Augusta Technical College will no longer offer the federal direct loan program after more than 200 students received loans, dropped out of school and took the money with them – leaving the college to deal with the debt.
As students ditched school with cash in their pockets, the college was responsible for repaying $733,000 to the federal government and the state, which had to come out of 2013 profits, according to President Terry Elam.
“We had to discontinue the program because of what it’s doing to our bottom line,” Elam said.
While students who receive direct loans are required to pay back the government, Elam said the school as the middleman is responsible for the debt if the student withdraws before the 60 percent point in a term. Many of the students also collect on Pell Grants and HOPE Scholarships that cover tuition and do not have to be paid back, leaving them with cash from the loan that should go toward living expenses, books or other costs.
However, the issue at Augusta Tech is not a local problem.
According to the U.S. Department of Education, $829 million in Pell Grants were awarded to students who did not intend to use the money for school, and the federal financial aid Title IV department accumulated more than $1.1 billion in defaulted student loans since 2011.
In March, Kathleen Tighe, the inspector general of the Department, testified before the Committee on Oversight and Government Reform about fraud rings identified in the education system that enroll in schools just long enough to receive financial aid and then drop out to transfer to another institution.
“They call them Pell Runners,” said Terry Hartle, the senior vice president for the American Council on Education. “They enroll in higher education to get access to financial aid not because they necessarily want to get an education. As soon as they can get away with the money, they do it.”
Elam acknowledged not all the students that contributed to the $733,000 in debt were Pell runners. However, they all shared the common denominator of dropping out for whatever reason and leaving debt behind.
In order for students to have access to direct loans, their college or university has to participate in the program. Normally the government writes a check to the institution in the student’s name and the money is credited to the student, Hartle said.
Depending on the type of loan, which can get up to $5,500 the first year, the student is responsible for repaying the debt either while in school or after graduation.
“At the conclusion of an education, the student repays the federal government,” Hartle said. “If not, the government follows them to the end of the Earth to get the money back.”
As in Augusta Tech’s case, the school becomes responsible when the student withdraws before the 60 percent mark in the semester and the loan becomes a receivable to the school.
Elam said he realizes some students who used the loans responsibly will suffer without access to the program. However, students are being advised on private loans, scholarships and other financial aid they are eligible to receive.
Freshman Mike Jacovino said the federal direct loan has been a key resource for him to afford college. He receives the Pell Grant and Hope Scholarship, but applied for the loan to get help with living expenses and books while attending school.
With children to care for and a degree he wants to complete, Jacovino, 33, said this change is enough to make him consider transferring to the University of South Carolina, the closest school that offers both his cardiovascular technology degree program and direct loans.
“This is my only shot,” he said. “If they can’t do the loan here at Tech, I can’t go out of pocket. It would really mean me changing schools.”