UK Student Loan Fiasco Foreshadows Future Woes in US Plan

Posted by College Spot in College Finance

President Obama’s Student Aid and Fiscal Responsibility Act, which would force students to obtain their college loans directly from the federal government, is not an unprecedented consolidation of the student loan industry. In fact, across the Atlantic in the United Kingdom, students must now utilize a centralized authority for their student loan needs. This authority, the Student Loans Company (SLC), has been designated by the government as the sole provider of student loans in the U.K. In its first year, the SLC has already so muddled the process that much of the angered public has called for the resignation, or firing, of its head official. The outrage comes on the heel of reports that more than 100,000 students in the U.K. are still awaiting their first loan payment, months after the start of term. The SLC has found many scapegoats for the delays, including a record rise in loan applications, the recession, and even the transfer of the student loan administration from the various smaller local authorities to the SLC. Due to this consolidation from the numerous local authorities all previously entrusted with the disbursement of loan monies, the students of the U.K. now have only one option and no means of recourse should the SLC’s service fall below their personal needs or expectations. This tragic bureaucratic failure, which threatens the future livelihood and success of college-age students in the U.K., should serve as a grave warning to U.S. lawmakers regarding the probable outcome and very real danger posed by the imminent government takeover of student loan lending. It also should mobilize the U.S. public against this misguided act of the federal government.

Should this unproven centralization of student loan lending be enacted in the United States, we risk the complete collapse of the student loan system in this country. This is supported by the fact that the SLC is already in need of a complete overhaul, despite this being only its first year in effect in the U.K. The government has no justification for being entrenched in private banking, and it clearly lacks the business knowledge necessary to develop the proper student loan lending needed by student consumers. Despite the criticisms, ministers in the U.K. created an over-complicated system, failing to tackle problems inherent in the offering of varied student loan options. These issues are not uncommon, and should have been anticipated in order to avoid catastrophe. Adding to the disarray, the new system of loan applications is fraught with technical problems. The U.K.’s centralized student loan lender was quickly overwhelmed with these problems and others, struggling to cope with the increased demand.

The results of the SLC’s mismanagement are shocking, not to mention discouraging. The figures directly from the SLC reveal that 31,000 applications are still being processed, 39,000 are awaiting additional information from applicants, and 39,000 have been given only interim payments while still awaiting full payment. And these numbers are a probable attempt at sugar-coating by the SLC. In fact, various U.K. news organizations estimate that some 146,000 students are still waiting for first payment on their loans. Frequent complaints range from delays in processing applications and losses of documentation to difficulties contacting advisors via the SLC’s help line. Spread so thin that there are no advisors to guide students through the often perplexing and complicated student loan process, many student applicants are simply unaware that their applications are incomplete or that they have failed to fulfill their various obligations. Unfortunately, the SLC has little impetus to remedy the complaints surrounding its customer service; it is lacking the competition that could drive customers elsewhere due to dissatisfaction, as is prevalent in most industries functioning in a capitalist society. The resultant turmoil has forced many students to withdraw their student loan applications. Many have concluded that they must drop out or defer enrollment due to the significant delays in their loan payments. This has been particularly true with regards to non-traditional students, statistically the most likely to drop out because of these significantly heightened financial concerns. Universities have attempted to help these unfortunate students by providing hardship loans so they may start their term; however, many schools are now running out of funds to provide to those still waiting on the SLC. Furthermore, many students need to pay for private living expenses, unaffiliated with the university and generally much less forgiving of financial hardships caused by the SLC. In this chaos, many have begun to use additional credit cards, borrow from friends and loved ones, and take on additional employment in order to pay for their enrollment fees and costs left unpaid by the inept SLC. Students have also begun applying for emergency maintenance payments in droves so that they may still attend their courses. However, issues obtaining these loans abound as well, since emergency maintenance grants also fall under the SLC management umbrella.

Students and families are the innocent victims of this government mismanagement. Left worried, upset, and frustrated by the inexperienced and neglectful customer service provided by the SLC, students and their families have become undeserving casualties. Instead of focusing on their studies, these students have had to handle intense stress due to the failure of the SLC to fund their education. The SLC alone cannot be blamed for this student loan fiasco. It was the government’s underlying fundamental lack of understanding with regards to the student loan industry, and its arrogant and stubborn refusal to rely on business minds who do, that instigated this coalescence of student loans into one impractical center. Despite the quite notable differences in the governments of the U.K. and the U.S., the U.K.’s SLC clearly resembles the Student Aid and Fiscal Responsibility Act now in front of the Senate. Should the U.S. government continue to ignore the realities and demands of the student loan industry, along with the needs of the student consumer, this country is destined to repeat the very preventable chaos seen in the United Kingdom. And like the United Kingdom, we will soon have throngs of very capable, qualified students, who are ready and eager to learn, finding themselves unable to do so due to bureaucratic failures, indifference, ineptitudes, and technicalities.