Two-year Colleges Face Student Loan Default Challenge Rising rate causing some community colleges to opt out of student loan system.
Buried within the federal government’s new report on student loans is a statistic causing concern for some community colleges: Loan defaults in that sector have increased to nearly 10 percent.
The official loan-default rate in the sector is 9.9 percent, up from 8. 4 percent a year ago, the Department of Education reports. This rate is significantly above the nationwide default rate of 6.7 percent among all higher education institutions.
The statistics also point to a longtime dilemma facing two-year colleges: With low tuitions, few of their students typically apply for loans. But even a handful of borrowers who do not repay loans can give the college a high default rate, something that can trigger federal sanctions.
“This is one of the reasons why some community colleges have opted out of the student loan system,” says Mark Kantrowitz, publisher of finaid.org, which analyzes student aid programs.
He says about 200 community colleges have dropped out of loan programs, since default-related sanctions could cost their students access to need-based financial aid.
Colleges can lose access to loans as well as Pell Grants if their default rates are above 25 percent for three consecutive years.
