As California community colleges—hammered by budget restraints—shrink their enrollments, reduce their class offerings and shift costs to students, a growing number of them are turning away from federal student loan programs.

Only 16 of the state’s 112 community colleges have stopped being a conduit for the money, but that means the state now has the most kids in the country (214,000) without access to affordable student loans, according to the Project on Student Debt, an initiative of the Institute for College Access & Success. About 9.2% of community college students nationally lack an opportunity to obtain federal loans.

Only 3% of the state’s community college students borrow federal money because their education costs are relatively low compared to four-year schools, and many lower-income students qualify for grants. Still, the two-year California students took out $328 million in loans in 2010-11.

California community colleges administer around 30 state, federal and campus student aid programs. Federal Pell Grants made up more than 63% the total financial aid dollars distributed in 2010-11, followed by Board of Governor fee waivers and federal Stafford Loans (13%).

Some of the colleges abandoning federal loans cite fears that high student default rates could endanger the larger pool of grant money. Changes to how default rates are calculated made it likely the rates would rise beginning in 2011, but the changes also reduced the likelihood that sanctions would be levied against schools for having too many defaulters before 2014, according to the institute.

The institute noted that no community college had been sanctioned in recent years, and concluded that the risk was very low in the future. It reviewed a list of measures that colleges can take to reduce student defaults, mitigate crossing default thresholds and appeal sanctions should they occur.

If the trend away from federal loans continues, the institute warned, students would probably turn to less manageable private loans and credit cards, or cut into their studies by working longer hours to earn money.

Califoria community colleges have lost more than $800 million in state funding since 2008 and could lose another $338 million this year if Governor Jerry Brown’s tax measure on November’s ballot fails.

–Ken Broder

To Learn More:   

More California Community Colleges Stop Offering Federal Loans (by Erica Perez, The Bay Citizen)

Still Denied: How Community Colleges Shortchange Students by Not Offering Federal Loans (The Project on Student Debt) (pdf)

Student Financial Aid Report (California Community Colleges Chancellor's Office) (pdf)

Historic Declines at California Community Colleges (by Ken Broder, AllGov)