Roughly 10 percent of community college students can’t access federal student loans because the colleges they attend don’t participate in federal loan programs, cutting the students off from the “safest, most affordable way to borrow for college,” according to a new issue brief from the Project On Student Debt, an initiative of The Institute for College Access and Success.
“When family income, savings, grants, and work-study are not enough to cover college costs, loans can help to bridge the gap,” states the brief, Getting with the Program:
“Yet roughly 900,000 students at community colleges in 31 states – nearly one in 10 students in this sector – are blocked from the best loan options because their schools choose not to participate in the federal loan programs.”
The reason for the college’s nonparticipation, according to the brief, is because community colleges fear students may default on their loans. If that happens too often, the colleges could face sanctions under federal legislation passed in the 1990s after default rates on federal student loans “skyrocketed” to 22 percent.
“Although current default rates are far below the previous highs and no college has lost access to grant aid in years, the fear of being penalized remains,” the brief states.
High default rates can also hurt a school’s reputation, it states.
“Every year the Department [of Education] publishes a list of cohort default rates by school, and colleges with high or rising rates can be targeted by local media and college administrators,” the brief states. “While default rates merit public examination, they can appear deceptively high at community colleges where very few students borrow or only a small percentage of eligible borrowers take out loans.” But the colleges have no reason to fear, according to the brief.
“We have examined institutional cohort default rates, sanction regulations, and appeal options in detail, and no community college is at risk of being sanctioned based on 2007 rates,” the brief states. Among other things, the brief advises colleges that don’t participate in federal student loan programs to reconsider.
“The best way for a college to protect its students is to provide federal loans along with appropriate counseling and advising to ensure that students borrow responsibly and only when necessary,” the brief states.