Wednesday, September 12, 2012

Government Takeover of Student Loans Lead to Massive Fraud Increase

When a plan by President Obama to take over student loan debt failed in the Democratic controlled congress of 2009 the president would not be deterred. [1]  Taking advantage of the questionable tactics used by Democrats to pass Obamacare, the President and House Democrats snuck the government takeover into the Reconciliation Act of 2010, which passed as an amendment to Obamacare.  For the first time in history the federal government would be in charge of issuing all student loans.

On top of the government takeover, Obama dramatically expanded Pell grants.  While at first glance this program might seem to be adding relief to the already burdensome cost of a college education, it has in reality opened up the system to massive fraud.
According to Natalie Forbort, a special agent at the Office of Inspector General, "There's a growing trend in the area of identity theft related to Financial Student Aid programs."
From the OIG's management report on federal student loans:
The Federal Student Aid office lacks "sufficient capacity or resources necessary to provide effective oversight for all aspects of the student financial assistance programs, leaving programs vulnerable to waste, fraud and abuse."
Obama and the Democrats argued the government takeover of student loans would save up to $87 billion, but the opposite has been true.  In just the past couple years, student loan debt has shot up $294 billion. [2]  Even worse, default rates on student loans have reached an all-time high, eclipsing those of mortgage loans.

Speaking on the condition of anonymity, one student financial aid worker told the Kansas Citian that recent changes enacted in July have caused instances of federal student loan fraud to spike.  "Efforts to streamline the online application process for new student loans by the federal government have made fraud even easier," they said.  "In one case, more than 20 student loan applications were filed using the same physical address."

The cost of preventing student loan fraud is also being shifted away from the federal government, forcing colleges and universities to pick up the slack.  The added burden will no doubt contribute to the increasing cost of college tuition.

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