The Education Department appointee who oversees the government’s $1.5 trillion student loan portfolio on Tuesday stepped down from the board of an organization that owns some of that debt, after POLITICO asked about a potential conflict of interest.
Mark Brown, a retired major general in the U.S. Air Force, in March was selected by Education Secretary Betsy DeVos to be the new head of the department’s Office of Federal Student Aid. Until Tuesday, he also served as an unpaid member of the board of directors of KnowledgeWorks, a non-profit foundation that holds about $30 million in federally guaranteed student loans.
Story Continued Below
Several ethics experts said that arrangement raised concerns about a potential conflict of interest because Brown’s unit is responsible for regulating and overseeing student loans backed by the government, including those that are owned by KnowledgeWorks.
Brown “has decided that in an abundance of caution and to avoid even the remote appearance of conflict, he will resign from his unpaid, nonprofit board position immediately,” Education Department spokesperson Liz Hill said.
Hill said last week that Brown’s position on the board of the foundation had been reviewed by agency ethics officials and that he was “recused from any particular matters related to KnowledgeWorks.” On Tuesday, after POLITICO requested more information about the recusal and the department’s position, Brown resigned.
KnowledgeWorks, a Cincinnati-based foundation, has been winding down its student lending operation over the last several years and instead focusing on philanthropic ventures in education.
But the foundation’s ownership of loans under the Federal Family Education Loan Program means it still must follow Education Department regulations that Brown’s unit is charged with enforcing. And the organization’s loan holdings could also be affected by how Brown’s office administers the program.
“It’s definitely a potential conflict of interest,” said Virginia Canter, chief ethics counsel at Citizens for Responsibility and Ethics in Washington, a watchdog group. “He should have been required to resign from KnowledgeWorks.”
Canter, who previously served as White House ethics counsel during the Obama and Clinton administrations, said that the position should have been “flagged as a potential conflict” by ethics officials. “It’s what you hope the government ethics program would be able to help him avoid,” she said.
Before Brown stepped down from the board, several ethics experts said that recusal itself may not be sufficient. They said Brown’s dual roles raised ethics questions.
“It seems very odd that he is still on the board,” said Kathleen Clark, a law professor who studies legal and government ethics at Washington University in St. Louis. “Why is it important for him to remain on the board when he has this important position in the federal government?”
Brown’s photo and biography, including his title at the Education Department, appeared on the KnowledgeWorks website until Tuesday afternoon.
Clark said that even though Brown may not receive a direct financial benefit from serving on the board of directors, that doesn’t mean he’s in the clear when it comes to government ethics rules.
Federal law prohibits officials from participating in any matters that would have a “direct and predictable effect” on either their own finances or the financial interests of any organization on which they serve on a board.
It would clearly be prohibited for Brown to take any type of enforcement action against the foundation, Clark said, but another concern would be the broader issues on which he works that involve student loan programs.
Whether such work would pose an ethics problem is “context-dependent,” she said, but it can’t be assumed that a guidance letter or policy won’t have a “direct and predictable effect” on the foundation just because the foundation is not directly named in it.
Sean Moulton, a senior policy analyst at the Project on Government Oversight, said that Brown’s situation “potentially fits into a conflict of interest or at the very least a perception of a conflict.”
“It would be clearer and more definitive if this were a for-profit company or a lot more money or he were benefiting personally,” Moulton said, adding that those factors “soften the potential conflict a bit, but they don’t eliminate the conflict.”
Brown first began working at the Education Department in October as a senior adviser. DeVos appointed him as chief operating officer of the Office of Federal Student Aid in March.
DeVos said in a statement at the time that Brown “brings a deep understanding of large-scale organizational leadership and complex financial processes, as well as a sense of duty to America’s students.”
Brown joined the KnowledgeWorks Board in 2017 following a more than 30-year career in the military. In the Air Force, he most recently served as the deputy commander for air education and training command. He oversaw the Air Force recruiting service and other education, including Air University and the Air Force Institute of Technology.
KnowledgeWorks representatives said last week that they did not view Brown’s role with the foundation while serving at the Education Department as a conflict of interest because of the limited role the foundation now plays in student lending.
The organization reported on its 2018 financial statements that it owned a portfolio of nearly $34 million in federally guaranteed student loans. That figure has now shrunk to $29 million, according to Holly Brinkman, the foundation’s chief operating officer and vice president of finance.
Brinkman said that while the foundation owns the loans, it has sold the right to any future cash flows from them. “KnowledgeWorks doesn’t get any value from this program at all,” she said.
The loans “are regulated by the Department of Education,” Brinkman acknowledged. “Our servicers submit information to the Department of Education on our behalf.”
KnowledgeWorks hires the student loan servicing firm Nelnet to collect and manage most of its loans. Nelnet separately has a contract with the Education Department to service student loans made directly by the federal government.
“We went through our due diligence efforts when General Brown accepted the position,” Brinkman said. “We also understand that Mr. Brown vetted this membership with his ethics officer. We don’t view that there is a conflict of interest at KnowledgeWorks.”
If the foundation’s board of directors were to make any decisions about its student loan holdings, Brown “would be recused from it” at KnowledgeWorks, she added.
KnowledgeWorks played a far more active role in college financing before it sold off nearly all of its student loans in 2013. The foundation was among the organizations and banks that lobbied against the Obama administration’s effort to end subsidies for private lenders to make student loans that were ultimately insured by the federal government.
Congress stopped new loans under the federally guaranteed student loan program in 2010, but some $277 billion in debt owed by more than 13 million borrowers remained outstanding at the end of last year. The program accounts for nearly 20 percent of the overall $1.5 trillion of outstanding federal student loans.
Organizations like KnowledgeWorks that hold a dwindling portfolio of federally guaranteed loans are still subject to audits and reviews by the Education Department’s Office of Federal Student Aid.
In recent years, one of the major disputes over the department’s handling of the program involved the types of collection fees that guarantee agencies could charge students who defaulted on their loans. The Obama administration issued guidance severely restricting collection fees, which the Education Department swiftly reversed during the first months of the Trump administration.
KnowledgeWorks is among the smaller owners of federally guaranteed student loans. It ranked as the 64th largest holder of such debt when the Education Department most recently published a list in 2017.
The foundation has over the last decade or so shifted entirely away from student lending to issues such as personalized learning and competency-based education. As part of that mission, KnowledgeWorks received a $2.9 million, five-year grant from the Education Department during the Obama administration to work on improving high school education in rural communities.