Nearly 1 million students in community colleges are unable to take out federal student loans because their schools don’t participate in the federal program, an advocacy group reported Tuesday.

The Institute for College Access and Success, which studied the issue nationally, said 8.5 percent of all students at the public two-year colleges are blocked from a source of financing usually cheaper than a private loan.

The interest rate for new undergraduate federal loans is now 4.66 percent. Rates vary on private college loans, but some range up to 11 percent.

Community colleges have much lower tuition than four-year schools, public or private. That means many students don’t have to borrow. But some at the two-year schools have expenses that aren’t fully covered by federal Pell grants for those with financial need. In those cases, the institute contends, federal loans are the best choice.

“Most community college students still don’t use loans to pay for their education, but for those who need to borrow, federal student loans can make the difference between graduating and having to drop out,” Debbie Cochrane, the institute’s research director, said in a statement. “Only 17 percent of community college students take out loans, but 37 percent of community college associate’s degree graduates have federal loans.”

The institute, with offices in Oakland, Calif., and the District of Columbia, said some colleges shy from the program because they worry that if too many student borrowers default, the schools will be cut out of federal student aid. The report said that is a misguided concern and that there are plenty of ways for schools to contain default rates and ensure students don’t take on too much debt.

In Maryland, the report found, 14 of 16 community colleges participate in federal student loans. Those that do not are Baltimore City Community College and Chesapeake College.

Patrick Onley, the Baltimore college’s director of media and community relations, said the college’s policy reflects a desire to ensure its students have access to Pell grants.

“Colleges are held accountable for students defaulting on their loans,” Onley wrote in an e-mail. “When an institution’s default rate is too high, that college can lose its eligibility for Pell grants and other campus-based federal funding.

“In the mid-1990s, BCCC made the decision to withdraw from the loan program to protect its eligibility to participate in the Pell grant program. That is a major resource for the BCCC student body: For example, for the fall 2013 academic year ... some 54 percent of our students received Pell grants.”

In Virginia, 16 of 24 public two-year colleges participate in the federal loan program. The eight community colleges that do not, according to the report, are Eastern Shore, Mountain Empire, Patrick Henry, Paul D. Camp, Rappahannock, Southside Virginia, Southwest Virginia and Virginia Highlands.

The University of the District of Columbia, which operates the capital city’s community college, participates in the federal loan program.