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DALLAS -- Community colleges faced with negative perceptions over loans and a growing number of borrowers defaulting are facing pressure to provide better financial literacy education to their students. For many community colleges, only a small minority of students borrow, however, a high rate is problematic to the borrowers and the college.
Officials at Ivy Tech Community College in Indiana revamped their approach to helping students understand the intricacies and consequences of taking out loans and have seen the system's three-year cohort default rates decrease to 18 percent. In 2014, the system had a 22 percent default rate, according to federal data.
"We know the key to successful repayment is their ability to pay," said Ben Burton, chief student financial resources officer, during the American Association of Community Colleges national conference here, adding that it's important that students complete college, get a job and earn a salary that helps them pay their loans. "In some of our institutions in Indiana, some of our students earn more leaving with an associate degree than they do with a bachelor's degree … We have to get them on the path."
Burton said lowering default rates should involve everyone at the college, including those outside the financial aid office. That means better preparing these students for high-wage jobs so taking out student loans doesn't lead to defaulting.
Ivy Tech hired Student Connections, a loan default prevention management company, that took on the responsibility of lowering borrowers' chances of defaulting by helping them to understand their finances and advocating and serving as an interpreter for students with loan servicing agencies.
Burton said the college had limited resources to provide the one-on-one financial counseling needed to truly help students understand their financial situations.
"When it comes to repaying a student loan, it's confusing and it's not like repaying a car," said Steve Queisser, vice president of strategic partnerships at Student Connections. "The real key to default prevention is retention."
Often students don't understand that a financial aid award letter may include loans, or they may not realize that they're still on the hook for loans even though they didn't graduate, Burton said.
Student loan defaults have been increasing, with federal data showing that about 4.6 million borrowers were in default as of 2017 -- more than double the number that were in default four years earlier. Colleges with high default rates can face federal sanctions. A recent Government Accountability Office report found some colleges are working with consultants to push students into forbearance as a way to lower the institutions' default rates.
Ivy Tech, on the other hand, is focusing on counseling students about their options before they accept the loan. Analysis from the Center for American Progress has shown that defaulters are typically from low-income backgrounds. The average annual income level of an Ivy Tech student is about $20,000, and about 70 percent of the system's degree-seeking students receive financial aid.
Seventy percent of students drop out of college because of nonacademic barriers, and many of those barriers are related to financial literacy skills, Queisser said.
"If debt is a problem and it turns into delinquency, why aren't we doing more about it and helping students understand those burdens?" he said.
Burton said Ivy Tech has built in financial counseling so someone from Student Connections reaches out to the student who is considering taking out a loan to talk with them about what is happening in their life and to explain to them the consequences.
But that doesn't mean students shouldn't take out loans, especially if it helps them graduate and get a job that provides the earnings needed to pay back those loans, he said.
"That's why we want to talk to them," Burton said. "We've built in some counseling based on their risk."
