The North Carolina Community College System reports 18 of its schools have decided to opt out of the federal student loan program. They fear their colleges could be at risk if many student borrowers default on those loans. The default rate on federal student loans continues to rise in North Carolina and some community colleges could face sanctions by 2014 if they didn’t opt out.
The 18 that opted out are: Alamance Community Collge, Brunswick Community College, Central Carolina Community College, Cleveland Community College, Gaston College, Lenoir Community College, Martin Community College, Mitchell Community College, Montgomery Community College, Pamlico Community College, Randolph Community College, Richmond Community College, Rockingham Community College, Sampson Community College, Sandhills Community College, South Piedmont Community College, Stanly Community College and Surry Community College.
State law approved in a previous legislative session required all community colleges to offer the William D. Ford Federal Loan Program starting July 1, 2011. Several community colleges stopped offering those loans years ago, however, in favor of federal Pell Grants or private lenders.
During the current session of the General Assembly a bill (HB7) was passed to allow any community college to opt out of the federal direct loan program, but the Governor vetoed it. Then some lawmakers came up with four local bills allowing 26 community colleges in their districts to opt out of the federal loan program. Those local bills were approved by the legislature. The Governor can’t veto local bills.
There is ample reason for why community colleges have dropped the federal loan program. Randolph Community College spokesperson Cathy Hefferin says the schools were not allowed to do a credit check or any screening for the federal loans, but the college would be held liable if the student defaulted. If enough students defaulted a community college would lose its access to federal Pell Grants.
Pell Grants are straight grants to students and if the borrower doesn’t follow procedures there is no consequence for the schools. Hefferin says 63 percent of the students at Randolph Community College receive Pell Grants.
Those 18 colleges that opted out of the loan program knew changes were coming on the federal level that could increase their chances of sanctions. The U.S. Department of Education currently calculates default rates over two consecutive years. It is the ratio of students in default or in a repayment program to the number students participating in a loan program over two academic years. If a school’s default rate is 25 percent or above it could lose eligibility for any federal student aid, including Pell Grants. Most colleges and universities in North Carolina are well below the threshold with that formula.
Starting in 2014, however, the federal calculation will include a three-year period, which increases the default rate for many schools. At the same time,, the sanction threshold would be raised to 30 percent in order to at least partially mitigate the new three-year period. The Education Department is already publishing those three-year rates as a trial to show school administrators what they could be facing. Under the new formula 17 private and public colleges in North Carolina would be approaching or exceeding the 30 percent mark in the current report. Those include Martin Community College at 32.93 percent; Davidson County Community College at 41.67 percent; Louisburg College at 32.30 percent; Livingstone College at 30.92 percent. Blue Ridge Community College is close behind at 25 percent, as is Shaw University at 28.33 percent. Another 12 schools wouldn’t be too far behind.
Stanly County Community College would have a default rate of 100 percent, but that’s because only one student is participating in the loan program and has defaulted. Chris Green with the U.S Education Department says the agency would take into account the number of students receiving loans at a school. He says Stanly County Community College would likely not face any sanctions, nor would schools with fewer than 30 students taking part in the federal loan program.
But the formula still puts smaller colleges at a disadvantage. For example, Davidson County Community College’s default rate of over 41 percent is caused by 17 students, while nearly 2,800 students at North Carolina Central University have defaulted or entered a repayment program. North Carolina Central’s calculated default rate under the new formula, however, would be under 15 percent.
In short, the 18 community colleges feared the liability they could facing and the loss of student aid and the four local bills gave them an out. It’s not clear if the rest of the 26 will follow suit.