While community colleges are among the most affordable options for higher education, their students tend to default at higher rates and often on lower amounts of debt, according to a new report from the Association of Community College Trustees (ACCT).
The study looks at why community college students often struggle to repay their student loans, as well as patterns in community college borrowing, completion, and repayment. Overall, the study included data on Iowa’s 16 community colleges. According to ACCT, about 45 percent of Iowa community college students borrow to pay for their education and most of the institutions have cohort default rates (CDRs) above the national average.
ACCT used data from the School Portfolio Report (SPR), which tracks loans after 52 months of repayment activity, on 27,675 borrowers who went into repayment in fiscal year (FY) 2011. SPR data, according to ACCT, provides institutions with a “current view” of the loans in repayment that are associated with the school. It also allows the schools to manage their loan portfolios on an ongoing basis.
ACCT also used data from the Loan Record Detail Report (LRDR), which tracks loans after 36 months of repayment activity. The LRDR is provided to institutions at the conclusion of the CDR period, giving schools the opportunity to analyze their rates and determine the accuracy of the data.
Largely reaffirming the findings of previous research, ACCT found that, according to SPR data, 27.8 percent (7,680) of the students in the FY 2011 repayment cohort defaulted on their student loans by January 2015. Many of these students were enrolled for short periods of time, did not complete a credential, and borrowed small amounts. In comparison to the SPR data, the LRDR showed a CDR of 24.5 percent for Iowa’s community colleges in FY 2011, as of September 30, 2013.
“The difference is notable,” ACCT said in the report, adding that “just sixteen months after the close of the CDR period, the default rate increases by 13 percent.”
Nearly 50 percent of the defaulted borrowers took out less than $5,000 and most borrowed less than $10,000, with an average amount of $8,287. Most students –more than 55 percent – had two or fewer loans over the course of their enrollment, and more than two-thirds of borrowers in the FY 2011 cohort borrowed both subsidized and unsubsidized loans.
ACCT noted in the report that while the payments on such low amounts of debt would be small, they can still be difficult for borrowers to make if they are unemployed or have low incomes. Moreover, “[i]t is possible that the students may not know they borrowed loans or the terms of their debt, or that they did not contact their servicer to make a payment despite completing entrance counseling and a master promissory note,” ACCT said in the report.
Completion also plays a significant role in a borrower’s likelihood of default, according to the report. In total, 68.8 percent of Iowa’s community college borrowers left college before completing their credential or degree and 60 percent earned less than 15 credits while enrolled. Over 66 percent of FY 2011 borrowers did not progress beyond their freshman year. ACCT noted that the data only includes borrowers who earned a credential at a community college in Iowa and not whether they went on to earn a credential at another institution.
But even with the limitations on the data, ACCT found a CDR of 35.9 percent among borrowers who earned no credential, and an even higher CDR of 47.8 percent among those who earned fewer than 15 credits. More than 57 percent of all defaulted borrowers did so within a year of entering repayment and only 20.5 percent of them rehabilitated their debt before January 2015. Just over 8 percent of those who rehabilitated their debt fell into default again.
The data also showed that among the defaulters, 43.3 percent do not postpone their payment using tools like deferment or forbearance or make a payment before going into default. ACCT speculated that such “behavior is likely driven by the complexity of the repayment system and lack of information about debt burdens and repayment obligations.”
Based on the findings of the report, ACCT offered the following recommendations for institutions and federal policymakers:
Publication Date: 9/29/2015