For high school students who are on the hunt for ways to reduce the cost of a college education, your local community college may look like a way to keep your expenses down and avoid the crush of debt from school loans.
In fact, many financial advisers recommend that, if you’re a cost-conscious student, you complete your first two years at a community college before transferring to a four-year university to receive your degree, as a way of cutting college costs by as much as half and minimizing your need for college loans.
Community colleges almost universally have annual tuition rates well below those of four-year colleges and universities, so at first blush, the two-year route may seem like a natural choice in terms of cost management and college loan debt relief.
As it turns out however, community college students are among those students most likely to struggle with college loan debt and to default on their federal student loans.
According to the most recent data from the U.S. Department of Education, 10.1 percent of community college students who are carrying federal education loans end up defaulting on their loans within the first two years of repayment – more than twice as much as the 4.4 percent of borrowing students at public four-year universities and 3.8 percent of borrowing students at private four-year universities.
Broadening the scope to look at student loan delinquencies in addition to defaults – since late payments, and not just a complete absence of payments, also indicate a struggle with the repayment of debt – the potential for trouble among community college borrowers is even higher: A whopping 60 percent of community college students will either default or become delinquent (without defaulting) on their college loans, according to a new report released by the Institute for Higher Education Policy.
In comparison, among student borrowers at public four-year universities, 34 percent will either fall behind or default on their school loans. At private four-year universities, 28 percent will.
Minimizing, and Managing, Student Debt at Community College
So what do these default and delinquency rates mean for college-bound adults who are looking to find a quick route into the working population or for high school graduates who want to minimize the cost of a four-year college education by transferring credits from a community college?
For many students, attending community college is still an effective method to significantly reduce the total amount spent on a college education, but there are a few hazards to look out for to avoid taking on more student loan debt than you’ll be able to handle later:
1) Keep your non-tuition expenses low.
A full 52 percent of students pursuing an associate’s degree and 37 percent of students in certificate programs don’t take out any school loans at all, according to the College Board.
These students make their community college experience work by managing their living expenses at the same time they’re keeping their college costs low. Most community college students are commuter students, living at home, which cuts back on room-and-board costs.
Managing or reducing your living expenses may mean living at home with your parents, brown-bagging your lunch instead of eating on campus, or working part- or full-time while you go to school.
2) Seek out scholarships and grants.
You can cut your college costs even further by seeking out scholarships and grants, which provide you with financial aid that, unlike a college loan, doesn’t need to be paid back.
If you’re a working student, check with the human resources department at your place of work. Some employers offer tuition reimbursement programs or professional development benefits that can help you defray the cost of higher education.
3) Finish your degree.
For those college students who do need to rely on student loans to get through school, the single best predictor of successful repayment is graduation. Students who complete their degree, above and beyond, are the most likely to repay their school loans without defaulting or becoming delinquent.
Just 15 percent of community college graduates default on their college loans, compared with 27 percent of community college dropouts, according to the Institute for Higher Education Policy. When looking at student borrowers who fall behind on their loan payments without defaulting, 27 percent of community college graduates experience this kind of delinquency, versus 39 percent of community college students who didn’t complete their degree.
Students who spend one year or less in school are the most likely to run into repayment problems on their college debt, often because either they can’t find a job or the job they do find doesn’t pay enough to enable them to make their student loan payments.
4) Borrow only what you need.
Overborrowing can be particularly problematic for community college students because the federal education loan program offers the same maximum loan amount regardless of what type of school you attend.
The maximum undergraduate federal loan is $5,500 for first-year students and $6,500 for second-year students ($9,500 and $10,500, respectively, if you’re an independent student, no longer financially dependent on your parents).
The maximum federal undergraduate loan, in other words, will, unlike at a four-year college or university, typically cover the cost of all tuition and fees at a community college, leaving a few thousand dollars still available for books, transportation, and living expenses.
That extra money can be tempting. Living expenses can pose a major challenge for many college students, regardless of the type of school you attend. How you pay for your living expenses while in college can mean the difference between manageable and unmanageable debt levels when you graduate.
Having a plan to pay for your living expenses without resorting to maxing out your student loans will significantly reduce the amount of money you need in order to complete your degree. And the less student loan debt you have when you graduate, the lower – and thus more manageable – your monthly payments will be and the faster you’ll be able to pay those loans off.