This document summarizes research on the effect of student loans on community college completion and persistence. Some studies show loans have a positive effect, while others show they hinder attainment. The author conducted a study of MCCCD students, finding lower completion rates for those with loans (13% graduated vs 24% without). Students with loans were also less likely to transfer or remain enrolled compared to those without loans (62% vs 72%). The author calls for more research on factors like loan amounts, part-time students, and best counseling practices.

1. Jennifer Melton
THE EFFECT OF STUDENT LOANS ON
MCCCD STUDENT COMPLETION &
PERSISTENCE

2. INTRODUCTION
• Traditionally, community colleges have
provided affordable, open access to higher
education
• In recent years, most states have cut
funding to community colleges making
them less affordable.
• Arizona has cut all funding to MCCCD

3. INTRODUCTION
• More community college students are borrowing to afford
schooling
– 30% of students at public community colleges had loans in 2003-2004
– 41% of students at public community colleges had loans in 2011-2012
• Community College students who borrow are at greater risk of
defaulting on loans
– 23% default rate for public community college students 2011-2012
– 9% default rate for students at public 4-year universities
• Community College students who borrow are at greater risk of
not completing their educational goals

4. STUDIES TO DATE
• Research has been limited
• Results have been contradictory
– Some studies show a positive effect
– Some studies show loans have no discernible
effect (St. John & Starkey, 1994)
– Some studies show borrowing hinders student
attainment and persistence rates

5. SOME STUDIES SHOW A POSITIVE EFFECT
• Two studies showed students with higher loan amounts were
more likely to persist than those with smaller loan amounts
(Cofer & Somers, 2000; Cofer & Somers 2001)
• A study of Oklahoma community college students showed loans
had a positive effect on persistence when part of overall financial
aid package (Mendoza, Mendez, & Malcolm, 2009)

6. SOME STUDIES SHOW A NEGATIVE EFFECT
• Hippensteel, St. John, & Starkey, 1996
• Dowd & Coury, 2006
• McKinney & Burridge, 2014

7. QUANTITATIVE VS QUALITATIVE
• One theory for inconclusive results is due to fact most studies
have only focused on quantitative aspects of borrowing
• Need to look at multiple factors that influence decision to
borrow:
– Socio-economic status
– Racial/ethnic background
– Messages from parents, teachers, counselors
– Effectiveness of college financial aid advisement

8. QUALITATIVE STUDIES
• Two studies surveyed financial aid office counselors to identify
best practices for administering student loans (Burdman, 2012;
McKinney, Roberts, & Shefman, 2013)
• Best practices identified include one-on-one counseling, financial
management workshops, budget planning templates
• Concerns identified:
– Student lack of understanding of debt management
– Large financial aid staff-to-student ratios
– Part-time students borrowing maximum loan amounts

9. QUALITATIVE STUDIES
• One study measured community college students’ self-
assessment of their loan debt (McKinney, Mukherjee, Wade,
Shefman, & Breed, 2015)
– Lack of adequate financial aid guidance/advisement
– Lack of debt management skills
– Unrealistic expectations of future earnings potential and how long it
would take to pay of loans

10. METHODOLOGY
• Reviewed required disclosure reports for full-time, first-time
students
• Limitations – Disclosures do not include information about:
– Part-time students
– Students with unsubsidized or private loans
– Loan amounts taken by students
– Gender or race/ethnicity of students who borrowed

11. MCCCD RESULTS
• Graduation Rates
– Student with loans – 13%
– Students without loans – 24%
• Transfer-Out Rates
– Students with loans – 37%
– Students without loans – 38%
• Still Enrolled
– Students with loans – 12%
– Students without loans – 10%

12. STUDENTS WITH LOANS
• 62% of these students have
graduated (13%), transferred to
another institution (37%), or are
still enrolled (12%)
• This leaves 38%of students
who are no longer pursuing their
educational goals.

13. STUDENTS WITHOUT LOANS
• 72% of these students have
graduated (24%), transferred to
another institution (38%), or are
still enrolled (10%)
• This leaves 28%of students
who are no longer pursuing their
educational goals.

14. RESULTS
No longer pursuing their educational
goals after three years:
38% with loans
vs.
28% without loans

15. DISCUSSION
• Factors that qualify student for subsidized loan such as great
financial need may be limiting beneficial effects of getting loans
• A similar effect regarding Pell Grants was found in a previous
study (Dowd & Coury, 2006)

16. DISCUSSION
• Loan did not meet all the financial
needs of the student

17. DISCUSSION
• As found in a previous study, students who take out loans may be
more likely to give up after assessing their loan debt and what it
will take to accomplish their educational goals (McKinney &
Burridge 2014)
• “When you’re in a hole, stop digging” mentality

18. DISCUSSION
• Very few students in this cohort took out loans
– 4% on average
• Risk aversion to debt?
• Students may self-select to attend community college for the
express purpose of not having to take on loans to pay for school

19. DISCUSSION
• GateWay Community College had the highest completion rate
– 77% of students with loans graduated or transferred out
– 74% of students without loans graduated or transferred out
• GateWay had the smallest cohort of all 10 colleges
– 246 full-time, first-time students
• Did the smaller cohort affect results?
– Smaller cohort allowed more individualized counseling and contact?

20. FUTURE RESEARCH
• Effect of loans
– Part-time students
– Gender / Race / Ethnicity
– Unsubsidized and Private loans
– Loan amount
• Best practices for financial aid counseling across the colleges