Aid sanctions ahead if student loan default rate rises additional five percent
UCC’s student loan default rate has reached an all-time high of 25.4 percent placing the college at sixth highest in the state. If the default rate should reach 30 percent, UCC risks losing their eligibility to provide students with federal financial aid.
A three-year sanction process kicks in once 30 percent is reached, said Michelle Bergmann, Director of Financial Aid.
“The first year of the sanctions, the federal government has us establish a task force and submit a plan to the Department of Education for review,” said Bergmann. The plan basically outlines what the school intends to do to bring the default rate down.
“The second year, if it’s still sitting at 30 percent, the Department of Education will come in, look at our plan and work with us to revise the plan,” Bergmann added. The school then works with that plan for a year.
If the default rate continues to be high, the consequences become more serious. “By the third year, if it’s still at 30 percent, then the school will lose their Pell grant and loan eligibility for that year and the two following years,” said Bergmann. No student would be able to receive federal financial aid through UCC for three years.
During the 2011/12 school year, the number of UCC students receiving federal financial aid either in the form of Pell grants or direct loans or both was 71.68 percent, according to Bergmann.
If those students could no longer attend UCC because of the loss of financial aid, the impact to the college would be significant. It would leave primarily those students who are attending college on a scholarship or those who can afford to pay themselves, said Bergmann.
Currently, two community colleges in Oregon have already reached the 30 percent limit. They are Southwestern Oregon Community College (SWOCC) in Coos Bay and Klamath Community College. These two schools are in the first year of the three-year sanction process.
Several actions are being taken here at UCC in order to keep the default rate from reaching 30 percent. The first is a focus on promoting work study as an alternative to borrowing money. Work study provides students with the opportunity to earn money while attending school and allows them to gain valuable work experience.
In addition, unsubsidized loans are no longer being automatically offered online. Although the loans are still available, the process to acquire them is different. Students must now apply through the financial aid office. The process helps students analyze their options before taking on more debt.
“Too many times, if a student is offered the money, they take it,” said Bergmann. “We are wanting students to look at their budgets.” Going through the application process helps students determine if the loan is really necessary, so they only ask for what they need.
Starting two years ago, UCC also began requiring new students to complete the Financial Aid Literacy Seminar. The seminar was developed by Kelli Macha, Financial Aid Coordinator. UCC has been one of the schools at the forefront of educating students about financial aid. No financial aid funds are released until a student completes this course.
These measures are designed to create more “educated borrowers,” said Bergmann. “We want students aware of what they are borrowing and what their responsibilities are.”
Other proactive measures being taken include monitoring student debt loads. When a UCC student reaches $25,000, they are considered high debt and flagged. “We then have to go through and look at their budget, get them on a term-by-term planner and try to get them graduated,” said Bergmann.
Monitoring is also being done to help students who are delinquent, but have not yet defaulted. Loans are not considered in default until a student has missed a payment for 270 consecutive days. Letters are sent to these students providing them with information useful to preventing default. “We are really working to try to save those people,” said Bergmann.
“Defaulting on a loan can have serious consequences,” said Macha.
Federal student loans cannot be discharged in bankruptcy and can ruin your credit if not repaid. “You may not be able to rent an apartment or buy a car,” said Macha. “The government can also garnish your wages and take your tax refunds.”
Students who are unsure of the amount of their loan debt can access that information by going to the National Student Loan Data System (NSLDS) at www.nslds.ed.gov. The NSLDS website contains a database with the total amount of student loan debt compiled for each student. It also includes information about the loan servicers along with their contact information.
Several options are available for students who may be in jeopardy of defaulting. Contact the loan servicer to determine which plan works best and to set up payment arrangements.
For more information on student loan repayment, go to www.studentloans.gov or contact the Federal Student Aid Information Center at 1-800-4-FEDAID (1-800-433-3243).