Rowan-Cabarrus Community College

The Rowan-Cabarrus Community College board of trustees approved the college opting out of the federal student loan program in an attempt to preserve access to Pell Grants, federally subsidized campus jobs and other forms of financial aid.

The decision came following a recent report from the U.S. Department of Education revealing an estimated high federal loan default rate of 29.8 percent. Colleges that go above a 30 percent default rate risk having other federal financial aid penalized, as well as losing accreditation.

“The loss of federal financial aid would have severe negative impact to our students. Since so many of our students are reliant on federal Pell grants that do not have to be repaid, we don’t want to risk losing these funds,” said Dr. Carol S. Spalding, president of Rowan-Cabarrus. “When we first opted into the loan program in 2011, we were nervous about this exact situation. The cost of attending Rowan-Cabarrus is low – tuition is only $216 for a three-hour credit class. Many students choose to pursue additional education at a four-year college. If they take out loans while they’re with us, they can already be tens of thousands of dollars in debt by the time they’ve gotten to a four-year school.”

The board’s action — which takes effect in August — affects all types of federal student loans under the William D. Ford Federal Direct Loan Program, previously known as Stafford Loans.

“We originally voted to keep participating in the loan program for the benefit of students who used the loans as a last resort to secure financial aid. Now, it’s to the point that we can’t risk jeopardizing other federal financial aid and support programs for the majority of other students,” said Carl M. Short, chairman of the Rowan-Cabarrus board of trustees.

Now that the board has voted to opt out of the federal direct student loan program, notices to students will go out this week.

While the action affects federal loans, it will not affect the federal Pell Grants, grants for low-income students and other grants and scholarships that don’t require payback. Each year, the college distributes more than $17 million of this kind of financial aid to local students. Most of it is in the form of federal Pell Grants, community college grants, lottery proceeds and scholarships.

In 2011, the N.C. General Assembly passed legislation that required all state community colleges to participate in the William D. Ford Federal Direct Loan Program, unless a college’s board of trustees adopted a resolution declining to participate in the program.

As part of the federal student loan program, loan recipients may defer repayment for up to six months after they either complete the course of study or withdraw completely. If the loan recipients do not begin repayment, then they are in default, and the default is carried against the college or university they were attending when they borrowed the funds.

“Federal student loans are not forgivable in most cases, and continue as personal debt until paid. Also, students will not be able to receive financial aid at other institutions until their loan is out of default,” said Janet Spriggs, chief financial officer for the college.

Under federal guidelines, postsecondary institutions with a student loan default rate of more than 30 percent risk losing access to other types of federal financial aid. And the Southern Association of Colleges and Schools Commission, which accredits colleges, requires institutions to maintain a manageable student loan default rate or possibly face increased monitoring and other negative consequences.

The trend of increasing student loan default rates is being seen across the state and nation, driving other colleges to also pull out of the program. Rowan-Cabarrus joins the ranks of Central Piedmont Community College, Stanly Community College and Mitchell Community College, which have also opted out. In fact, only 17 of the state’s 58 community colleges currently offer student loans.

The first year the college offered student loans, $5.9 million was disbursed. That number increased to $9.5 million in 2012-13, and climbed to $16.1 million in 2013-14.

“The sharp increases in the amount of loans being taken is scary,” said Spalding. “There are other financial aid options for students to consider rather than direct student loans. We work closely with students to identify all available sources of financial aid, whether it be from grants or one of our private scholarships through the Rowan-Cabarrus Community College Foundation sponsored by generous individuals and organizations.”

The Federal Pell Grant Program promotes access to postsecondary education for low-income undergraduate students. Pell provides need-based grants that, unlike a loan, do not have to be repaid. The amount of the grant depends on a student’s financial need, the cost of attendance at their college, whether they’re taking classes full-time or part-time and how long they plan to attend school (full academic year versus less).

For Rowan-Cabarrus Community College students, the maximum Pell award in 2013-14 was $5,645 for a full-time student for a full academic year. That means that an in-state student taking 16 credit hours would receive a personal refund of at least $1,157, after tuition, fees, books and supplies. Fifty-seven percent of students at the college qualified for Pell in the 2013-14 academic year.

Part of the problem for colleges is they have no say in who applies for loans because it’s federally mandated.

“This is a case where the college has little or no flexibility in denying these loans because it is a federally regulated program that is very specific and does not allow for local interpretation on who should and should not qualify for a loan. It’s not in the best interest of students to run up large loans, especially at an affordable community college like Rowan-Cabarrus. It’s not right to saddle students with more debt than they can expect to earn with their degree in a reasonable amount of time,” said Short.

The college also plans to offer the students the ability to take alternative loans from other lending agencies.

The college has employed several strategies to encourage students to repay their loans and to reduce the default rate. Loan counseling is provided either online or in-person by the college when they are awarded the loan and upon leaving the college. Similarly, all loan recipients are required to take an online financial literacy course. The college also began working with a new program called SALT that offers a free default prevention and financial literacy service for all students and alumni. The service provide loan repayment options, credit counseling and financial management.