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.
In the State of the Union speech, President Obama promised to control college costs and provide a College Scorecard to help students and parents compare costs, graduation rates and loan repayments for any college or university. Some of the data is old and most has been available from other sources, reports the New York Times.
Further, the information is presented as averages and medians that might have little relevance to individual families. The scorecard does connect to each institution’s net price calculator, which allows individualized cost estimates, but it does not provide side-by-side comparisons of multiple schools, as other government sites do.
Meanwhile the Gates Foundation’s Reimagining Aid Design and Delivery project is generating more ideas.
In Aligning the Means and the Ends, The Institute for College Access & Success calls for doubling the maximum Pell Grant and giving students 7 1/2 years to complete a degree. Colleges should be rewarded for serving low-income students, TICAS urges. In addition, the white paper recommends:
• Use IRS data to simplify financial aid applications
• Combine income-based loan repayment programs into one plan that assures borrowers of manageable payments and forgiveness after 20 years.
• Eliminate higher education tax benefits and use the savings for Pell Grants and incentives for states and colleges to educate low-income students.
“For students who are willing to study, work, or serve their communities, the federal and state governments, along with their institutions, should make sure they can afford to go to college without the fear of crushing student loan debt,” argues the Education Trust in Doing Away With Debt. the Education Trust.
By taking the federal resources we already spend on higher education and focusing them like a laser on reducing college costs for families with incomes below $115,000 a year (the bottom 80 percent) — providing debt-free education to those below $50,000 (the bottom 40 percent) and no-interest loans with income-based repayment to the rest — we can do much to solve this critical problem without adding to the overall cost of federal student aid.
National Association of Student Financial Aid Administrators’ policy brief discusses reforming student loans, improving consumer information, “rethinking entitlement and professional judgment and ensuring that colleges and students have “skin in the game.”
“A small but growing number of California community colleges have stopped participating in the federal loan program … out of fear that rising student loan default rates could lead to sanctions,” reports California Watch.
Some 16 colleges have stopped disbursing the loans, and at least one more school – Bakersfield College – is considering ending its participation in the program.
. . . College officials say they stopped participating in federal loans because they were worried that an increase in student loan defaults would jeopardize their ability to offer federal grants. Colleges where students default on federal loans at high rates for several years in a row stand to lose eligibility for federal grants under sanctions issued by the U.S. Department of Education.
Community colleges are unlikely to face sanctions, argues The Institute for College Access and Success. Without access to federal loans, students may take out high-priced private loans with less flexible repayment terms.
Some California community colleges are using innovative strategies to promote “responsible use of federal student loans,” reports Making Loans Work by The Institute for College Access and Success and the California Community Colleges Student Financial Aid Administrators Association.
While most community college students do not borrow, “federal student loans are an essential source of aid for those who do need to borrow to get through school,” the report notes.
Among ideas for encouraging responsible borrowing:
Some colleges, including Santa Rosa Junior College, use worksheets to help students plan and budget for their education. This can substitute for in-person counseling at colleges with limited staff time, as well as help flag students who need additional guidance. Santa Rosa also holds regular “Workshops for Responsible Borrowing” throughout the semester.
Santa Barbara City College offers in-person counseling to every borrower, every year the student borrows. The meetings cover budgets, borrowing history, and academic progress and plans.
Long Beach City College and City College of San Francisco assign academic counselors to the financial aid office, to help make important connections between academic concerns and financial concerns.
To make sure they have a clear education plan, student borrowers at Antelope Valley College who have taken 70 units must see a counselor and submit an explanation of their plan for finishing their degree or transferring. Mendocino College does the same at 60 units.
Several colleges use automated systems to flag students who may be in danger of borrowing too much or defaulting on their loans and ensure they get help to stay on track.
California Gov. Jerry Brown wants to raise the minimum grade point average to qualify for state-funded student aid, directing scarce resources to students who are the most likely to graduate. However, the state’s Legislative Analyst believes the change will hurt the neediest students.
The governor would raise the minimum GPA from 3.0 to 3.25 to qualify for Cal Grant A, which covers tuition. Students would need a 2.75 GPA, up from 2.0, to qualify for Cal Grant B, which gives low-income students $1,551 for books, living expenses and tuition assistance. Community college students often use Cal Grant B. In addition, community college transfers would need a 2.75, up from 2.4, to apply for Cal Grants.
More than a third of current Cal Grant recipients would be locked out, predicts The Institute for College Access and Success.
These are students who have worked hard and earned the grades that the state has long promised entitled them to participate in California’s primary student aid program. These are also the students, research shows, for whom financial aid may make the biggest difference in terms of helping them persist and succeed in college. As they finally reach the point where they are ready to go to college, many will find their dreams shattered.
Three out of four applicants cut out would be prospective Cal Grant B students, who on average have family incomes well below the poverty line. And the majority of these students go to community colleges, where students receive too little aid and are already less likely to receive state grants.
The legislative analyst’s report recommended a smaller increase in the GPA requirement. The report also said Gov. Brown is underestimating the cost of Cal Grants in the proposed budget.