The Risks of Student Loan Debt and Community Colleges

colleges in Dallas

Your local community college could seem like a method to keep your costs down and avoid the crushing debt from school loans for high school students who are looking for strategies to lower the cost of a college education.

In fact, to cut your college expenditures in half and reduce your need for student loans, many financial advisors encourage budget-conscious students to finish their first two years at a community college before transferring to a four-year university to obtain their degree.

At first glance, the two-year option may appear like a sensible decision in terms of cost management and college loan debt alleviation because community schools nearly generally have annual tuition rates that are far lower than those of four-year institutions and universities.

However, it turns out that community colleges in Dallas are among those who are most likely to experience financial difficulties with their student loans and to default on their federal loans.

According to the most recent data from the U.S. Department of Education, 10.1 percent of community college students with federal student loans default on their loans within the first two years of repayment – more than twice as many as the 4.4 percent of borrowers at public four-year universities and the 3.8 percent of borrowers at private four-year universities.

The likelihood of difficulties among community college borrowers is significantly higher when the focus is expanded to include student loan delinquencies in addition to defaults since late payments, rather than merely a total absence of payments, also indicate a struggle with the repayment of debt: According to a recent survey from the Institute for Higher Education Policy, a startling 60% of community college students will either default on their student loans or become late (without defaulting).

Comparatively, 34% of student loan debtors at public four-year universities will either fall behind on their payments or go into default. 28 percent of students at private four-year universities will.

Keeping student debt at community college to a minimum and managing it

What do these default and delinquency statistics mean, therefore, for folks intending to enroll in college who want to enter the workforce quickly or for recent high school graduates who want to transfer credits from a community college to a four-year university to cut the cost of their education?

The cost of a college education can still be greatly reduced for many students by attending a community college, but there are some risks to watch out for to prevent accruing more debt than you can manage later:

Keep your non-tuition costs to a minimum

According to the College Board, a whopping 52% of students seeking an associate’s degree and 37% of students enrolled in certificate programs do not take out any student loans at all.

These students manage their living expenditures while still keeping their college prices down to make their community college experience work. The majority of community college students commute instead of boarding and lodging, which saves money.

Living at home with your parents, packing your lunch rather than eating on campus, or working part- or full-time while you attend school are all examples of ways to manage or reduce your living expenditures.

Seek out grants and scholarships

By looking for scholarships and grants, which give you financial aid that, unlike a student loan, doesn’t have to be repaid, you can reduce the expense of your college education even lower.

Check with the human resources division at your place of employment if you are a working student. Some employers provide rewards for professional development or tuition reimbursement that might help you offset the cost of higher education.

complete your degree

Graduation is the single best indicator of successful payback for college students who do depend on student loans to fund their education. Students who go above and above to earn their degrees have the best chance of repaying their student loans without defaulting or falling behind.

According to the Institute for Higher Education Policy, just 15% of community college graduates fail on their student loans, compared to 27% of community college dropouts. In terms of student borrowers who fall behind on their loan payments without defaulting, graduates of community colleges encounter this type of delinquency at a rate of 27%, compared to students who left community colleges without earning a degree at a rate of 39%.

Students who attend school for one year or less are more likely to experience difficulties paying back their student loans, frequently because they either can’t find a job or the job they do find doesn’t pay enough for them to be able to do so.

Use only the credit you need

Due to the fact that the federal education loan program offers the same maximum loan amount regardless of the type of institution you attend, overborrowing can be particularly problematic for community college students.

For undergraduate students, the maximum federal loan amount 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 who is no longer financially dependent on your parents).

In other words, unlike at a four-year college or university, the maximum federal undergraduate loan will often cover the full cost of tuition and fees at a community college, leaving a few thousand dollars extra for books, transportation, and living expenses.

That more cash may seem alluring. Regardless of the kind of institution you attend, living expenses can be a significant obstacle for many students. How you handle your living expenditures while in college can make a big difference in whether or not you graduate with manageable or overwhelming debt.

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