When students default, colleges pay

If too many students default on their loans, colleges risk losing access to federal student aid, writes Heather Boerner in Community College Journal.  As open-access institutions, community colleges enroll many low-income, first-generation and underprepared students.  So community colleges are developing default management plans.

If students can’t get Pell Grants, “You might as well close your doors,” says Anthony Zeiss, president of Central Piedmont Community College (CPCC) in North Carolina.

Kathy Blau, director of financial aid at Garden City Community College (GCCC) in Kansas, starts the year with a game of financial Jeopardy. Students know Justin Beiber’s ex-girlfriend, but not their credit score, she says. Then she asks how student loan debt can be discharged.

Bankruptcy? Nope. Only permanent disability, death or loan forgiveness through public service apply. And if you don’t pay, the government can garnish your wages.

“That usually hushes the room a little,” she says.

Only about 17 percent of community college students borrow money to attend college, but they’re more likely to default than borrowers who start at four-year colleges and universities. Twenty percent of community college borrowers default estimates the Education Department, compared with 14.7 percent of all student loan borrowers, and that number is rising.

Default isn’t the only problem, says Zeiss at CPCC. “If a student leaves before the end of the semester, the college has to reimburse the Department of Education for the loan.”

CPCC and other North Carolina colleges left the federal Direct Loan program in March to avoid federal penalties for defaults. CPCC hopes to replace federal loans with grants from its foundation’s endowment fund.

“Default rates aren’t destiny,” says Debbie Cochrane, research director at The Institute for College Access and Success (TICAS). “There’s a lot you can do to bring them down.” A new report by the Association of Community College Trustees and TICAS, Protecting Colleges and Students, looks at how nine colleges are reducing defaults.


POSTED BY Joanne Jacobs ON August 26, 2014

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[…] If too many students default on their loans, colleges risk losing access to federal student aid. That’s motivated community colleges to develop default management plans. But denying federal loans to high-risk students isn’t an option. […]

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