colleague was better suited to address when he refused to testify and resigned. University financial aid officers also tangled with the former chief officer over what they said was poor communication and a lack of transparency.
“Dr. Johnson has his work cut out for him,” said Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce. “The committee has consistently raised concerns over the mismanagement of the Office of Federal Student Aid, and we hope Dr. Johnson can work with Secretary DeVos to bring accountability and leadership to the office.”
Johnson will take the helm as the student aid office faces a full slate of projects. Among them: weighing a student-loan-servicing contract bid, shoring up cybersecurity, building out the expansion of the Pell Grant program, tending to loan forgiveness for defrauded borrowers and getting the tax-data-retreival tool in the financial aid application back online. The Trump administration could add more to Johnson’s to-do list if budget proposals to overhaul student loan repayment and consolidate grant and loan programs are successful.
Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Committee on Health, Education, Labor and Pensions, said “Johnson’s experience will be an asset.”
But Sen. Patty Murray (Wash.), the committee’s ranking Democrat, said she has “major concerns about a private student loan CEO in such a critical position and will be examining his background closely and following up with questions about potential conflicts of interest and ethical issues.”
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