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Editor’s note: This is an excerpt from an article in the February/March edition of the Community College Journal, the bimonthly magazine of the American Association of Community Colleges.
Community college students have traditionally been less likely to take out student loans than their counterparts in other sectors, largely due to lower tuition costs. However, the number of students who attend two-year institutions receiving financial aid has increased from 61 percent in 2006–07 to 74 percent in 2010–11, according to the National Center for Education Statistics (NCES). On average, students at two-year public institutions who received student loans in 2010–11 were awarded $4,800, NCES data show.
Not only are community college students borrowing more money, community colleges now have the largest two-year cohort default rates (CDR) of any higher education sector, according to recent U.S. Department of Education data. The two-year community college CDR was 15 percent for the FY 2011 cohort, and the three-year community college CDR was nearly 21 percent for the FY 2010 cohort.
But if community college students still borrow less than their counterparts at four-year institutions, why are they increasingly defaulting at such high rates? And why is borrowing increasing, especially when tuition and fee amounts are relatively low compared to other institutions?
The answer is probably more complicated than a lot of people realize. Many community college students transfer in from other institutions where they have already accumulated large amounts of student loan debt, explains Joan Zanders, director of student financial aid and support services at Northern Virginia Community College, which serves more than 75,000 students.
The current CDR calculation makes it impossible to differentiate between the total amount a student borrows over the course of a college career and the specific amount borrowed while attending community college, Zanders says. If the student’s last place of college attendance was the community college, the student is automatically made a part of that cohort.
Laurie Wolf, executive dean of student services at the 23,000-student Des Moines Area Community College in Iowa, has seen similar situations at her institution, adding that some students have no choice but to take out loans for certificates and degrees in fields with low salaries, such as day care.
AACC: Federal student loan cohort default rates and related issues
“They are already underwater before they get started,” Wolf says of these students.
“The slump in the economy the last few years has forced students to borrowing more,” says Lisa Hopper, director of financial aid at National Park Community College in Hot Springs, Ark., which has an annual enrollment of 3,000. “Student loan interest rates for the most part have remained lower than the rates on credit cards and thus are a better choice for a student who has to borrow.”
The poor economy also has played a role in default increases, says Pat Hurley, associate dean of student financial aid services at Glendale Community College in California, which serves 21,000 students. At first, students “were borrowing to supplement income loss, but now they’ve found out about loans as an easy source of money,” she says.
Of great concern to Hurley and her staff: The loans students are taking out these days are almost entirely to help pay for living expenses.
In addition to over-borrowing, the high percentage of students who attend community colleges but leave before completing their degrees is contributing to the burgeoning default rates, experts say.
“Over half of the defaulters at our small, rural, community college are students who either officially or unofficially withdraw from courses, due to family health issues, financial reasons, childcare, marital issues, or just the fact that they are ill-prepared for college academically,” says Hopper.
An NCES report released in April 2013 found that in 2009, 46 percent of beginning community college students did not complete a degree or certificate and were not enrolled six years after starting. The federal student loan borrowing rate among noncompleters at community colleges was 25 percent, and 7 percent of noncompleters at community colleges had cumulative federal debt that equaled or was greater than 100 percent of their annual income.
Colleges help students avoid default
Hurley says that, in many cases, students already considered at-risk end up dropping out of school while earning wages that are insufficient to pay their debts, which results in defaulted student loans.
“For the student, there’s no way to get out from underneath the loan,” Hurley explains. “It’s not like other debt that they can go into bankruptcy on. So they always have it.”
The bigger issue, she says, occurs once a student enters into default because their loans continue to accrue interest while in default, further increasing the amount they owe.
Currently, financial aid administrators are not empowered to alleviate the situation because federal student loan regulations require that schools award students the full amount for which they are eligible, regardless of whether they need that much money for their academic expenses.
In 2013, the National Association of Student Financial Aid Administrators (NASFAA) convened task forces to look at student indebtedness and the reauthorization of the Higher Education Act (HEA). The task force released a number of proposals that addressed issues specific to community college students.
Nearly 60 percent of two-year students get financial aid
Wolf, Hurley and Zanders, who sat on the task forces, and Hopper, who serves as a regional representative on NASFAA’s board of directors, agree that financial aid administrators need more flexibility to counsel students on their borrowing decisions — as well as the authority to potentially set limits on borrowing. Currently, financial aid administrators do not have the authority to limit loan amounts.
The NASFAA task forces recommended that financial aid administrators be given institutional authority to limit loan amounts in certain scenarios, such as allowing part-time students to only take half the annual loan amount.
In addition, the HEA Reauthorization Task Force recommended reinstating a variation of the year-round Pell Grant program, which would give students more flexibility and control over how and when they access their financial resources and hopefully reduce the amount of loans.
Other recommendations include stepped aggregate limits so that a lower limit applies to undergraduate students who have not yet successfully completed the second year of an undergraduate program, reviewing the effectiveness of current consumer requirements, and simplifying the Return of Title IV Funds calculation and process.
Hackett is an editor at the National Association of Student Financial Aid Administrators.
Copyright ©2014 American Association of Community Colleges