Yuba Community College Drops Out of Federal Student Loan Program: What a Great Idea!

According to a recent article in the Sacramento Bee, Yuba Community College District  (YCCD) is dropping out of the federal student loan program due to its high student-loan default rate.

YCCD officials project the college will have a student loan default rate in the neighborhood of 31 percent.  Under new DOE guidelines, a college that posts a student loan default rate of 30 percent or Pell Grants. Thus, if YCCD stays in the federal student loan program, it risks losing access to all federal student aid programs.

Photo credit: Hechinger Report

more for three consecutive years loses access to all student aid programs, including

Since only 275 of the Yuba Community College District's 15,000 students took out student loans last year, dropping out of the federal student loan program  will effect very few of its students. And YCCD students can still receive Pell Grants and participate in the federally subsidized student work program even if the federal student loan program is suspended.

This is an important story because it shows that the vast majority of students who attend some community colleges don't take out student loans. In fact, Yuba Community College District will join 17 other California community colleges that don't participate in the federal student loan program, and apparently have no trouble attracting students.

Congress should encourage all community colleges to drop out of the federal student loan program.  Community colleges all over the United States should become "No Student Loans" zones where students can get college credit for a reasonable price without taking out student loans.

Here is a modest proposal that would go a long way toward reducing student-loan indebtedness and student-loan defaults: Congress should pass a law that contains these three elements:

• Community colleges would get modest financial incentives for dropping out of the student-loan program altogether.  They would still be eligible to participate in the Pell Grant program and the federal student-work program.
• In addition, in order to receive the federal financial incentive, community colleges would be required to bar students from taking out private loans to attend college.  
• All four-year colleges that participate in the federal student-loan program would be required to have articulation agreements with community colleges that become "No Student Loan" zones. Under these articulation agreements, four-year colleges would agree to accept community-college course credits earned by their transfer students.

If such a law were passed, no one attending a community college in a "No Student Loan" zone would accumulate any student loan debt.

Apparently, a lot of community college students have already figured out that they can take classes at a community college and can get at least an associate's degree without borrowing money. That's the only explanation for the fact that only 275 out of YCCD's 15,000 students took out loans.

Yuba Community College District made a good decision when it dropped out of the federal student loan program.  If Congress would pass a simple law encouraging other community colleges to make the same decision, it would take a big step toward reducing student loan indebtedness and student-loan defaults.

References

Loretta Kalb. Yuba Community College District suspends federal student loan program. Sacramento Bee, July 15, 2013.