By Deborah Frankle Cochrane, Research Analyst
UPDATE: We’ve looked more deeply into the issue of community college loan program participation since this post was published. Please see the issue brief, Denied, for a more thorough analysis of this issue.
No one wants students to borrow unnecessarily or to borrow too much, but students who do need and want to borrow should be able to do so in the safest way possible. That is why the federal guaranteed student loan programs were created. The federal loan programs are entitlements, meaning that they were designed to be available to all students who apply for loans.
Sure, loans are not as desirable as grants, but these aren’t just any old loans. As one California community college financial aid administrator explains federal loan aid to students: “See what happens if you go into your bank and ask for a loan at the same fixed interest rate of the federal student loans. Explain that you don’t want to pay it back for a few years – or be charged interest in the meantime. And while you’re at it, you want to be able to delay your payments in the future if you ever hit hard times.”
Clearly, the federal loan programs provide a more generous and safe way to finance an education than private student loans that offer none of these same benefits. But what about the colleges that don’t provide access to federal student loans? In our recent report, Green Lights and Red Tape, we documented the number of California community colleges that do not participate in federal loan programs, and questioned the decision to restrict access to this important source of financial aid.
Looking at community colleges nationally, it is evident that this isn’t just happening in California: in ten states, half or more of community colleges do not provide access to federal student loans!
Some colleges withdraw from the federal loan programs because too many former students have defaulted on their loans. There is a danger that excessively high default rates over several years can jeopardize a school’s ability to offer all federal aid, including grants. But under current rules, this is not an imminent threat to most community colleges. The vast majority of community colleges do offer loans and adequately manage their default rates, which suggests that withdrawal from the programs is an unnecessary precaution.
Default rates are not the only rationale for restricting borrowing: financial aid offices often cite the need to protect students from their own choices. Their students, you see, may not fully understand the implications of borrowing. Some students, they explain, aren’t committed enough to their education to finance it through credit. We do not doubt for a minute that these sentiments reflect real aid office experiences and challenges. But if it’s protection that students need, why take away the safest borrowing option, inevitably driving some towards risky private loans and credit card debt?
Students and families rely upon college financial aid offices to provide informed advice about how to finance a college education. What should they make of statements like this (from a community college financial aid office’s web site), a typical example of how non-participating colleges address loan aid?
“Currently, our institution does not participate in the federal student loan program; however, you can independently get a private loan or non-certified loan to help pay for your educational expenses if you meet the lender’s requirements.”
This isn’t protecting high-risk students; it’s throwing them to the wolves. Students and families trust college financial aid offices to provide informed advice about how to finance a college education. Neither this message nor the restriction of financial aid options helps the low-income and high-risk borrowers who financial aid offices serve.