More Virginia community colleges include federal student loans in financial aid packages now than in past years, which also could be pushing up student debt.

Small Loans, High Default Rates

Policymakers tend to focus on stories of scary-high debt, such as a graduate student who owes six figures. But students who owe much less are more likely to default.

The typical loan in default is around $5,000. That’s total, that’s not per year, that’s all that someone borrowed, said Susan Dynarski, a University of Michigan professor of public policy, education and economics.

At Old Dominion University in southeast Virginia, for example, the average graduate with federal debt leaves school owing $23,900, according to federal statistics. But at nearby Tidewater Community College, where the average graduate with debt leaves owing $10,250, twice as many graduates default.

Student loans can create a snowballing crisis for borrowers. Debt that cannot be repaid can lead to default, fees from loan servicers, a damaged credit score, and eventually the garnishment of wages or government benefits. In some states, people can lose their professional licenses or driver’s licenses as a result of defaulted student loans.

A lot of factors determine someone’s ability to repay their loans, including what kind of job they’re able to get after graduation – which can depend on their major and the local economy – and whether they graduate at all.

The small size of loans in default suggests that many borrowers dropped out, Dynarski said. And students who drop out don’t get to enjoy the financial payoff of a higher credential.

At colleges that serve more lower-income, minority and first-generation students, such as community colleges, graduation rates are typically lower. About 38 percent of students who entered public two-year colleges in 2009 graduated, or transferred and completed a four-year degree, compared to 61 percent of students who started at a four-year college, according to the National Student Clearinghouse Research Center.

Completion, Affordability and Managing Debt

States are taking a few steps to hold down college costs and put pressure on all colleges to make sure students graduate. As of fiscal 2015, 26 states were spending part of their education funding to reward outcomes such as graduation rates. And 10 more were moving in that direction, according to HCM Strategists, a consulting firm.

Many states, including Virginia, increased funding for all higher education institutions this year and asked colleges to hold down tuition. Tennessee, Oregon and Minnesota have created scholarship programs that make two-year colleges tuition-free for students who meet certain requirements.

Some researchers and advocates say tuition-free programs don’t go far enough because paying for living expenses – not tuition – is the payday loans Fort Bridger biggest financial problem most community college students have.

To tackle that, Sara Goldrick-Rab, a professor of educational policy studies and sociology at the University of Wisconsin, said states could increase grant aid or follow Minnesota’s example and extend work-study opportunities.

Virginia state Del. Marcus Simon, a Democrat, said his colleagues in the Legislature have long considered student debt to be a federal issue. But he thinks the state can help. This year, he put forward bills that would allow students to refinance their loans through a state authority, require student loan servicers to get a license and create an office to inform and assist borrowers.

We want to create a system where there’s some regulation, there’s some oversight, and there’s just some basic information that you have to get about your loan, Simon said.

Refinancing likely wouldn’t be an option for borrowers who are behind on their loans, or have damaged credit. But all borrowers could benefit from more information and assistance.