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Report: Lack of Loan Access Has Nearly 1M Community College Students at Risk

A new report says nearly 1 million community college students — including many students of color — face added educational and financial challenges because their colleges choose not to participate in federal student loan programs.

“Most community college students still don’t use loans to pay for their education, but for those who need to borrow, federal student loans can make the difference between graduating and having to drop out,” said Debbie Cochrane, research director at The Institute for College Access and Success (TICAS), which authored the report.

For example, while only 17% of all community college students take out loans, the rate is much higher—37%—among those who finish an associate degree, says the report, “At What Cost? How Community Colleges That Do Not Offer Federal Loans Put Students at Risk.”

While community colleges have much lower tuition and fees than four-year institutions, students at a typical two-year college still face total annual costs of $15,000, the report said. Most full-time community college students, 82%, qualify for financial aid although only 2% have their need fully met by grants.

That financial gap leaves students seeking loans either through federal programs or the private sector. If they attend colleges that don’t participate in the federal program, students must move toward more costly private loans or rely on credit cards, the institute noted.

“Barring access to federal student loans doesn’t keep students from borrowing—it just keeps them from borrowing federal loans, which are the safest option,” Cochrane said.

The issue appears to hit students of color the hardest, according to TICAS. For example, 12% of African-American students, 10.5% of Latinos and 20% of Native Americans attend community colleges that do not offer federal student loans. The rates for White and Asian students are lower at 7.5% and 4.5%, respectively.

In seven states, more than 20% of community college students attend nonparticipating colleges. These are heavily concentrated in the South, including Alabama, Georgia, Louisiana, North Carolina and Tennessee. Among African-Americans, for example, 64% attending two-year colleges in Alabama and 59% at two-year colleges in Tennessee lack access to federal loans.

Some community colleges do not participate because of fears that they will have high default rates and lose access to federal student aid programs, TICAS noted. Yet these colleges can adopt techniques to manage defaults and help students borrow more wisely.

“Default sanctions are not an imminent threat for the vast majority of community colleges, and denying access to federal loans does not protect students from debt or the risks that come with it,” the report said.

But the American Association of Community Colleges (AACC) says the report does not provide a complete picture of the challenges that loans pose for these colleges.

Given lower costs at community colleges, a smaller percentage of students take out loans, the association said. Yet high default rates among a small group of borrowers—particularly among students who drop out—can jeopardize a college’s ability to participate in Pell Grants, the main federal need-based aid program.

The TICAS report “underplays the impact that the threat of a loss of Pell Grant eligibility” could have on a college’s entire student body, AACC said in a statement.

“Until federal policy is changed to decouple student loan program and Pell Grant eligibility, some colleges will eschew participation in loan programs because the risk of losing Pell Grant eligibility is just too great,” the statement read.

David Baime, AACC senior vice president for government relations, told Diverse another challenge is that community college students may enroll only part-time but qualify for the same large federal loan as a full-time student.

“There’s no relationship between the loan maximum and the intensity of enrollment,” he said. AACC is asking Congress to make such a link so that, for example, a half-time student could borrow only half of the maximum loan amount.

If students need remediation or have other risk factors, they also may be less likely to finish, a factor that contributes to default. “We look at this issue differently than they do at TICAS,” Baime added.

The U.S. Department of Education’s most recent data from 2013 showed the public two-year college sector with a student loan default rate of 15%. This rate was twice the rate of public and private four-year colleges and similar to the 14% default rate at for-profit proprietary schools.

TICAS called on the department to make it easier for colleges to appeal default sanctions, particularly if they have a low number of student borrowers. Echoing a priority of AACC, the study also encouraged the federal agency to look at the potential impact of pro-rating student loans for part-time students.

More information on the report is available at

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