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Report: Least indebted students more often default

Iowa community college students who borrow the least amount of money are the most likely to default, according to a new study released today by the Association of Community College Trustees (ACCT).

The report, “A Closer Look at the Trillion: Borrowing, Repayment, and Default at Iowa’s Community Colleges today,” takes a close look at community college student borrowing and repayment behavior using the Iowa Community Colleges’ FY2011 student cohort data set.  

For Iowa community college borrowers with less than $5,000 in debt, there were almost as many borrowers in default as those who are actively repaying their loan debt, the report found.

“The solutions that we have for struggling borrowers, like public service loan forgiveness and income-based repayment, are geared toward middle-income earners with high debts,” said Jee Hang Lee, the association’s vice president for public policy and external relations. “We need a policy solution for the students who borrow a little but who still struggle to make the minimum monthly payment.”

The study, undertaken jointly between Iowa’s community colleges and the ACCT in fall 2014, aimed to clearly identify contributing factors to student loan defaults that could be used to develop solutions by the community colleges and policy makers. Some other factors identified by the study include:
  • Many defaulters take no action on their debt, suggesting the complexity of the repayment system and a lack of information may be stymieing students.
  • A large number of borrowers, especially defaulters, are not progressing or completing a credential.
  • Institutions lack access to complete information and a user-friendly way to analyze loan data, making default management unnecessarily difficult.
“As institutional policymakers, Iowa’s Community College Trustees recognize the value of using data to drive our decision-making process.” said Cheryl Langston, DMACC trustee and board chair of the Iowa Association of Community College Trustees. “This report demonstrates how community colleges can be more reflective and forward-looking by understanding where we are doing a good job and where we need to improve to help our students be as successful as possible.”

Iowa’s community colleges have put processes in place to improve students’ understanding and ability to repay loans. Examples include: required orientation; financial literacy courses; academic pathway plans; emergency grants; free tutoring; and embedding community services like veterans’ services and health clinics within the community college.

Iowa institutions have made some progress recently in student loan debt. In fiscal 2013, Iowa ranked ninth highest in the nation in average student loan debt compared with sixth in fiscal 2012. In fiscal 2013, Iowa ranked ninth in the nation in the proportion of students graduating with student loan debt compared to third in fiscal 2012. 

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