Broken Student Loan Bureaucracy Costing Young Adults Thousands

Obama’s attempt to woo college students is akin to a carefully orchestrated magic trick. While Obama has his captive audience watching his right hand attempt to keep student loan rates low, the left is hiding the utterly dismal economic state that young adults are graduating into.

But what if the deception is even cleverer than that?

Student loan rates are no doubt a problem. The economy is still puttering along aimlessly with no real improvement in sight. Given the awful state of things it makes little sense to double the interest rates young graduates are forced to pay. Such a move would only hasten defaults, put young adults in an even more perilous financial position, and add insult to injury to a demographic that has endured the brunt of the Obama economy.

But student debt isn’t the only problem. Glenn Harlan Reynolds explains,

“The country has a serious student-debt problem, and also a student-loan problem. But they’re two different things.

The student-debt problem is that too many students are borrowing too much money to finance educations that won’t earn them enough to repay the loans. This leads to misery.

In fact, another Obama policy is adding to the woes. Back when Democrats ran Congress, the president engineered a federal takeover of student-loan processing. Now the Chronicle of Higher Education reports that this is producing huge paperwork screwups that have thrown thousands of borrowers into default, more than doubling the number of defaulters since December.”

“There are still many, many serious operational issues with the Department of Ed,” Adam Minsky, an attorney who focused in student loan law told the Chronicle of Higher Education. Among the problems listed in the story are low-income borrowers being kicked out of the income-based repayment plan and being unable to get back in.

The problem is especially acute among those who use direct deposit to ensure timely payment of their loans every month. Many of these borrowers woke up with as much as $1,900 gone – a huge sum for recent graduates with little in the way of savings.

Other young borrowers are having trouble restoring their loans to good standing despite a federal law that allows borrowers who “rehabilitate their loans” to have their credit histories cleared. As a result of the federal computer glitch young adults are having their wages garnished and their credit scores sullied. It’s a process that carries not only a heavy economic toll, but an emotional one as well.

These glitches aren’t new. The Department of Education’s online debt management system has suffered a number of problems since December. Despite their huge impact on young adults, they still haven’t been fixed. The best the federal government can do is say that it will be resolved at some point in 2012, perhaps in May.

But even this isn’t an isolated incident. Student Loan Borrower Assistance has been tracking a number of issues, including allowing qualified borrowers coming out of default to use the income based repayment plan, for more than a year now.

In an attempt to get to the bottom of the issue Congressional Republicans wrote a letter asking the Government Accountability Office to look into the Direct Loan Program. “It is important for us to understand challenges with the Direct Loan program. Bureaucratic problems within the department that are creating additional issues for borrowers could have serious implications not only for the Direct Loan program, but also for the financial stability of all student borrowers,” said the letter.

Each of these problems was completely predictable as soon as Obama’s White House expressed its intention to completely federalize the student loan process in America. Now, Washington is responsible for not only originating, but overseeing every higher education loan made in this country.

But if Washington has proven anything in recent history it is how ill equipped it is to handle these sorts of ventures. Its giant bureaucracy impedes progress, stifles innovation, and magnifies problems. It’s lack of a profit motive and elimination of any semblance of combination removes any incentive to actually provide a good service.

The result, as we have seen is an utter disaster for young adults. Of course, don’t expect to hear too much about it from our panderer in chief.