SWAT Team Update: It Was Student Loan Fraud

In 2010, the Washington Post ran a piece about the U.S. Department of Education being in the market for 27 shotguns.

Those curious about what the Department of Education could be doing with those shotguns got an illustrated answer yesterday when this story ran: a Stockton, Calif., man was pulled out of his house by a SWAT team based on a warrant signed by the Department of Education’s Office of the Inspector General.

Initial reports suggested the SWAT team was pursuing unpaid student loans left by Kenneth Wright’s estranged wife Michelle — an allegation that made little sense to us at insideARM at the time. However, Wright, the gentlemen on the wrong end of a knee-to-the-back, gave a heart-felt plea to other student loan holders as part of a television news piece, reminding them that student loans are no laughing matter, and need to be repaid.

The problem, of course, is that it turns out this wasn’t so much a defaulted-student-loan story; it was a financial-fraud-using-student-loans story.

Walter Steele, a commentor on yesterday’s insideARM.com piece, called it: “Based on my long standing experience in the student loan industry and the extreme measures that were taken by the US Department of Education in this instance, I would have to guess (and that is exactly what it is, a guess based on this story) that this was the culmination of an extensive investigation into a student loan fraud ring. Student loan fraud rings cost the industry hundreds of millions of dollars every year and are investigated by not only the originating entity but also the US Department of Justice and the FBI.”

In an update, it’s revealed that the Department of Education was interested in Kenneth Wright’s estranged wife not because of late student loans, but because of allegations of student loan fraud.

Justin Hamilton of the Department of Education was very careful to correct any mistaken perceptions about the nature of the raid: “The Inspector General’s office does not execute search warrants for late loan payments.”

For the collections industry in particular, this correction is important. It’s too easy for an incorrect story about alleged SWAT-team-led collection methods to lodge in the minds of those already unfairly critical of the industry. The conversation we should be having with consumers is about managing finances and controlling debt; it should not have to be about correcting false stories that paint the industry in a negative light.

What happens next to Michelle and Kenneth Wright is uncertain. The Department of Education’s investigation is ongoing, so there’s little beyond “Yep: this is a fraud case” that they can reveal. As we learn more we’ll share it with you.