Experts, including the Student Loan Ranger, often champion attending two-year institutions, like community colleges as a way to minimize the amount of debt students take on to obtain a degree. That's because it works. According to the most recent data from the National Center for Education Statistics, more than 70 percent of students pursuing an associate degree borrow less than $6,000.
However, if you dig into the latest student loan default numbers, you'll find something surprising: the rates are higher for students of two-year institutions than four-year schools. In fact, the most recent cumulative default rates show that the percentage two-year public school students who default is 18.7 percent and 13.2 percent for students at two-year private and nonprofit institutions, which is more than double their four-year counterparts.
Unfortunately, less debt does not equal fewer defaults. And default's consequences, like wage garnishment and severe credit damage, can hurt borrowers even more than a bloated loan balance.
If you're a community college student, check out the following three things you can do to avoid falling into this trap.
[Here are five financial mistakes community college students make.]
1. Think before you borrow: More so than many other college students, individuals attending community college may have to balance their educational goals with obligations to their family, employer or numerous other things. As a result, it's possible that life is more likely to affect these students.
So, before you borrow a student loan, think about how you're going to make time for all your priorities and how strong your plan is to do so. If you plan to go to community college while working, make sure your boss is OK with you working fewer hours. If so, great.
However, make sure you can afford the cut in salary that may come with cutting your hours. Getting a degree is a fantastic goal, just don't let it blind you to the realities of your life.
Remember, like your other obligations, a student loan is a commitment. You are responsible for repaying it whether you complete your education or not. By thinking before you borrow, you can help ensure the former comes true.
2. Maximize your federal financial aid: If you decide that borrowing loans makes sense to you, see if you're eligible for federal financial aid. According to the nonprofit Project on Student Debt, at community colleges, only 29 percent of students with documented financial need take out federal loans. That number jumps to 72 percent for students at public four-year schools and 80 percent at private four-year schools. Their research cites borrowers being reluctant to take out money for school and limited information from their institutions among the reasons for this variation.
However, financial aid is available for community college students, and while you should think before you borrow, you can be less reluctant if you go with federal student loans.
Federal loans come with repayment options to help you manage your debt. For those instances when life happens, you may be able to lower your payments with a different repayment schedule or pause them temporarily with a deferment or forbearance. These options can help you stay out of default if you're struggling with your payments. Take advantage of these options by talking to your loan holder.
3. Stay in school: Maximizing federal financial aid can help community college students in an additional way -- it can keep them in school if they run out of money.
Community colleges have a dropout problem, with reports indicating that "one in four community college students enrolled in fall 2010 was not enrolled anywhere in the next semester." While these reports indicate that many of these students eventually re-enroll, what's not clear is how long it takes them to do so.
The grace period on federal student loans begins once a borrower drops below half-time enrollment, which would occur when you drop out. If you re-enroll before your grace period concludes, you receive that entire grace period again -- likely six months -- the next time you fall below half-time enrollment. However, if you fail to do this, your loans will enter repayment and you might not even realize it.
One way to avoid such a scenario is to be sure you enroll at least half time. Check with your school on what half-time enrollment means there, as this definition can vary.
Another way is to keep track of when your loans will enter repayment. You can do this by logging in to the National Student Loan Data System. Not knowing your loans are due is the first step toward default -- which is definitely a path you don't want to go down.
Taking out student debt without going on to complete your program of study can lead to big repayment problems. So whether your goal is a formal credential from a community college or to eventually transfer to a four-year institution, it's important to stay on target so you don't end up with debt but no diploma.
Ryan Lane is the senior editor for American Student Assistance, where he oversees the financial website saltmoney.org and serves as the editor of the SALT Blog. He graduated from Syracuse University with a B.S. in journalism.