May 16, 2014
Defaults on loans may cost LCC feds’ revenue
Lane Community College risks a disastrous loss of money because students who left the school in recent years — by graduating or dropping out — are defaulting on federal education loans at high rates.
The college is caught in a snare Congress set for some for-profit schools whose students learn little, owe much and default heavily.
More than 30 percent of LCC borrowers who began repayment in 2010 defaulted within three years, according to the U.S. Department of Education. That’s 952 defaults out of 3,105 students in that period.
Preliminary figures show the rate will be about the same for students who began repayment in 2011.
Under the three-strike system set up by Congress, if LCC can’t get its next default measurement below 30 percent, the Department of Education can cut off the school’s federal grants and loans.
That would mean a loss of up to $95 million to the college and its students.
LCC was among the 221 of about 4,000 colleges, universities and trade schools nationally with student loan default rates in the danger zone.
LCC officials say the reasons for the defaults are largely out of the school’s control, including the economy, borrowers’ choices after they leave campus and the school’s lack of resources for better financial aidcounseling.
“We’re doing the work we can do to try to improve outcomes for students,” said Helen Faith, LCC’s financial aid director. “So much of it is well beyond the financial aid offices.”
The stakes are high.
“If it’s more than 30 percent for three years in a row or 40 percent in a single year, the school will lose eligibility for federal student aid,” stressed Mark Kantrowitz, a national expert on student aid and publisher of Edvisors. “That could be a death sentence for the school.
“It’s not just risking the future ability of students to go to college. It’s risking the entire existence of the institution.”
LCC’s default rate triggered a federal requirement for LCC to convene a default prevention task force, write a default reduction plan and submit its documents to the U.S. Department of Education.
In addition, the rate sparked an on-site review last fall by federal officials who analyzed the school’s financial aid processes and reviewed student files.
Low completion rate
College administrators are taking a host of steps to remedy the default rate, including tightening up loan procedures, ensuring that students review their levels of borrowing and bringing in a third-party vendor to try to help former students who aren’t paying their bills.
LCC administrators are also looking for ways to shave a few defaulters off the “strike two” preliminary figures by looking for data anomalies. They hope to bring the school in at a safe 29 percent in the final figures.
Why is LCC’s default rate so high?
The No. 1 factor associated with default is dropping out before graduating or finishing a career training program, LCC officials and other experts say.
“The whole concept behind federal loans is that students can take out loans, which enables them to get an education, which enables them to get a good job, which enables them to repay the loans,” said Debbie Cochrane, research director at the California-based nonprofit Institute for College Access and Success.
When students drop out, the logic gets short-circuited. Those former students are four times more likely to default on loans than students who graduate, research shows.
Part of the problem at LCC is that so few students complete their education at the school, reports show. The official completion rate for first-time, full-time students at LCC is only 12 percent.
Some of the students who leave LCC early go on to the University of Oregon or another school. Others attend LCC part time while they work and finish their studies over a longer horizon.
“What a student needs here is not necessarily a degree. They may need only a class or a few classes,” LCC spokeswoman Joan Aschim said.
The same is true, however, for most community colleges, yet only a handful of them are experiencing repeated annual default rates upwards of 30 percent. “Most schools have rates well below sanction thresholds,” Cochrane said.
“When you see a college with a high level of default among student borrowers, that should be a cause for concern. That should give parents pause.”
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