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Action urged on community college loan defaults

University Business, November 2015
Orientation and engagement activities introduced by Iowa Lakes Community College administrators have driven down the student loan default rate. President Valerie Newhouse says the two trends are intertwined.
Orientation and engagement activities introduced by Iowa Lakes Community College administrators have driven down the student loan default rate. President Valerie Newhouse says the two trends are intertwined.

Community college students who take out the smallest loans default at the highest rates, and many borrowers who get into trouble make no effort to fix their problems.

Those are two findings in a new report, “A Closer Look at the Trillion,” which calls for institutional and federal policy changes to help students and community colleges better manage debt.

The report, issued by the Association of Community College Trustees in September, studied default rates at 16 Iowa community colleges. It found that many borrowers, particularly those who end up in default, earn only a few credits and do not receive any credentials.

“We are open access and we serve predominantly low-income, disadvantaged and first-generation students,” says J. Noah Brown, president and CEO of the Association of Community College Trustees, a national organization. “Our borrowing population is smaller but could be considered more vulnerable, so policies should recognize and reflect that.”

The following changes are proposed:

  • Help students—through more aggressive counseling—better understand the consequences of going into default and their various options in paying off debt.
  • Provide open, one-stop access to loan histories. Students could track what’s owed and administrators could pinpoint borrowers who have piled up loans at several different institutions, Brown says.
  • Reduce the federal penalties levied against schools when borrowers default. Currently, a small percentage of students defaulting could put an entire college’s Title IV funds in jeopardy, Brown says.

Iowa Lakes Community College, one of the institutions analyzed, has focused on increasing completion to cut its default rate from 21.5 percent two years ago to 18 percent, President Valerie Newhouse says.

Since its involvement in the study, the rural, 3,500-student school has extended its orientation activities for new students from one day to three weeks. Team-building games, group meals and advising sessions give students a better chance to get to know their classmates and faculty, creating a stronger sense of engagement that leads to persistence and completion, Newhouse says.

Iowa Lakes’ completion rate has risen from 36 percent in 2012 to 48 percent in 2014. “By applying our resources toward completion, the side benefit will be reducing our student loan default rate,” says Newhouse. “We thought they were two separate processes, but they’re so intertwined.”

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