Dodging the default trap

Half of Washington State’s community colleges struggle with high default rates

By Jeremy Vetter

As a graduate of a local Seventh-day Adventist boarding academy, Melissa Wright wanted to attend Walla Walla University, which boasted one of the best programs in Seventh-day Adventist higher education in Washington.

The high cost of tuition led Wright’s parents to persuade her to attend a college close to home. Reluctantly, she selected Spokane Community College where she could live with her parents to save on living and school expenses. She enrolled in the Associate of Applied Science program in Nursing.

Private university tuition can break a family’s budget quickly, and Wright soon realized that her parents were correct: community college was a wise financial choice. Yet, even with the lower tuition costs, Wright still found herself about $4,000 short, so she took out federal student loans.

The average debt for students who attended four-year universities in Washington is more than $24,000, according to the report Student Debt and the Class of 2013. Students borrow from a number of federal, state or private sources to cover the full cost of attending college. In comparison, Washington’s community and technical college students had an average annual loan debt of $5,600 in 2012-2013, according to a Washington Student Achievement Council report from December 2013. In line with the state average, Clark College students’ average an annual debt of $5,143, according to the college’s Financial Aid office.

Loan default is a major concern for Washington’s community and technical colleges. Half of the 29 community and technical colleges in Washington that submitted data have a default rate of 18 percent or more. Colleges with rates greater than 30 percent are at risk of losing access to federal loan monies. Clark College’s default rate is in the middle of the pack at 18 percent.

The student loan default three-year average for community colleges—18 percent—has skyrocketed over the last three years compared to four-year institutions, at 9 percent, according to the Department of Education’s default rate database. Part of this gap is due to changes in how the default rate is calculated. In 2013, community colleges were required to switch from a two-year cohort calculation to one that spanned three years, essentially adding more defaults to the mix.

However, reports from the Department of Education  indicate that the shorter the degree length, the higher the default rate, making community college students at a greater risk for default.

Proactive relief
For Wright, repaying her debt is important.

“My parents kept motivating me to pay back my debt as soon as I could,” Wright said. “They wanted me to start out on my own with little to no debt.”

Wright’s experience stands in contrast with the data.

Spokane Community College, where Wright attends, has a default rate of 22 percent, one of the 10 highest in the state. Bellevue College has the state’s lowest community college non-repayment rate at 8 percent.

Wright is an emblematic college student with a typical community college student’s debt load. She has dodged defaulting at a school with the state’s second highest rate because she’s taken personal responsibility to pay her bills, not because of any resources that the college has offered.

“I remember having to take an entrance counseling class online before they would process my loans,” she said. “To be honest, I just kind of clicked through the online class and didn’t really pay attention to what it was saying,” she said.

Wright had a plan of her own: she got a job at a local day care and paid off the debt in one summer.

“I worked full time and I had money already saved up,” Wright explained. “I kept living at home, so my parents helped pay for a lot of my personal expenses.”

If she hadn’t resided with her parents, her situation might be very different.

“If I were living alone, I couldn’t have made payments toward my loan,” Wright said. “In fact, I’d probably have had to take out more loans.”

Even working at the daycare, Wright sees no way she could have lived on her own without going farther into debt, especially with unexpected expenses.

“Last summer I had to spend almost $700 to fix my car,” Wright said. “If I had been living on my own with more tuition due in the fall, I would have been really stressed out.”

More jobs, fewer defaults

There are multitudes of ways to avoid over-borrowing: repaying early as Wright has done, or providing sage advice from the beginning, as Bellevue College does.

The Bellevue, Wash., community college student loan default rate rests far below the median. Ata Karim, vice president for student services, said one of the reasons is because students don’t automatically get loans in their financial aid packages.

“Students must request a loan,” Karim said, “and our paperwork and staff encourage students to only borrow what they need.”

Another factor that keeps Bellevue’s default rate down is that the Seattle economy is stronger than many of the economies throughout Washington, enabling students to get jobs and repay their loans more quickly, according to Karim.

And, transferring to the local university further benefits many Bellevue College students.

“A number of students transfer to a four-year university,” Karim said, “especially the University of Washington,” which has a default rate of just over 4 percent. UW also provides $200 million in grants and $20 million in scholarships to students each year.

Taking action
Students with limited resources, who don’t live at home to reduce their expenses and haven’t secured scholarships, may find themselves accumulating a hill of debt. Some colleges in the state are addressing the issue by taking new steps to
educate students.

Clark College provides its students with regular online communications with links to national databases to help them understand their debt and avoid default, among other services.

At Spokane Community College, Tammy Zibell, director of financial aid, and Marjorie Davis, director of financial aid at Spokane Falls Community College, address the problem by approaching students who are struggling academically by offering tutoring, advising and workshops.

They also implemented an Early Alert System, flagging students struggling in class, offering them extra help. In addition, Zibell and Davis got their financial aid departments involved.

“In the past, loans were available to students without ensuring they understood the financial obligations,” they said.
Both colleges hired a default prevention manager and additional staff, tasked with calling every student who defaulted last year to inform them of their options.

“Often students do not understand the long-term consequences of default on their credit rating, nor do they know that their wages and income tax refunds can be garnished.”

Spokane Falls Community College and Spokane Community College attribute their circumstance to a slow economy.
“Many of our students come here from rural areas after losing their jobs. Also, Spokane’s post-recession gains have been slower than elsewhere in Washington,” Zibell and Davis said.

Spokane Falls Community College’s default rate is 20 percent as of 2012, a drop of nearly 5 percent from the year before. Spokane Community College’s 22 percent rate in 2012 fell by nearly 6 percent from the year before, according to Davis.

Changes the Spokane colleges have made over the past two years, such as individually educating students, are having an effect.

“We are very happy to see these rates drop and thrilled to see our efforts resulted in such significant decreases,” Davis said.
Nursing student Melissa Wright has taken a pro-active approach to her future so far, but she still has more financial decisions to make. To finish her nursing degree, she needs to borrow, at maximum, another $10,000.

“I have a year and a half left,” Wright said. “Hopefully I won’t need all the money, and I can give the rest back.”

Community colleges’ default average FY 2009-2011

*2012 rate for SFCC was 20.1%

+2012 rate for SCC was 21.8%

There are 34 community colleges in Washington. Data for four institutions was not available.

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Jeremy Vetter is a writer living in Moscow, Idaho. His work has appeared in a variety of collegiate newspapers and magazines including Walla Walla University and Western Oregon University. His work is available at www.jeremyvetter.com.