Hundreds of students in the Yuba Community College District will lose access to federal student loans this year as officials try to preserve Pell Grants and other forms of financial aid for thousands of others.
The federal loan default rate of Yuba students has risen so high that officials sought to protect the district from any sanctions that would cut off all federal aid for students.
By suspending participation in the federal student loan program, Yuba leaders said they made sure that students could still receive Pell Grants and federally subsidized campus jobs, which are far more used in the Yuba district. They also said they preserved access to Cal Grants and state fee waivers.
The Yuba Community College District serves 15,000 students at Yuba College in Marysville and Woodland Community College.
"The loss of federal and state financial aid would have severe negative impact to students and the district," college district officials told trustees in a recent staff report recommending the action.
Woodland and Yuba community colleges joined 17 other community colleges in California not offering federal loans, often considered the most advantageous borrowing option for students.
Among them are campuses in South Lake Tahoe, Merced and Modesto, according to the Institute for College Access & Success in Oakland.
Starting in 2014, if a school's default rate is above 30 percent for three consecutive years, it will be subject to sanctions. However, schools with a low share of federal borrowers can appeal and have sanctions rescinded.
A draft 2010 analysis projected that Yuba College's default rate would climb to 31 percent.
But some experts say the risk of any federal sanction is small.
"I don't believe a California community college campus has ever been sanctioned," said Debbie Cochrane, research director for the Institute for College Access & Success. "To be sanctioned, you have to have high (default) rates with no mitigating circumstances."
In the Yuba Community College District, 275 students borrowed through the federal loan program last school year, according to the district. By comparison, 6,830 students received $33 million in state and other federal financial aid.
Chancellor Douglas B. Houston said the district unsuccessfully combed U.S. Department of Education regulations in search of assurances that the district could successfully appeal. He said the risk was too great not to act.
"Our greater concern was that this upward trend in our (Yuba) college default rate is pretty steep," Houston said.
Houston said trustees formed a committee that will assess the decision.
"The board made it clear in its discussion that if we can put enough measures in place to protect our students, then we'll reinstate the program" next year, he said.
The district is exploring alternative fund sources, such as foundation money, to help students who lose access to the student loan program starting this fall.
Dropping out of the loan program amounts to a balancing act, one analyst said.
"The concern about an institution not participating is for students who need to borrow in order to support themselves while they go to college," said Judith Heiman, a higher education analyst at the nonpartisan Legislative Analyst's Office. "That leaves them with options that are worse than federal loans, higher-cost private loans, fewer repayment options. Many just rack up credit cards."
On the other hand, she said, "If they're going to put students at risk of losing Pell Grants, that's a big penalty."
Anita Kermes, financial aid director for California State University, Sacramento, said the economy has contributed to rising student loan default rates. Sacramento State's default rate remains in single-digit percentage points but is increasing.
Students who don't complete their degrees or drop out early are more inclined to default, Kermes said. And some students don't take the time to calculate how much they'll be able to repay once they enter the workforce.
At American River College in the Los Rios Community College District, the latest federal data for 2009 put the three-year default calculation at 27.5 percent, close to the 30 percent threshold.
But Roy Beckhorn, director of financial aid systems for Los Rios, said there is little need for worry.
As at Yuba College, the share of students taking federal loans is very low, less than 2 percent of enrollment.
"We don't anticipate that being an issue," Beckhorn said. "We believe that loans are a viable part of the financial aid package for some of our students who would not be able to go to school if not for the student loan program.
"So we don't want to remove that (option) for our students."
NEW RULES FOR CALCULATING DEFAULT RATES
The federal government keeps track of how many students default within three years of starting repayment on their loans. Beginning in 2014, if a school's default rate is above 30 percent for three consecutive years, the school will be subject to sanctions that include the loss of federal Stafford loan eligibility. However, schools with a low proportion of students taking loans can appeal and based on a calculation have sanctions rescinded.
Several local community colleges have high default rates, but all have a very low proportion of students taking federal loans. None have more than the equivalent of 2 percent of their student enrollment entering loan repayment each year, the most recent U.S. Department of Education data show.
School/Current Three-Year Default Rate
American River ................................. 27.5%
Sacramento City .............................. 16.1%
Cosumnes River ............................... 19.1%
Folsom Lake ..................................... 17.6%
Yuba College .................................... 18.6%
Sierra ................................................ 21%
Woodland ......................................... 18.6%
Source: U.S. Department of Education (2009)
Call The Bee's Loretta Kalb, (916) 321-1073. Follow her on Twitter @LorettaSacBee. Read her Report Card blog at http://blogs.sacbee.com/report-card/. Staff Writer Phillip Reese contributed to this story.
This story was changed July 15 to correct that the default calculation of 27.5 percent is for American River College.