Skipping Free College and Federal Loans

Some California community colleges are turning down state money for free tuition to avoid participating in the federal loan program.

January 3, 2019
 

California’s free community college plan wasn’t just about offering a tuition-free year to the state’s students.

It was an opportunity for state leaders and the California Community Colleges chancellor's office to encourage college leaders to support and undertake popular reforms such as using multiple measures to determine students' academic preparedness and forge deeper partnerships with K-12 school districts. But some college administrators are balking at one requirement in the one-year tuition-free legislation that passed last year -- participation in the federal student loan program.

“We’ve been concerned about debt, and the idea of making community college affordable or free was exciting for us,” said Bruce Baron, chancellor of the San Bernardino Community College District. “But when we learned it comes with a clause that mandates we offer federal student loans, that’s where we drew the line.”

The San Bernardino district, which enrolls about 24,000 students, has been joined by several other California colleges in opposing the requirement. Barstow College, College of the Desert, Imperial Valley College, Mt. San Jacinto College, Palo Verde College, Taft College and Victor Valley College also have declined to accept free tuition aid from the state and don’t participate in the federal loan program.

California Community Colleges system officials, however, oppose that move.

“Colleges that do not participate in the federal loan program are limiting access to federal student aid for their students,” Laura Metune, vice chancellor of external relations for the system chancellor’s office, said in an email. “Not participating in the federal student loan program doesn’t prevent debt. Instead, it limits students’ options when they do have to borrow.”

Metune said students instead may consider private loans, which could have higher interest rates and generally don’t offer the repayment or forgiveness provisions included in the federal student loan program.

California policy makers recognized that the tuition-free legislation, commonly called Assembly Bill 19, or AB 19, wouldn't cover the full cost of attending college and that some students would still need other financial aid, she said.

Yet among those attending California community colleges that do participate in the federal loan program, only about 31,000 of the system's two million students take on federal debt, according to state data.

“AB 19 was used as a carrot approach by providing colleges additional resources, but requiring that they do their part to maximize student access to all financial aid programs, of which the federal student loan program is one,” Metune said. The state is giving the community college system about $46 million for the colleges to administer the tuition-free law.

The San Bernardino district opted out of federal loans because of high default rates, which could jeopardize the colleges' federal funding, Baron said. As a result, San Bernardino is turning down about $400,000 in state aid it would have received as part of the tuition-free legislation.

“When we had the federal student loan program, we had an extremely high default rate,” Baron said.

Students can create decades of debt in college that can become a hardship once they graduate, he said, because they either aren't employed yet or are not making enough money to meet their debt obligation.

Last year the San Bernardino district ended its participation in the federal Perkins Loan program. The default rate for borrowers at its colleges who took out Perkins Loans was about 54 percent, although fewer than 30 entered repayment in 2016, according to data from the district. When San Bernardino Valley College participated in the federal loan program in 2005, its default rate was 22.4 percent. The threshold for losing access to federal funds was 25 percent at the time. It's now 30 percent.

“It’s hard to know how students spend their loan money once they receive it,” Baron said. “My observation over the years is if you get a student loan and go to the college bookstore to buy textbooks, you may also walk out with sweatshirts and a few other things. That’s not to judge the student, but to say that funding specifically for education is extremely important and we can’t control what students do with money from student loans. All we know is by the time they’re graduating or leave our campus, they need to start paying that back.”

Concerns About Defaulting

Debbie Cochrane, executive vice president of the Institute for College Access and Success, said high default rates and the risk of losing access to federal aid is the main reason colleges opt out of the federal loan programs. And colleges in California aren't the only ones to decide not to participate. Nationally, 9 percent of community college students attend institutions that do not participate in federal loan programs, according to a 2016 report from TICAS.

But those fears are overblown, she said.

“Most community colleges that don’t make federal loans available are nowhere near those sanction thresholds,” she said.

According to data from the California system, no colleges were above the 30 percent federal threshold. The system’s overall default rate is down to 17 percent, from 19 percent last year.

The system recently began a campaign to get all of its colleges below 20 percent. Last year, 30 colleges were above that mark, Metune said, compared to just 19 this year.

The national default rate for public community colleges is 16.7 percent.

“Any college that is enrolling students taking out federal loans is right to be concerned about loan defaults among former students, and they should take that seriously,” Cochrane said.

While Cochrane said she's heard one-off anecdotes about a student who used financial aid money inappropriately, there is very little evidence of this being a widespread problem, particularly at the community colleges.

“Most community college students are living independently, and they will have living costs,” she said. “No one questions those costs when they’re talking about four-year students. No one questions students’ ability to get grants or loans to cover meal plans. But you will hear a lot of the same people be highly critical of community college students who are taking out loans and receiving grant aid to cover their grocery bills or rent.”

The TICAS report found that nearly 55 percent of North Carolina community colleges have opted out of federal loan programs. At least one college in a relatively low-income area of the state cited students who used federal aid to cover living expenses as a reason to opt out because those conditions make it difficult for graduates to repay.

For example, North Carolina's Beaufort County Community College stopped participating in federal loan programs in 2014 because of rising default rates, said David Loope, the college's president.

The college’s default rate at the time was about 29 percent, he said. But a backlash followed the opt-out decision by the college of about 2,500 students.

“We had a significant drop of about 25 percent in enrollment that is only now coming back,” Loope said. “We had to ensure to the citizens in our service region that just because we were withdrawing from the student loan program, it did not mean students were prevented from obtaining Pell Grants or scholarships from the college.”

Loope said the economic barriers that pushed students to take out federal loans were the same ones that often kept them from repaying the loans after college.

“They’re impoverished, and we're in one of the poorer areas of North Carolina,” he said. “Jobs are somewhat difficult to come by in this region.”

Beaufort students have transportation obstacles, health-care issues, housing insecurity, childcare and other living expenses, said Loope, and loans often made those obstacles worse.

The college didn’t exit the loan program without offering students other options. Beaufort distributes about $150,000 a year in need-based scholarships.

“It’s absolutely essential to understand that if you’re going to pull out or forgo the student loan program,” Loope said, “you need to find ways to make up the difference for your students, especially in an impoverished area.”

San Bernardino is attempting to go a step further than the statewide tuition-free plan with the creation of its own two-year tuition-free program. The district’s board voted in October to invest $10 million in the program.

“Students, if you’re willing to promise on your end that you are going to take a full class load and work to graduate with an associate degree in two years … our promise is that you will not incur any other costs for education,” Baron said.

Baron said he has been lobbying the state chancellor’s office and local legislators to eventually drop the requirement that colleges participate in the federal loan program. So far, the latest change to AB 19 is a bill the Legislature introduced in December to extend the tuition-free offer from one to two years.

Paul Feist, vice chancellor for communications and marketing with the statewide chancellor’s office, said the system wouldn’t consider removing the requirement “until we close the yawning gap between low or no tuition and the total cost of attending college for students.”

The colleges have an obligation to make sure students have access to all forms of financial aid, he said via email.

“These are adults who shouldn’t be denied choices around financing their college educations,” Feist said.

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