Community Colleges Share Loan Program, CDR Experiences During NASFAA Webinar

By Brittany Hackett, Communications Staff, and Laylaa Randera, Communications Intern 

During a NASFAA-hosted webinar on Wednesday, financial aid administrators shared their experiences with managing default rates at their community colleges and their decisions on whether or not to participate in the federal student loan programs.

“The thought behind this webinar was to try to tackle the conversation right now surrounding participation in the loan programs and how that participation can help or hinder access to higher education … and how low-cost institutions are grappling with these decisions,” NASFAA President Justin Draeger said during the webinar, “Tough Choices: Tackling Loan Indebtedness at Low-Cost Institutions.”

To provide context for the webinar, NASFAA conducted a survey of 206 community college financial aid administrators between June 23 and July 9. Of those respondents, 91 percent said they participate in the Federal Direct Loan Program and 9 percent said they do not. Of those that do not participate, half said they stopped participating more than five years ago, while 14 percent said they never participated in the program. 

Notably, 35 percent said they stopped participating in the program less than five years ago, which coincides with the Department of Education’s (ED) change from reporting 2-year Cohort Default Rates (CDRs) to 3-year CDRs. When asked to provide a reason for leaving the program, 78 percent of respondents cited their school’s default rate and 11 percent said it was due to both their default rate and the potential loss of Title IV funds.

Thirty-eight percent of survey respondents said they have considered dropping out of the loan program, compared to 62 percent who said they have not. Those who said they have not considered it cited concerns about hurting student access or it not being fiscally feasible for their institution to leave.

Among the schools that continue to participate in the loan program, 47 percent reported having a default management plan and 27 percent require enhanced student loan counseling for borrowers. 

An overwhelming majority – 68 percent – said that they would be less likely to consider dropping out of the loan program if their institutional eligibility to participate in the Pell Grant Program was not tied to CDRs. Only 32 percent said they would not be less likely to consider leaving.

Participants Learn From Case Studies 

NASFAA invited three financial aid administrators from community colleges to provide case studies of their schools’ decisions to stay or leave the program, including:

  • Lisa Hopper, director of financial aid at National Park Community College;
  • Lisa Seals, director of financial aid at Imperial Valley Community College; and
  • Jason Judkins, director of financial aid at Victor Valley College.

Seals and Judkins represented institutions that chose to leave the loan programs, while Hopper’s institution decided to continue participating.

According to Seals, her school left the program in the early 1990s at the start of CDR reporting because the school sees a low number of student borrowers. “I simply don’t see the demand for loans,” Seals said, adding that there is concern that her students will exhaust their federal aid at the community college level and not have enough to continue on to four-year institutions.

Judkins said his school left the program when ED switched to 3-year CDRs because his school’s leadership knew they would be over the 30 percent threshold. However, he said that leaving the program took away an important tool for his students who are not Pell eligible but still need financial aid. 

“If the legislation and policies do change, it’s something we wouldn’t mind getting back into,” Judkins said.

In contrast, Hopper’s institution decided to stay in the loan program despite an unexpected 2011 3-year CDR of 31 percent. Because over 60 percent of National Park Community College (NPCC) students receive financial aid, the school would not be able to stay open or would lose a significant amount of enrollment without participating in the loan program, she said. 

NPCC began the process of creating a default management plan that included hiring a third-party servicer to work a delinquency list. The school also began prorating its cost of attendance for different enrollment levels and implemented an attendance policy in which faculty were required to start taking attendance and keep on top of withdrawals.

Hopper’s office also reassigned a loan officer to be a full-time default preventions coordinator who monitors and develops a loan seminar that all student loan borrowers are required to take.

“The students no longer can tell us they don’t know what they owe or when to do the repayments because we’ve made them go through this process,” Hopper said, noting that the process has helped NPCC lower its CDR by 8 percent in a two-year period and is under the 30 percent threshold.

Policy Recommendations 

Draeger and David Baime, senior vice president of government relations and research for the American Association of Community Colleges, offered several policy recommendations that they feel would alleviate some of the burden on community colleges grappling with high CDRs.

Their recommendations include:

  • Giving schools more authority to limit, curtail, or deny borrowing for entire groups of students;
  • Having ED provide additional clarification on what schools can require for student loan counseling; and
  • Changing regulations regarding the low borrower participation index so that ED would recognize a school’s calculation and automatically grant the exemption.

Draeger also said that a provision in the Senate Democrats’ Higher Education Act reauthorization draft to auto-enroll students 150 days delinquent in an income-based repayment plan “makes a lot of sense,” although there are some outstanding logistical questions to be answered.

TICAS Reports on Community College Loan Participation 

NASFAA and AACC aren’t the only organizations to speak out this week about the default rates of community colleges. The Institute for College Access & Success (TICAS) and the Association of Community College Trustees (ACCT) issued a report Tuesday encouraging academic institutions and policy-makers to find new ways to tackle student loan defaults.

Approximately 40 percent of all undergraduate students enroll at a community college; of that, 17 percent receive federal loans, according to the report. But as college costs rise faster than and income levels, more students turn to aid.   

The report surveyed nine U.S. community colleges and found that the default rate among program completers was 9 percent, compared with 27 percent among non-completers. Borrowers who completed fewer than 15 credits also defaulted at more than twice the rate of those who completed more credits, the report states.

In addition, borrowers who received Pell Grants or took remedial coursework showed higher default rates than their counterparts, but there were wide gaps in this statistic across colleges, “demonstrat[ing] that the default risks of even high-risk populations are not set in stone,” according to the report. 

The report recommends that colleges:

  • Embrace default reduction as a campus-wide endeavor;
  • Analyze who borrows and who defaults;
  • Provide counseling and information to borrowers when they need it; and
  • Participate in the Federal Student Loan Program.

Federal policy recommendations include:

  • Support institutional administrators and staff who seek to understand and reduce default;
  • Improve the administration of CDR challenges and appeals;
  • Improve entrance and exit counseling;
  • Improve and streamline loan servicing;
  • Consider changes to federal student loan amounts for part-time students;
  • Automatically enroll severely delinquent borrowers in income-driven repayment; and
  • Implement a Student Default Risk Index (SDRI) for college accountability.

To learn more about CDRs and how they are determined, refer to back to NASFAA’s Cohort Default Rate Issue Brief


Publication Date: 7/24/2014

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