Community College Student Loans May Not Be Available

Community college student loans are supposed to allow students at two year schools to meet their rising college tuition costs.

But this payment option is not a choice in many states. A growing number of states (North Carolina is the latest one.) let their community colleges decide whether or not federal student loans are allowed.

And many decide not to let their students use them.

Only in nineteen states (and the District of Columbia) do all community colleges participate in the federal student loan program.

The states who've decided that their community college students can borrow federal school loans (if they wish) are:

Why Restrict Federal Loans for College?

Many schools have chosen to opt out of the Direct federal student loan program so that their students' Pell grant awards will not be jeopardized. Additionally, some administrators feel that tuition rates at community colleges are low enough so that borrowing is not necessary. But because of the way that a school's cost of attendance is calculated, room and board is included (even at community colleges) and this leads to students being eligible to borrow much more than the cost of tuition.

Two years ago, a debate about how minority ethnic groups were impacted by the lack of access to government loans, led to some schools and states allowing community college students to borrow them. (North Carolina had passed a law just last year giving all students access to community college student loans.) But this trend is reversing again.

Why?

Because the U.S. Department of Education has changed how the cohort default rates are calculated. Basically, they've changed from two-year rates (the year borrowers enter repayment plus the next fiscal year) to three-year rates (the year borrowers enter repayment plus the net two fiscal years). This makes it more likely for schools to be identified as having a problem with default rates.

Unfortunately, next year's budget will almost certainly cut federal Pell grant eligibility as well as award amounts, and students who do not have access to federal student loans will have to make up these gaps with private student loans, or even 'quick' student loans (payday loans) or else decide not to attend.