Federal College Loan Sanction Fears Hit California Community Colleges

But we were told it's the for-profit colleges who were the bad guys!

The Department of Education's efforts to punish colleges whose students default too much on their federal loans – an action undoubtedly aimed at for-profit colleges – has finally led to some reform in California. At community colleges. Who have decided to stop accepting federal loans. Whoops!

Erica Perez at California Watch offers more:

A small but growing number of California community colleges have stopped participating in the federal loan program, cutting off these borrowing options for students out of fear that rising student loan default rates could lead to sanctions.

Some 16 colleges have stopped disbursing the loans, and at least one more school – Bakersfield College – is considering ending its participation in the program. That makes California home to more students without access to federal loans than any other state, according to data collected by the Institute for College Access and Success, an Oakland-based nonprofit.

College officials say they stopped participating in federal loans because they were worried that an increase in student loan defaults would jeopardize their ability to offer federal grants. Colleges where students default on federal loans at high rates for several years in a row stand to lose eligibility for federal grants under sanctions issued by the U.S. Department of Education.

Access advocates complain in the piece that community colleges are overstating their risks, but Perez notes that students at Bakersfield College, currently considering ending federal loan offerings, have a 28 percent default rate on recent loans. Colleges where only a small percentage of students have federal loans are exempt from sanctions, and the California community college average is only three percent. But the list of colleges opting out included in the story is heavy on those that serve some of the poorer parts of California. Perez doesn't break down the individual college percentages, but it would not be a surprise if these colleges had a significantly higher percentage of federal loans than average.

Given the horrendous graduation rate at California's community colleges (25.3 percent), federal loans are probably a bad deal for both the taxpayers and the student. Given the extremely low costs to attend community college in the state and the resources available to cover even that, a need for a federal loan should probably be seen as a warning flag.