Association for Public Policy Analysis & Management

Over the past decade, a substantial number of community colleges have opted-out of participating in federal loan programs due to concerns over growing student debt and high default rates. Past research shows that when community colleges stop participating in federal loan programs, some groups of students may have lower educational attainment (Dunlop 2014; Wiederspan 2015). At the same time, student loan debt also falls substantially. In this paper, we expand upon these existing findings in two ways using linked data from Equifax and the National Student Clearinghouse. First, we examine the extent to which the composition of community colleges’ student body changes in response to federal loan opt-out.  Some prospective students may be discouraged from enrolling if they lack access to federal loans. Alternatively, prospective community college students may be diverted towards other types of institutions that still provide federal loan aid but may have higher costs. Second, we examine how community college students’ finances change when they lose access to federal loan programs. Specifically, we explore whether students substitute towards more costly forms of debt such as private loans and credit cards when their school opts-out of federal loan programs and the consequences of this behavior for credit worthiness over the longer-run.