SOURCE: NextStudent

May 01, 2008 16:28 ET

More Than 1 Million Community College Students Denied Access to Federal Student Loans, Study Finds

PHOENIX, AZ--(Marketwire - May 1, 2008) - While more than 40 percent of all undergraduate students attend a community college, 25 percent of all community colleges in the United States do not offer the federal student loans that could help those undergraduates pay for their college costs, according to a new report by the Project on Student Debt.

In 13 states, more than 10 percent of community college students do not have access to federal student loans; in eight of those states, that number is over 20 percent. Georgia has the highest percentage of community college students who cannot get federal student loans, at 60 percent. Alabama and North Carolina follow, at 51 percent and 47 percent, respectively.

The Project on Student Debt report, "Denied: Community College Students Lack Access to Affordable Loans," concludes that more than 1 million community college students attend a school that doesn't participate in the federal student loan program.

Without access to the same low-cost federal student loans available to undergraduates at participating two- and four-year institutions, community college students at non-participating schools must resort to other, often more costly options such as credit cards or private student loans in order to bridge the gap between federal aid and college costs.

In the midst of the current credit crisis, however, with fewer lenders offering private student loans and with increasingly stringent credit and income requirements needed to qualify for almost any line of credit, these credit-based alternatives are harder to come by, making it more difficult for students without federal options to get the money they need for school.

Community college students tend to be lower-income and can come to depend more heavily on financial aid than other undergraduates. Since these students may not qualify for income- and credit-based private student loans, they need to rely on federal grants and federal student loans, which don't require a credit or income check.

"Financial aid, including loans, plays an important role in keeping community college students in college and on track," write the authors of the Project on Student Debt report. "Even modest amounts can relieve financial pressures, allowing students to work less, or to have a financial cushion when an emergency would otherwise."

Unfortunately, these very students who have the greatest need for federal college loans aren't always able to get them if their school has deemed federal student loans "too hazardous for the students or too hazardous for the school," said Robert Shireman, executive director of the Project on Student Debt.

Community colleges that don't offer federal student loans have opted out of the federal loan program for two main reasons, researchers found: First, the schools want to protect their students from taking on too much student loan debt. Second, institutions are fearful of losing federal funding for student grants if too many students, under the burden of unmanageable student loan debt, default on their college loans.

In the early 1990s, Congress passed legislation that would bar schools from receiving federal funds if too many of a school's students defaulted on their federal student loans. Under these sanctions, schools would lose funding not just for federal student loans but for federal grants, which include Pell grants, the largest source of grant aid for students. Losing the ability to disburse Pell grants would be potentially disastrous for community colleges, since many low-income students rely heavily on Pell money to be able to pay for college.

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