Community College Students Denied Access to Affordable Loans
If you need a loan for college, there is no question that federal loans are the way to go. The interest rates are low and fixed, fees are small and the government pays the interest for students while they are still in school and sometimes even after graduation if they become unemployed or face other economic hardships. Federal student loans are offered to all students, regardless of background, class or credit history. So it was a surprise to find out that some community college students cannot get any form of federal loans. Instead they are forced to go with more expensive private loans or find other alternatives to pay for their education.
While almost all four-year colleges and universities in the country participate in the federal loan program, a large number of community colleges do not. The students who attend these community college cannot get a federal student loan. As a result they are forced to resort to credit cards and costly private loans to fill the gaps in their finances.
So what’s the reason for not supporting federal loans? As summed up in an issue brief from The Project on Student Debt, colleges sometimes think that students should not borrow for a community college education to prevent student debt from ballooning for individuals. As the brief also points out, this is not realistic when students must still cope with the ever-growing costs of tuition and other costs. Even a bigger slap in the face is when colleges try to guide students to other, riskier borrowing options like private student loans.
The other reason, and maybe the best reason, that community colleges stay out of the federal loan program is to avoid the slim possibility of being sanctioned by the government if a high percentage of the student population were to default on their loans. For the colleges, this means losing the ability to disburse grant aid as well as loans. Colleges with default rates above 25% for three straight years lose the ability to disburse federal Pell Grants. Pell Grants are the largest source of grant aid to students. If the default rate is above 40% for one year, they lose the ability to disburse federal loans but are still able to give out Pell Grants.
But The Project on Student Debt did the research and they found that recently only one community college had a default rate over 25 percent, but had a much lower rate the previous year.
…most community colleges with previously high default rates have managed to lower them using [...] targeted approaches. In 1990, there were 252 community colleges with default rates of 20 percent or more. Some left the federal loan program, but 80 percent stayed and remain current participants.
Instead of shutting students out of useful federal student loans and potentially driving them deeper into debt via alternative loans colleges should provide default management plans. This guidance combined with repayment options, can make federal loans safe for both schools and students.
If you’d like to learn more about this subject, read the full report, Denied: Community College Students Lack Access to Affordable Loans.
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