The Project on Student Debt
Federal student loans provide the most affordable and safest option for students, however, many community colleges to not provide access to these loans leaving their students at the mercy of more dangerous, less reliable funding options.
Nationally, 9 percent of community college students lack access to federal loans at the more that 1,100 community colleges in the U.S. In Virginia, that number is 46.2 percent for students studying at community institutions, and 48.7 percent in Maryland. However, access can vary greatly by race and ethnicity. African-American and Native American students are less likely to have access. Sixteen percent of African-American students and 18 percent of Native American students do not have access to the loans.
Community colleges opt out of providing federal loans for a variety of reasons. One of these is they are afraid that if enough of their students default, they will get a poor “cohort default rate” (CDR) and lose their Pell Grant eligibility that both students and colleges rely on to cover costs. The CDR measures how many of a school’s federal loan borrowers default on loans within two years of entering payment. Those that have CDR’s above 25 percent for three consecutive years lose the ability to disburse federal loans and federal Pell Grants.
However, according to this study, entitled “Still Denied: How Community Colleges Shortchange Students by Not Offering Federal Loans,” no community college has been sanctioned in recent years, and hardly any will be at risk in the near future. Also, other colleges have been able to implement successful strategies such as financial counseling to ensure that their students borrow wisely and understand their obligations and options once they enter repayment.
In addition, sanctions given based on CDR can be appealed in cases where borrowing rates are low and may not actually be indicative of the quality of the institution or the student outcomes, which is often the case for community institutions.
Another reason colleges opt out is they believe that their students have no need to borrow money and may borrow unnecessarily. Community colleges in particular can be prone to this belief since their tuition and fees are typically below that of a four-year institution. However, other costs such as books, transportation and living costs are comparable among all types of colleges.
According to the study, unnecessary borrowing is not a problem for community colleges students nationally. Only 13 percent borrowed at all in 2007-08, and fewer than 3 percent borrowed the maximum amount. Financial aid offices can also help to prevent unnecessary borrowing with outreach programs and providing education on the benefits and risks of borrowing.
A list of all non-participating colleges can be found here: http://projectonstudentdebt.org/wp-content/uploads/sites/13/pub//CC_participation_status_2010-11.pdf.