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Community colleges across the country that don’t offer access to federal student loans are imperiling nearly one million students who may turn to riskier forms of credit to fund their education, according to a report released Monday by the Institute for College Access & Success.

African-American, Latino, and Native American community college students are more likely than their white counterparts to attend institutions that do not participate in the federal student loan program, the study found.

In a handful of states, many in the South, more than one-fifth of community college students lack access to federal loans, according to the study.

The racial disparity is even more pronounced in some of those states. In Alabama, for instance, nearly 64 percent of African-American community college students lack access to federal loans, compared to more than 34 percent of white students.

Similarly, nearly 59 percent of African-American community college students in Tennessee are unable to obtain federal loans, compared with 37 percent of their white peers.

Relatively few community college students have to take out loans to finance their education. Many students are able to cover tuition and fees with Pell Grants or other forms of aid. However, for students who need to borrow that money, they should universally have access to federal loans (as opposed to private loans or credit cards), TICAS argues in the report.

“Barring access to federal student loans doesn’t keep students from borrowing,” said Debbie Cochrane, the group’s research director, who was the report’s lead author. “It just keeps them from borrowing federal loans, which are the safest option.”

Community colleges, meanwhile, say that offering federal loans brings very real risk to their institutions, which may face the loss of all federal student aid if their default rate rises beyond allowed thresholds.

As a condition of participating in the federal loan program, colleges must make sure that their former students do not default on those loans at high rates. If they do, they lose access to all types of federal student aid, including Pell Grants.

TICAS has, for several years, criticized community colleges that do not offer or have stopped offering students the opportunity to take out federal loans. The group argues that community colleges’ fears that offering such loans will result in high default rates, thereby jeopardizing their ability to offer Pell Grants and other federal student aid, have been overstated.

Colleges, the group says, can work with borrowers to manage their debt and take advantage of federal rules that allow them to adjust their default rates to account for low levels of borrowing.

Michelle Sylvester, director of student services at the Alabama Community College System, said that while it’s up to individual campuses in her state to decide to offer federal loans, the specter of high default rates “is a major part of the decision of those who choose not to participate.”

She said that the larger community colleges were more willing to offer federal loans because they could more easily absorb individual student loan defaults. Thirteen of Alabama’s 25 community college do not offer federal loans, but the two largest institutions do participate in the program.

David Baime, senior vice president for government relations and research at the American Association of Community Colleges, said that community colleges would be more willing to offer federal loans if they had more discretion to control the borrowing and they would not automatically loose access to Pell Grants.

“We strongly believe that the penalty of losing the Pell eligibility for nonpayment of loans doesn’t make much sense and we wish that policy would be changed,” he said. “The threat of that loss is tremendous, and it’s a very serious concern for colleges.”

Community colleges, along with other types of institutions of higher education, have been pressing Congress to give them the power to limit the amount their students can borrow in federal loans, as a tool to safeguard against overborrowing.

The TICAS report comes as all institutions this year, for the first time, face sanctions for having high default rates over a three-year period that begins when former students enter repayment. The Education Department previously held colleges accountable only for the defaults within the first two years out of school.

That change, required by the 2008 rewrite of the Higher Education Act, has already thrown into question whether one community college in rural Texas will be able to continue to receive federal student aid.

The TICAS analysis also found that community college students in rural areas were more than twice as likely to attend an institution that does not offer federal loans than their peers in urban areas. 

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