A recent study run by the Institute for College Access and Success analyzed the financial situations and student loan debts of college students during the academic year of 2015 – 2016. The most astonishing results of this study, and the topic of this article, pertain to community college and federal student loans. To sum up the results, as many as a tenth of community college students nationwide are barred from federal student loan aid due to the policy of their community college.
Today, community colleges are responsible for the education of up to 40% of the college-aged demographic in the United States. These institutions are often useful alternatives to attending larger universities which tend to charge hefty tuition. Community colleges are cheaper on average, and many offer both two year and four year programs to their student body.
Despite being a cheaper alternative, the average cost of attending a community college is roughly $15,000 which accounts for tuition, additional resources (textbooks, etc.), and cost of living. This overall costs requires a large majority of students (roughly 80%) to seek a form of financial aid such as federal student loans, private student loans, or institutional financial aid. Less than 5% of these students receive full coverage for their education.
Earlier it was stated that 10% of the community college student body (in 32 states) are unable to receive federal student loans, forcing them to look for other options. This amounts to about one million students who cannot benefit from federal aid. These colleges bar their students from accessing federal aid because of a couple interlinked reasons. These institutions believe that students borrow too much from the government which leads to higher default rates. With higher default rates, these colleges end up losing money due to the possibility of suffering government sanctions, a leading causation factor for barring federal aid.
While barring federal loans appears to be a plausible way to avoid sanctions from default, this is actually a myth. Former students from previous years can affect the overall default rate, so barring loans one year and onward does not have a significant impact in comparison to default potential from former students. On top of this, the consequences of barring federal aid eligibility may have further repercussions.
The practice of barring community college students from federal student aid can be detrimental to the college in many cases. Students are forced to apply for private loans which are at a much higher risk of default than federal loans. These colleges can still face penalties from students who default on private student loans.
The fear of government sanctions is groundless; these colleges are able to appeal any sanction by pointing out any sort of applicable circumstances. Obviously extreme cases of default warrant an extreme reaction, but preemptively barring students from federal aid is not a plausible way to decrease default rates. It is actually a catalyst because students are forced to rely on private loans with greater interest rates. At any rate, over a million students across the nation do not receive proper financial aid which is just another factor in the entire student loan debt portfolio.