Arthur Wayne Johnson, appointed by Education Secretary Betsy DeVos to a top post in the federal government’s trillion-dollar financial aid operations, resigned Thursday, calling the student loan system “fundamentally broken” and urging the elimination of millions of Americans’ student debt.
The departure of Johnson, who said he will seek a Senate seat in Georgia, arrives as House Democrats ramp up their investigation of the role Education Department officials, including Johnson, played in helping Dream Center Education Holdings. Dream Center operated the defunct for-profit chain Argosy University and the Art Institutes. The House Education and Labor Committee has requested an interview with Johnson, DeVos and the department’s head of higher education policy, Diane Auer Jones.
Johnson became chief operating officer of the Office of Federal Student Aid in 2017, but he was reassigned to a deputy role several months later, charged with overhauling the Education Department’s handling of student loan payments.
He said his time at the department made it “crystal clear . . . that the system is fundamentally broken.”
“When . . . somebody has $40,000 in student loan debt and, because of forbearances or deferments and the accrual of interest, they wind up with $120,000, you have to step back and say this is fundamentally broken,” Johnson said. “You have no idea how proud I am of what we’ve done to make the existing process better . . . but we’re making a broken system better.”
Johnson, who has never run for office, is seeking to fill out the term of retiring Sen. Johnny Isakson, R-Ga. Georgia Gov. Brian Kemp, R, plans to appoint an interim senator until a special election next year.
Johnson said if he becomes a federal lawmaker, he would advocate forgiving up to $50,000 in federal student loan debt, a proposal that would wipe away the balances of roughly 37 million borrowers. People who have repaid their student loans would receive a tax credit of up to $50,000.
On the front end, Johnson would provide students with a $50,000 grant to attend public or private colleges or pursue a vocational credential. He said if the government is making substantial grants to students, there is no need to make loans. Johnson said the federal government is not “qualified to be in the consumer loan business.”
The program would be funded with a 1 percent tax on revenue generated by all employers. It would cost about $140 billion a year.
“When you look at who consumes higher education, it’s actually corporations . . . because they are the ones setting the markers, in terms of what somebody is expected to have achieved to pass through their gates,” Johnson said. “If I’m a corporation, I’m willing to invest in training people and I certainly should be willing to invest in helping them get trained up to work with me.”
Johnson’s plan bears a striking resemblance to the student debt-forgiveness plan proposed by Democratic presidential contender Sen. Elizabeth Warren (Mass.), which calls for forgiving up to $50,000 in student debt for borrowers with an annual household income of less than $100,000. Johnson would not impose an income cap.
His support of loan forgiveness starkly contrasts with DeVos, who recently bashed liberal lawmakers for their debt cancellation proposals. In a Fox News appearance last week, DeVos said, “Their proposals are crazy. . . .. Who do they think is actually going to pay for these? It’s going to be two of the three Americans that aren’t going to college paying for the one out of three that do.”
Johnson praised DeVos, saying she always has students’ and taxpayers’ best interests at heart. He said she was supportive of his ideas to overhaul the federal student loan program, a project dubbed Next Generation Financial Services Environment, or NextGen. Johnson said he is proud of work he did creating a mobile app for the federal financial aid application to make it easier for students to complete the form.
Johnson also spearheaded a pilot program to manage credit balances, the money left over when a student’s financial aid award exceeds tuition and fees owed to their schools. The program disbursed the money on a debit card without fees. Consumer groups expressed concerns when First Data, which employed Johnson 25 years ago, was selected as one of three payment card providers.
Addressing the concerns, Johnson said he had no role in awarding contracts for the project. He said he intentionally created a “firewall” to avoid conflicts of interest.
The Education Department informed student aid staff of Johnson’s resignation Thursday, which wasfirst reported by the Wall Street Journal. In an office-wide email, obtained by The Washington Post, Mark A. Brown, chief operating officer in the student aid office, thanked Johnson for “candid advice, mentorship, and support.”
“We are forever grateful for Dr. Johnson’s vision specifically as it relates to the Next Generation of Federal Student Aid,” Brown said. “Our customers, students, parents, borrowers and taxpayers alike, will benefit from Dr. Johnson’s public service.”
The selection of Johnson to run the student aid office in 2017 raised eyebrows. He started his career as a financial consultant and ascended to executive positions with credit card and banking firms before starting his student loan company in 2013.
That firm, Reunion Student Loan Finance, targets the “underserved, premium quality segment of the private student loan market” to refinance debt into lower monthly payments, Johnson wrote on his résumé. Liberal lawmakers and advocacy groups were concerned Johnson had limited experience aside from his doctoral research on student debt.
House Democrats say Johnson helped facilitate Dream Center’s request for funding from an account managed by the Education Department. The money was supposed to cover losses on student loans if the company ceased to operate, but Dream Center wanted to use some of it to wind down academic programs at campuses slated to close.
In October 2018, Dream Center attorney Dennis Cariello sent an email to company executives ahead of a meeting with Johnson. Cariello wrote, in the email obtained by House Democrats, that Johnson “asked that I review the draw requests – there are a few things we can’t have in there – bonuses . . . and future rental payments.”
Cariello could not immediately be reached for comment. The New York Times first reported that email.
The Education Department released about $40 million from the account to Dream Center. House Democrats call it a waste of taxpayer funds, especially because the money could have been used to cancel student loans when the colleges abruptly closed this year.
On Thursday, Johnson said he was not aware of the committee’s request to interview him and insisted it was not his decision to release the funds.
“If I am invited to talk with them, I am willing to do so,” he said. “I was not involved in the release of any funds.”
(c) 2019, The Washington Post · Danielle Douglas-Gabriel
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