Recently, questions have been raised about a potential conflict of interest held by Betsy DeVos, President-Elect Donald Trump’s nominee for Secretary of Education. The Wall Street Journal reported recently that Betsy DeVos and her husband, Dick DeVos, have their finances managed by Windquest Group, a family office in Michigan. (The DeVos’s have an estimated net worth of about $5 billion.) Windquest Group is an investor in RPM Ventures, a venture capital firm that was also an early investor in Social Finance (SoFi).

SoFi is an online lender that operates by refinancing student loans after the students are out of school. The company is five years old and currently holds about $8 billion in refinanced student loans. SoFi offers refinancing at lower interest rates to students with higher incomes post-graduation. RPM Ventures only owns about 1% of SoFi, and its role was mainly to help the company make contact with colleges and universities in its early days. This means DeVos and her family own very little of the company. That said, this can certainly be perceived as a conflict of interest, particularly for those already skeptical of DeVos as the nominee for Secretary of Education.

Critics of DeVos have often complained about her lack of academic or professional experience in education. They also point out that she has been a longtime critic of public schools and teachers’ unions, pushing instead for school choice and voucher systems. DeVos’s own children never attended public schools and DeVos has no experience with the day-to-day operations of a school. The discovery of DeVos’s financial involvement with SoFi, while small and indirect, will undoubtedly add another layer to that criticism.

Specifically, the issue is that companies like SoFi could possibly benefit from policies passed by a Secretary of Education DeVos. DeVos has the potential to transfer control of the student loan market from the Department of Education to private companies like SoFi. The Department of Education currently manages a portfolio of $1.3 trillion in student loans, a market that only continues to grow. The move to privatize this market would present an enormous opportunity to for-profit and non-profit student lending organizations which have been critical to the government’s role in the market.

MUST READ:
The Education Market Will Face Increased Scrutiny with Proposed Regulatory Expansion

“We believe banks should play a bigger role in the federal student loan program because of the benefits private lenders bring to the table,” said Richard Hunt, president of the Consumer Bankers Association.

Opponents of privatizing student loans caution against this approach, citing practices that might have helped bring on the financial crisis. Rohit Chopra, a former representative of the Consumer Financial Protection Bureau said, “Recent history has shown how securitization led to misaligned incentives and servicing failures, which we cannot afford to repeat. Some of the most problematic practices in the student loan industry, like auto-defaults and loan modification mistakes, stemmed from the student loan securitization boom in the run-up to the financial crisis.”

Most of DeVos’s experience is in K-12 education, and she has very little ties to higher education, so her personal views on the student loan market are not well known. President-elect Trump’s own stances on student loans are also fairly murky to the public. His most recent proposals, as of October of this year, include an income-based approach, with a cap at 12.5% of a borrower’s income, with loan forgiveness after 15 years. Trump has also advocated for privatization of student loans. While DeVos’s personal views remain to be seen, her history of support for privatization of education indicates that she’d support privatization of student loans as well. Regardless of the outcome, DeVos’s involvement with SoFi has certainly raised some red flags among her critics and will continue to do so as actual policies unfold.