Lane Community College risks a disastrous loss of money because students who left the school in recent years -- by graduating or dropping out -- are defaulting on federal education loans at high rates.
The college is caught in a snare Congress set for some for-profit schools whose students learn little, owe much and default heavily.
More than 30 percent of LCC borrowers who began repayment in 2010 defaulted within three years, according to the U.S. Department of Education. That's 952 defaults out of 3,105 students in that period.
Preliminary figures show the rate will be about the same for students who began repayment in 2011.
Under the three-strike system set up by Congress, if LCC can't get its next default measurement below 30 percent, the Department of Education can cut off the school's federal grants and loans.
That would mean a loss of up to $95 million to the college and its students.
LCC was among the 221 of about 4,000 colleges, universities and trade schools nationally with student loan default rates in the danger zone.
LCC officials say the reasons for the defaults are largely out of the school's control, including the economy, borrowers' choices after they leave campus and the school's lack of resources for better financial aidcounseling.
"We're doing the work we can do to try to improve outcomes for students," said Helen Faith, LCC's financial aid director. "So much of it is well beyond the financial aid offices."
The stakes are high.
"If it's more than 30 percent for three years in a row or 40 percent in a single year, the school will lose eligibility for federal student aid," stressed Mark Kantrowitz, a national expert on student aid and publisher of Edvisors. "That could be a death sentence for the school.
"It's not just risking the future ability of students to go to college. It's risking the entire existence of the institution."
LCC's default rate triggered a federal requirement for LCC to convene a default prevention task force, write a default reduction plan and submit its documents to the U.S. Department of Education.
In addition, the rate sparked an on-site review last fall by federal officials who analyzed the school's financial aid processes and reviewed student files.
Low completion rate
College administrators are taking a host of steps to remedy the default rate, including tightening up loan procedures, ensuring that students review their levels of borrowing and bringing in a third-party vendor to try to help former students who aren't paying their bills.
LCC administrators are also looking for ways to shave a few defaulters off the "strike two" preliminary figures by looking for data anomalies. They hope to bring the school in at a safe 29 percent in the final figures.
Why is LCC's default rate so high?
The No. 1 factor associated with default is dropping out before graduating or finishing a career training program, LCC officials and other experts say.
"The whole concept behind federal loans is that students can take out loans, which enables them to get an education, which enables them to get a good job, which enables them to repay the loans," said Debbie Cochrane, research director at the California-based nonprofit Institute for College Access and Success.
When students drop out, the logic gets short-circuited. Those former students are four times more likely to default on loans than students who graduate, research shows.
Part of the problem at LCC is that so few students complete their education at the school, reports show. The official completion rate for first-time, full-time students at LCC is only 12 percent.
Some of the students who leave LCC early go on to the University of Oregon or another school. Others attend LCC part time while they work and finish their studies over a longer horizon.
"What a student needs here is not necessarily a degree. They may need only a class or a few classes," LCC spokeswoman Joan Aschim said.
The same is true, however, for most community colleges, yet only a handful of them are experiencing repeated annual default rates upwards of 30 percent. "Most schools have rates well below sanction thresholds," Cochrane said.
"When you see a college with a high level of default among student borrowers, that should be a cause for concern. That should give parents pause."
LCC has the dubious distinction of landing on the red flag list created by Andrew Gillen, senior researcher for education at the nonprofit American Institutes for Research in Washington, D.C.
Gillen matched up the graduation rate at U.S. colleges and universities with their default rates -- and spit out a list of 120 schools. Lane was one of 18 community colleges on the list.
"What the red flag status signifies is that a typical student who enrolls and then borrows to attend Lane Community College has a higher chance of defaulting than they do of graduating," Gillen said.
"What I would say to the student who was considering enrolling at Lane is, 'Make sure you think long and hard about what you're borrowing and what your chance of success are.'?"
Facing high default rates, LCC brought in third-party vendor American Student Assistance to help its students -- and former students -- to think through finances: to take no more in student loans than they can afford and, importantly, keep themselves current on federal loans so the school will no longer be in jeopardy.
The Boston-based nonprofit organization tries to form a relationship with student loan borrowers while they're in school so that they can contact and help them later, when the loans are due.
"We send information to students a month or a few weeks before they start payment," spokeswoman Allesandra Lanza said. "That's when they'll start paying attention versus six months before, when it's going to go in one ear and out the other."
American Student Assistance offers students its web-based SALT financial education program. Students can import their loan data and use the site's budgeting software to make a repayment plan.
Covering the debt
Current LCC student Veronica VanAndel said she got an email out of the blue from the SALT program.
"They have financial counseling. That's all that I read," she said.
VanAndel said she'll be "probably $20,000" in debt when she finishes her degree in accounting and estimates her monthly loan payments will be $100 to $200 -- which she hopes she'll be able to afford with a job in accounting, bookkeeping or payroll.
"I have a toddler," she said. "I've already been divorced and I'm trying to start over," she said.
Defaulting on student loans can be as disastrous for individual students as the accumulated default toll is for colleges, Kantrowitz said.
The federal government has collections tools that include the ability to -- without a court's permission -- garnish wages and seize income tax refunds and other government payments up to and including Social Security.
Penalties and collection costs add as much as 25 percent to the cost of the original loan. The government can take up to 15 percent of wages.
A delinquency or default can ruin the former students' credit and make it a challenge to turn on utilities, get a car loan or pass a personnel check when applying for a new job. The federal government collects on better than 80 percent of its student loans.
More than two-thirds of LCC students borrow, and their average debt accumulation is $11,789. That's low compared to debts of many students at four-year colleges. But borrowers with small loans often are unable to afford even the lower community college costs -- and they're more likely to drop out.
The Department of Education's latest get-tough policy on schools with high default rates is new, so it's unclear whether the department would pull a school's participation in loan programs swiftly or give it some more wiggle room.
The department is requiring LCC to examine the reasons for its numbers, assemble a task force and make a plan. In a report to the government, LCC officials wrote that Lane students are disproportionately low income and the first in their families to attend college.
"They have sometimes not had the opportunity to develop the reading comprehension, math skills and critical thinking skills to help them make well-considered borrowing choices," the report said.
LCC experienced a 40 percent surge in enrollment during the Great Recession five years ago. With so many added students, the college lacked staff to provide optimal financial counseling.
LCC has several other strategies -- large and small -- for lowering the school's default rate.
This school year, for instance, the school stopped automatically offering students unsubsidized loans -- loans beyond the federal calculation of what students need -- as part of their annual financial aid package.
Instead, students now have to request the unsubsidized loan. The application requires students to look up their current debt, acknowledge the monthly payment it will require and figure out the total the student is likely to borrow before completing their education.
Before this change, students mostly took all the money the college offered because they "trust the college to have their best interest at heart, and they believe that federal aid programs are intended to provide them with loan options that are affordable," the LCC report said.
When LCC stopped the automatic subsidized loans, the number of students taking them out dropped in half.
The college also will review individual campus units with default rates that far exceed the campuswide average, such as fabrication and welding, human services and automotive tech, Faith said.
"We saw such wide gaps," she said. "There were definitely some programs that had very low rates and some programs that had very high rates."
LCC is also redoubling its efforts to make sure every student, including those who drop out, get exit counseling that describes the students' obligation to pay back their loans and what to do if they can't make payments.
Federal reviewers looked at 30 LCC student files and found instances in which it was unclear that students got the counseling. LCC adopted a policy of withholding student transcripts until students show they've completed the online exit counseling.
Follow Diane on Twitter @diane_dietz . You can email her at email@example.com .