Federal Aid

For college students who need to borrow, at any type of school, federal student loans are the safest and most affordable choice. Unfortunately, some community colleges across the country continue to deny their students access to federal loans. This leaves students with options that range from bad to worse: they could stay enrolled and on track by using riskier and more expensive forms of debt, or they could work excessive hours, cut back on school, or drop out.

In just the past two weeks, media outlets have confirmed that three more colleges in two states have decided to stop offering federal loans. In North Carolina, Southeastern Community College became the latest of many in the state to do so in recent years. In California, a decision by the Yuba Community College District means that neither Yuba College nor Woodland Community College will offer loans for 2013-14. The rationale provided for decisions in both states is that the colleges’ default rates – the share of their federal loan borrowers who are unable to repay – may rise so high that the schools could be sanctioned by the U.S. Department of Education (the Department) as a result.

In all cases, high default rates mean that the college should do more to help their borrowers avoid default. But schools where only small shares of students borrow, including many community colleges, are afforded special protection against sanctions. This protection is based on colleges’ ‘participation rate index’ or PRI, a measure that combines colleges’ default rates with their borrowing rates. Unfortunately, too few community college administrators are aware of the protection or the relevant regulations – even those at the schools most likely to benefit.

Take the recent example of the Yuba District. With fewer than 5% of Yuba’s students taking out loans, the college would almost certainly qualify for this protection – called a “PRI appeal” -- should its default rate rise to levels that would otherwise trigger sanctions. Still, the Yuba Community College District Chancellor could either not find the PRI rules or understand how they applied to his district (excerpted from Sacramento Bee):

“Chancellor Douglas B. Houston said the district unsuccessfully combed U.S. Department of Education regulations in search of assurances that the district could successfully appeal. He said the risk was too great not to act.”

This is a shame. The Department – which encourages federal loan access – must do more to make sure that the right people see and understand these rules. We at TICAS have done what we can, responding to frequent questions from colleges and even creating a PRI worksheet (updated for FY 2010 three-year rates) so they can see how it would work for them. But colleges need to be reminded by the Department that providing access to federal loans is important, and that certain protections from default-rate sanctions are available. Colleges need to understand that while helping students avoid default should always be a priority, concerns about sanctions must be kept in perspective. And colleges need to know that the Department is committed to developing a PRI appeals process that works for schools – providing the assurances colleges need, when they need them – to alleviate the fears that lead colleges to stop offering loans unnecessarily. We hope the Department has taken note of the rash of schools abandoning the federal loan program and takes action before the next release of college default rates in September.

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Today we released a new analysis of federal financial aid application rates and receipt at the California community colleges (CCCs), where we found that many students who are likely eligible for federal aid are not applying for it. As a result, CCC students are leaving behind as much as half a billion dollars in federal Pell Grant awards that could help pay for many education-related expenses.

There are several theories as to why community college students in California are applying for federal financial aid at low rates. Some say it’s because CCC students are more likely to attend part-time, and that part-time students everywhere are less likely to apply for aid than full-time students. Some say that Californians have higher incomes, and aren’t eligible for as much aid as students elsewhere. Yet, when looking at a variety of subgroups of community college students in California and other states – including full-time students and those who are likely eligible for Pell Grants – CCC students are still less likely to apply for federal aid than comparable students in the rest of the country.

Reasonable people can disagree about what causes this problem and how to solve it, but the bottom line is that California needs more college graduates and a stronger economy – and can’t afford to pass up hundreds of millions of dollars that could go towards supporting both.

CCC Graph

 

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