Why an FBI probe of his wife could undermine Bernie Sanders' political clout

• Bernie Sanders' wife is reportedly a key part of an FBI investigation.
• Jane O'Meara Sanders' conduct while president of a Vermont college is in question.
• The potential scandal could destroy Bernie's progressive leadership role.

T.J. Kirkpatrick | Bloomberg | Getty Images

Jane Sanders, wife of Vermont Senator and 2016 Democratic presidential candidate Bernie Sanders.

There's a big story going on right now involving the FBI, the White House, and potential criminal activity.

And no, this one has nothing to do with President Donald Trump's firing James Comey. Rather, the story has the chance to be just as politically damaging as the messy ouster of the former FBI director, even though you probably haven't heard a whisper of it in the mainstream media.

Here are some of the particulars:

1. A year ago, Vermont's Burlington College was forced to shut its doors after finding itself unable to meet the obligations of a big loan it took out to fund a campus expansion.
2. Much of that debt was incurred during the tenure of then-president Jane O'Meara Sanders, the wife of none other than former Democratic presidential candidate Bernie Sanders, Vermont's senator and a progressive icon.
3. This month, Burlington's board of trustees president confirmed to the Burlington Free Press that the Department of Justice and FBI have been looking into the entire loan approval process for more than a year, amid allegations of fraud.

Intrigued yet?

A key focus of the investigation, according to extensive reporting by the Vermont Journalism Trust's VTDigger, is the question of whether Jane Sanders and Burlington College deliberately gave misleading information about how much donor money was coming in to the institution. Now that some of the people on the donor list have reportedly been interviewed by the FBI, that question could be answered very soon.

Right now, no one knows for certain whether a crime was committed, and it bears mentioning that Senator Sanders, in an interview with a local TV station, recently denounced some of the allegations at the center of the affair as politically motivated. Since the matter is still under investigation, I will leave the legal ramifications to the justice system.

But what can and should be discussed is what this could mean for Bernie Sanders' political career, the progressive movement in general, and the boiling issue of higher education costs in America.

For the senator, all of these issues mesh together. Sanders had been a career backbencher and kind of an oddity in Washington for three decades before his stunning near miss in the 2016 Democratic Party presidential primary. At 75 years old, he's not expected to run for president again in 2020. Still, he's evolved into an influential leader in the Democratic Party, even as he self-identified as an independent while publicly declaring an affinity for Socialism. His leadership of the progressive forces in America is virtually unchallenged, with the possible exception of fellow New Englander Sen. Elizabeth Warren, D-Mass.

Burlington College's woes cut right to the heart of the politically charged issue of education costs. Guess what Sanders' main policy goal has been since the election ended? Answer: Free college.

Sanders even introduced legislation last month that would make tuition free for all in-state students at community colleges, as well as those at four-year public colleges whose families earn less than $125,000 a year. This would be no small thing: According to the College Board, the average cost of tuition and fees for the 2016–2017 school year was $33,480 at private colleges, $9,650 for state residents at public colleges, and $24,930 for out-of-state residents attending public colleges. Tuition continues to rise faster than the rate of inflation, but institutions often hike fees or the cost of living in dormitories, even as they say tuition rates are officially "frozen."

The problem with tuition inflation and college bureaucrats

It's a quirk of American economics that while people usually complain directly about drug companies when prescription medication prices rise, or bash oil companies when gas prices go up, you rarely hear anyone railing against the colleges themselves — even as their prices soar well past anything we've ever seen at the drug store or the gas station.

Much of that is probably because we simply don't see colleges as for-profit enterprises. They even have a non-profit/tax-free status to prove it. Legal designations aside, it's hard to ignore the massive cash-grabbing factories most higher education institutions have become, and they often use their profits to pay large salaries to their executives. It's also triggered an explosion in the population of college administrators and other institutional leaders making big salaries.

And that brings us back to Jane O'Meara Sanders and her conduct at Burlington College. In addition to being a well-paid administrator herself, (her salary at the tiny college was $160,000 per year with a $200,000 severance when she left in 2011), Sanders was leading an effort for a major physical expansion at Burlington. Campus expansions and other improvements are also a major trend that so many colleges have latched on to in recent decades, as opposed to using added resources to keep tuition prices down or focus on academic quality.

Burlington's failure came when it couldn't pay the loans it took out to cover just such a major expansion. Now, the FBI is looking into whether those loans were acquired fraudulently in the first place.

All of this looks bad at the same time that colleges continue to claim some degree of poverty, and a general inability to control tuition costs. They routinely blame supposed cuts in state funding and the need to "compete" with other institutions for technological capital.

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Homeland Security Secretary Janet Napolitano

Sometimes, however, they hide the money. Last month, news surfaced that University of California system President Janet Napolitano failed to disclose $175 million of the school's reserve funds, even as she lobbied for tuition increases. For the record, Napolitano and others insist that audit was politically motivated and not entirely accurate. Nonetheless, Gov. Jerry Brown (a fellow Democrat) decided to withhold $50 million in funding from the U.C. system.

With that in mind, it looks bad when overinflated tuition costs evoke a response from people like Sen. Sanders, who expects taxpayers to subsidize them. It's also a potentially mortal blow to Sanders' moral authority on progressive issues if his own wife ends up being targeted by the FBI for acting like one of the rogue Wall Street executives he's railed against for years. It's important to note that much of these perception issues remain, even if Mrs. Sanders is not found criminally liable. One thing that is not in dispute is that she oversaw the (overly) ambitious expansion of a college that does not seem to have had sufficient capital to make those kinds of gambles. Is this what we want colleges focusing their efforts on when tuition costs are so high?

There's nothing progressive about that. In fact, the sad story of Burlington College's collapse should serve as a powerful educational tool to all of us about how "non-profit" institutions can be at least as greedy as any private corporation or hedge fund. The difference is that we don't have to invest in hedge funds, while most of us feel compelled to send our children to college regardless of the cost.

Instead of championing a push for those colleges to get their priorities straight and make college more affordable on their own, the senator wants the government to pay their bills. Now that his wife is known to be a part of that cost-inflation process, he may lose the chance to do the right thing on this issue for good.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

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