Think before you go to college, says blogger/professor Glenn Reynolds in a Reason TV interview. What are you going to study? Will you be able to repay student loans? His book, The New School, predicts “the information age will save American education from itself.”
Under pressure to cut student loan defaults, colleges are refusing to accept unsubsidized federal loans that require students to begin making interest payments immediately. Florida’s Broward College won’t accept private loans. Would-be borrowers have to attend a money-management workshop. Defaults are down.
Fourteen historically black colleges were at risk of losing access to federal student aid because of high default rates on student loans. At the last minute, the U.S. Education Department changed the method used to calculate default rates: 20 for-profit colleges and one public adult education program remain on the list of colleges facing sanctions.
If too many students default on their loans, colleges risk losing access to federal student aid. That’s motivated community colleges to develop default management plans. But denying federal loans to high-risk students isn’t an option.
People who’ve fallen behind on their debts will be able to take out federal Parent PLUS college loans under a proposed regulation relaxing credit requirements. Borrowers don’t have to show their income, employment status or ability to repay the loan.
Community colleges could be penalized for high default rates on student loans — even if few students are borrowing. Colleges could lose eligibility for all federal student aid programs if the default rate exceeds 30 percent for three consecutive years.
Nearly one million community college students nationwide — about 8.5 percent of the total —can’t take out federal student loans because their college doesn’t participate in the program, according to a report by The Institute For College Access and Success (TICAS).
Colleges complain they’re not allowed to limit “overborrowing” and risk losing eligibility for all federal aid — including Pell Grants — if default rates go too high.
Default rates are high for community college students, even though tuition is low and most loans are small. That’s because many borrowers don’t complete a degree — and some who do have low earnings.
For now, proposed “gainful employment” regulations are aimed at for-profit colleges and career programs at nonprofits. If too many students in a program default on loans or pile up too much debt relative to income, the feds will cut off student aid. Once the bills start coming in for income-based repayment of student loans, “the government is just going to have to shut down the free money fountain” for all of higher ed, predicts EduBubble.