I want to take this opportunity to share some information with our Student Affairs and Enrollment Management Staff related to recent news articles related to our student loan default rates. Please be aware that NMSU is not at risk of any financial aid penalty, nor are we are risk of losing Title IV funding because of our default rate. Our default rate of 9.9% is a concern, and we are addressing this through a variety of means. The November 28 article in the Albuquerque Journal has led to some concerns on this account.
Default Rate Calculation
Our official default rate of 9.9% was calculated under a set of rules that expired on October 1, 2011 and represents the 2-year repayment history for students who left NMSU or graduated in 2009. The new calculation will represent a 3-year payment history; students have more opportunities to default in three years than in 2, and so we expect numbers to increase under the new calculation rules. The Department of Education increased the threshold for penalties to 15%, which offsets the expected increase in the cohort rate.
Under the new rules, our 3-year trial default rate is 13.7% (called a trial rate because this calculation is not the official one yet). The penalty mentioned by the Journal article requires that we delay loan disbursements for first-time borrowers (not freshmen, as stated in the article) for 30 days after the semester starts. The threshold for losing funding is 30%.
Several items will help us stay under the 15% default rate:
- Counseling for students before they receive a loan each year (federal regulations require this only for first-time borrowers).
- Counseling by NSLP for students who are in their grace period before entering repayment and for students who are delinquent and at risk of defaulting.
- New Department of Education Income Borrower Repayment Plans that limit some students to loan payments that will not exceed 10% of their disposable income.
NMSU has been working with an outside firm, NSLP, on this issue. Preliminary results from NSLP indicate that students who withdraw from NMSU early in their college education have default rates higher than students who earn a degree or even students who withdraw later. Consistent with this data, NMSU community colleges have higher default rates than the Las Cruces campus. Overall, default data mirrors retention data in that students with the lowest family incomes, test scores, and GPAs have the highest default rates, just as they have the highest drop-out rates.
How can you help? Each of you can help by supporting retention efforts for all of our students. In addition, you are encouraged to refer students to the Financial Aid Office so that students can benefit from the expertise of the staff who are versed in the loan rules and regulations.