High Loan Default Rates Putting Colleges at Risk of Severe Sanctions
Klamath Community College, a small, rural community college located in Klamath Falls, Ore., recently was notified by the U.S. Department of Education that the college had a 2011 three-year draft cohort default rate of 29.9 percent.
With our 2009 and 2010 rates over 30 percent, that one-tenth of a percentage point is extremely significant. Had we exceeded the 30 percent threshold for a third consecutive year, the college could have been severely sanctioned, losing its eligibility to disburse federal student aid.
Though 29.9 percent is certainly much closer to 30 percent that we would like, we are confident that our default rate will remain under 30 percent and we will continue to be able to disburse federal financial aid to our students.
KCC is not alone in experiencing an increase to our default rate in recent years. In fact, as a result of the Great Recession, every community college in Oregon has seen its default rate increase since 2008. The economic downturn had the effect of driving up community college enrollments here in Klamath County as well as across the nation. These increased enrollments included many students who were not academically prepared for college work and did not have the financial resources to attend without taking on student loans.
The lower levels of academic preparedness led to higher levels of attrition as students failed to complete programs of study.
In fact, more than 99 percent of all of KCC’s defaulters during this period are students who withdrew prior to completion. Because those students did not earn the degree or certificate they were seeking, their hoped-for job prospects did not materialize and they were unable to repay their loans, resulting in default.
Across the nation, high default rates are disproportionately affecting community colleges. While universities are selective for admissions, granting entry only to academically well-qualified students, community colleges cannot do the same. Due to our mission of open access, we serve all students, regardless of academic or financial standing. An unfortunate byproduct of this very important mission is a greater risk of student non-completion and subsequent default rate increase.
There are currently almost 300 colleges and universities nationwide at risk of thirdyear cohort default rates of 30 percent or higher. Because of the selective admissions of universities, the public schools in this atrisk category disproportionately consist of community colleges. They also disproportionately consist of rural colleges and colleges in regions that have been slower to recover from the effects of the Great Recession.
The good news for KCC is that we caught this issue in time and implemented a series of measures designed to bring our default rate below 30 percent. Though we would have liked it to be even lower, we are pleased with the success that we have seen. These default prevention measures included:
• Implementation of mandatory orientation and advising for all students.
• Launching the Achieving the Dream initiative.
• Hiring a full-time default prevention specialist.
• Implementation of an early alert system for struggling students.
• Disbursing loans later in the term to better ensure students are attending classes.
• Creating a default management team and comprehensive default management plan.
• Partnering with an outside agency to help prevent students form going into default.
One of the results of these practices was an approximately 10 percent decrease in our default rate between 2010 and 2011 from 33 percent to 29.9 percent. Based on the number of phone calls I have received from other college administrators around the nation who are interested in the steps KCC has taken to curb our default rate, we may serve as an example to others. The steps we have taken to proactively deal with the looming problem are being explored by others who currently find themselves in a similar situation, and I feel many institutions may benefit from implementing similar measures.
I believe it is illogical to ask community colleges to bear the brunt of the impact of the recession in terms of default sanctions when these same colleges are required by their overarching mission of open access to take in and serve those very students who are at greatest risk of defaulting due to academic and financial need. Steps must be taken to ensure that our nation’s community colleges — particularly those serving economically depressed communities — maintain the ability to disburse federal financial aid to their students. One way to ensure this would be to remove the Pell Grant from Title IV sanctions and allow schools to continue to disburse Pell Grant funds event if they lose the ability to provide students with federal student loans.
Whatever the solution may be, one thing is clear: our system of how students pay for higher education is broken. We need a national discourse dedicated to fixing this problem, and we can wait no longer. The time to address this issue is now.