About a quarter of America’s community colleges don’t participate in the federal student loan program, leaving more than a million -- or about 10 percent -- of community college students without access to the lower- and fixed-interest loans, according to a report released today by the Project on Student Debt. Students at these colleges, the report argues, must resort to riskier forms of debt.

The non-participating colleges, which tend to be smaller, more rural, and serve larger proportions of minority and low-income students than the average two-year college, have opted not to participate primarily because of concerns that large proportions of students might default on the loans, endangering the institutions' eligibility for federal financial aid for all students. Many college officials also express a desire to shield students at low-tuition institutions from the burden of debt.

"Many of these colleges have the students who have the hardest time getting credit currently, and the federal loan program was built to make sure that people without credit history, from lower-income communities, have access to loans," said Robert Shireman, executive director of the Project on Student Debt. “These are the cases where [students] may have some of the greatest need for loans but the leadership at the college at some point in past years decided that it was too hazardous for the students or too hazardous for the school. We think now is the time to reconsider that decision because the other options that these students have are worse."

“The danger in discouraging students by denying them the opportunity to take out federal loans is that the schools are under the illusion that the students are not borrowing when in fact they’re carrying credit card balances or going to the payday loan companies, because they need money to pay bus fare,” said Shireman.

The report, "Denied: Community College Students Lack Access to Affordable Loans," finds that the states with the highest proportions of community college students without access to federal loans are Georgia (60 percent), Alabama (51 percent), North Carolina and Louisiana (both 47 percent), Montana (27 percent), Virginia (24 percent), Tennessee (22 percent) and Utah (20 percent). Tribal colleges, by and large, do not participate in the federal loan program. African-American and Native American community college students are twice as likely not to have access to the federal loan program as white students. Nationally, 20 percent of black students and 19 percent of Native Americans attend community colleges that don’t participate in the federal loan program, compared with 9 percent of white students, 11 percent of Latino students and 5 percent of Asian-Americans. (A complete list of institutions by participation status is available here.)

In interviews with more than 30 financial aid administrators, the researchers learned that the primary reason for non-participation in the federal loan program is fear of serious sanctions. Colleges stand to lose the ability to disburse federal Pell Grants, the largest source of grant aid, if their “cohort default rate” on federal loans is above 25 percent for three consecutive years. In the 1990s, the federal government aggressively went after for-profit trade colleges with high default rates, fueling still-lingering concerns among community colleges -- though much of the text of today’s report focuses on the argument that the fears are excessive, and that they should not deter community colleges from participating in the federal loan program. The Project on Student Debt found, for instance, that in 2005, the last year for which data are available, only one community college had a cohort default rate above the 25 percent threshold, and its 2004 rate had been much lower.

Many financial aid directors at community colleges that have chosen not to participate in the loan program did not return phone calls Wednesday. But those who did described concerns about default rates -- and a sense that students at their low-tuition institutions generally don’t need the loans.

“We at one time did participate in the student loan program. Back in the '90s when default rates were going through the ceiling, they came along and they were talking about taking away your eligibility to participate if you got above a certain percentage. We chose to withdraw from the federal loan program at that time because of our high default rate. We’re in a very economically disadvantaged area here,” explained Della Bays, financial aid coordinator at Mountain Empire Community College, in Virginia.

“We just haven’t seen the need” to reenter the program, she said, pointing out that students’ tuition and fees are largely offset by Pell Grants and state grant aid.

“We found that the majority of students were just borrowing the money to borrow it, because it was there, when they really didn’t need it for their education expenses,” Bays said. “We do offer students some of the alternative loans if they do inquire…. But we have very few who even borrow through the alternative loan program” -- probably, she estimates, about 25 at most per year.

That number’s around 10 at Georgia’s Savannah Technical College, said Timothy Cranford, director of financial aid there. Historically speaking, it’s his understanding that the college had been concerned about high default rates 10 or 15 years ago, Cranford said. But his main concerns today have to do with loan burdens. With federal and state grant aid largely covering most students' tuition bills, when students do borrow through private sources, it is typically, he said, to cover non-educational expenses -- the costs of living.

“A lot of our students are taking the degree and diploma programs so they can get back into the market place. To incur additional debt, I don’t see the rationale of doing that,” Cranford said.

“We’re perfectly comfortable with the idea of a middle-class student going into a four-year college and using loans to pay for room and board but there’s this sense that a low-income student at a community college using student loans to buy lunch so they can stay on campus and study, that there’s something wrong,” said Shireman.

Without access to loans, he added, “They are inclined to work more, to think that, what I need to do if I’m going to eat and pay rent is I have to work full-time while I go to school. Which of course dramatically reduces the likelihood that they’ll be able to succeed in college.”