News: CJ Exclusives

Loan Default Rate Causes Colleges To Drop Program

Advocates urging greater reliance by community college students on federal loans

Not all students can obtain federal loans for college because some community colleges do not participate in the federal lending program.

In North Carolina, according to the North Carolina Community College System office, only 18 of the 58 member schools will participate in the loan program this fall, down from 21 in 2009.

A national group, The Institute for College Access & Success, issued a report in July, through its Project on Student Debt, criticizing the policy allowing community colleges to deny loans to students.

In “At What Cost? How Community Colleges That Do Not Offer Federal Loans Put Students at Risk,” researchers Debbie Cochrane and Laura Szabo-Kubitz write that colleges “do their students a great disservice by opting out of the federal student loan program.” It highlights North Carolina as one of the worst offenders, along with California and Georgia.

TICAS, based in Oakland, Calif., is a nonprofit that focuses on college financial aid and affordability. Best known for the Project on Student Debt, its tally of rising student loans, TICAS developed the model for the now-established policy of income-based repayment of federal loans. TICAS also lobbied the North Carolina General Assembly heavily during the 2009-10 session, resulting in the state mandate that community colleges offer federal loans. Subsequently, however, the General Assembly repealed the law.

Colleges are choosing to drop federal loans because the U.S. Department of Education is tightening the screws on colleges that produce too many students who default on their loans after finishing or dropping their studies.
Schools that have so-called “cohort default rates” of 30 percent or higher for three consecutive years not only lose the privilege of offering federal loans, but also lose access to Pell grants.

This is the first year that the federal government will mete out sanctions based on a three-year default window, which was extended from two years. Since defaults increase in the years following college, the previous requirement was not that severe. Now it will be.

In North Carolina, two of the most recent institutions to bow out of the program are Johnston Community College in Smithfield and Central Piedmont Community College in Charlotte — one of the state’s largest community colleges. About 60 percent of the students at Central Piedmont and Johnston receive Pell grants. Only about 11 percent of students at Central Piedmont take out federal loans, and the figure is 22 percent at Johnston. (Nationwide, according to TICAS, 17 percent of community college students borrow.)

Tony Zeiss, Central Piedmont’s president, said in an interview with the Pope Center that the school did not participate in the loan program for 12 years before the state mandate, and did so in 2010 only because of the mandate.

“First of all, in most cases, it’s not good for students,” he said. Zeiss said the effect on Pell grants was critical: “In your effort to help some students, you cannot jeopardize a much larger group of students.”

Zeiss added that the program is not good for the college either, costing it between $500,000 and $600,000 each academic year to participate.

Once a North Carolina community college has opted out of federal loans, it is difficult to rejoin the federal loan program. If a board of trustees votes to opt back in to the program, the school may not opt out again.

“At What Cost?” calls for some reform at the college level, but most of its recommendations are for federal policy change in the arena of community college lending. Specifically, it calls for policy changes that will encourage more use of the federal loan program — and less reliance on other options to pay for college.

Harry Painter is a reporter for the John W. Pope Center for Higher Education Policy.