Obama Administration Proposes Relief for Community Colleges in Default
Posted By Eliana Osborn on May 14, 2015 at 10:48 am
Colleges are measured in a number of ways, including their default rate – the percentage of students who fail to pay back their federal student loans. We’re talking about serious money: the nationwide college loan debt topped $1 trillion in federal funds as of 2013. And if the default rate at a college gets too high, they become ineligible for federal aid. That means not just loans but also Pell grants are no longer available to students at that institution.
Currently, sanctions kick in when a college has a 30% default rate for three years. Sanctions can also appear if the default rate hits 40% for just one year. Colleges can appeal after two years at the 30% rate, if less than 20% of students at the institution are using federal aid.
Proposed changes to default procedures
Recently proposed changes to default procedures will make it easier for community colleges to appeal, rather than having to wait several years wondering if they are in danger. According to Inside Higher Ed, “colleges would be allowed to appeal their default rate based on a low rate of loan borrowing any year in which their default rate is 30% or greater.” By calculating how many students actually have federal aid, along with the overall default statistic, more accurate information is available more quickly.
Issues with for-profit colleges have also drawn attention to higher education finances, leading to a 2014 change in how default rates are measured. These three year averages, instead of two year measures, show higher default rates across all types of colleges.
The effect on community colleges
High defaults are an issue for very few institutions nationwide: just 218 total last year. Generally, community colleges have had low numbers of students using federal aid. The number of community college borrowers continues to increase, though, and this group has the highest default rate.
Many involved in community college note that such schools are very susceptible to economic issues, as students are often working as well as attending classes. These students are also often studying for jobs that don’t have high wages; it is much harder to pay off loans for a certificate program than a full degree.
Though colleges are rightly worried about becoming ineligible for federal funds, there have been benefits to the increased scrutiny of college spending. Institutions are doing more to counsel students about debt and prevent default in the first place.
Easier, quicker appeals will benefit community colleges as they work to balance tight budgets and prepare for the future. If such schools cannot be accessed by students relying on federal aid, individuals are left with few options to continue their education. Proposals by the American Association of Community Colleges will further refine policies for community college lending. Such changes – like measuring Pell Grants separate from student loans – will enable better data and fewer defaults. The Obama administration’s aim to get more borrowers repaying their loans is one that requires creative thinking by all parties involved.