Many community colleges chose not to participate in the federal student loan program, leaving nearly 1 million students at those schools to rely on more expensive private loans. The Institute for College Access and Success, which studied the issue nationally, said that 8.5 percent of all students at public two-year colleges are denied access to government financing.
Community colleges generally have lower tuition than four-year schools, so many of their students do not have to borrow. Some student expenses, however, are not fully covered by federal Pell grants for those with financial need. In those cases, according to the institute, government loans are best. New undergraduate federal loans currently bear 4.66 percent interest, compared to rates as high as 11 percent for some private college loans.
Some community colleges may avoid the government program out of concern that too many defaults will cost them their federal student aid. The report noted that there are many ways that schools can keep default rates low and keep students from taking on too much debt.