Two-Year Colleges Face Student Loan Default Challenge: Rising Rate Causing Some Community Colleges to Opt out of Student Loan System

By Dervarics, Charles | Diverse Issues in Higher Education, October 29, 2009 | Go to article overview

Two-Year Colleges Face Student Loan Default Challenge: Rising Rate Causing Some Community Colleges to Opt out of Student Loan System


Dervarics, Charles, Diverse Issues in Higher Education


Buried within the federal government's new report on student loans is a statistic causing concern for some community colleges: Loan defaults in that sector have increased to nearly 10 percent.

The official loan-default rate in the sector is 9.9 percent, up from 8.4 percent a year ago, the Department of Education reports. This rate is significantly above the nationwide default rate of 6.7 percent among all higher education institutions.

The statistics also point to a longtime dilemma facing two-year colleges: With low tuitions, few of their students typically apply for loans. But even a handful of borrowers who do not repay loans can give the college a high default rate, something that can trigger federal sanctions.

"This is one of the reasons why some community colleges have opted out of the student loan system," says Mark Kantrowitz, publisher of finaid.org, which analyzes student aid programs. He says about 200 community colleges have dropped out of loan programs, since default-related sanctions could cost their students access to need-based financial aid.

Colleges can lose access to loans as well as Pell Grants if their default rates are above 25 percent for three consecutive years.

Even with low community college tuition, students at these colleges are eligible to take out loans of more than $9,000 per year.

"Community colleges have no control over this," Kantrowitz said.

The Education Department, in releasing its report, acknowledged the unique situation of these institutions. It noted that "some schools, especially some community colleges, may have rates that seem high but that represent a very low number of students."

Nonetheless, two-year college leaders continue to seek answers. At Lincoln Land Community College in Springfield, Ill., the official default rate increased from 8.3 to 14.2 percent.

"I hope this is a fluke," said Lee Bursi, Lincoln Land's assistant vice president for financial aid. He attributed much of the increase to the depressed economy. Loan applications at the campus are up by about 50 percent, he told Diverse, and financial aid applications also have increased significantly.

The college is looking at the latest data to identify trends among specific subgroups of students, he said. Lincoln Land also may step up its one-to-one student counseling, with more frequent sessions. On whether the college would join others that have left the student loan program, Bursi said those chances were slim. "That's a pretty drastic move," he said.

A new issue brief from a California research organization echoes that view. The study from the Project on Student Debt says about 900,000 students--or one in 10 community college students--cannot get a federal student loan because their schools do not participate in loan programs.

In seven states, more than 20 percent of community college students cannot access federal loans, the new brief stated. …

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