New Mexico State University officials expect to see a decline in the near future in the percentage of student borrowers who don’t repay their loans.
The latest report from the U.S. Department of Education, released last year, revealed that NMSU’s cohort default rate is at 20.2 percent, an all-time high in the last 10 fiscal years of the institution. That’s above the national average of 11.8 percent and the New Mexico average of 20 percent, but NMSU Financial Aid Director Jerry Martinez said new figures indicate a declining trend. Official numbers will be published in September of 2016.
“As we move forward, the default rate has started to come down because of all the things that we’re doing,” Martinez said.
In 2012, NMSU hired the company Inceptia for eight years to develop a strategy to relieve NMSU’s rising student cohort default rate. Inceptia counsels students on the implications of accepting federal loans and has performed individual studies of student borrowers and campuses to tackle the issue.
For most federal loans, students will default if they fail to make a loan payment within 270 days of the agreed upon due date.
“Students are most likely to default because they drop out of school and do not complete their degree,” said Sue Downing, Inceptia vice president. “Since they have dropped out, they have a more challenging time finding a job that provides the income to repay their student loans. A typical defaulter has completed less than 20 hours and is not currently seeking a degree.”
The U.S. Department of Education used to calculate institution default rates using two years worth of loan borrower data; however, in fiscal year 2009 it began to average numbers for periods of three years.
The DOE implements sanctions on universities that have a default rate higher than 15 percent. NMSU has been above that number since fiscal year 2009.
That impacts how the institution administers aid for students if the issue is not well handled.
One of those sanctions requires the university to give borrowers 75 percent of their loans at the beginning of the semester and the remaining 25 percent a month later.
“This is a university-wide problem because while we administer the funding, the default rate affects every department on campus and how we do things,” Martinez said. “What a lot of students miss is that whether they graduate from here or not and they move on, if they default on that loan, they affect how I administer aid for future students.”
Martinez said they will not be able to get it as low as that 15 percent in three years, but he’s seeing a trend of it going down.
If the university is in a position where its default rate is at 30 percent or more, the DOE puts the institution on probation. If the default rate doesn’t go down after two years, it can pull NMSU’s federal loan eligibility.
According to Martinez, the primary reason why students in the United States are in an estimated loan debt of $1.2 trillion is because of uneducated borrowing.
“You go out and offer a student a loan and you don’t counsel them about the impacts of it, most of them will just take the full amount when they might not need it,” Martinez said. “We need to do a better job at doing some of those things.”
Another factor could be that New Mexico is one of the poorest states in the country.
Although NMSU is significantly more affordable when compared to other public four-year institutions’ in-state tuition and fees nationwide, some students still need those loans to get an education.
“I took those loans to pay for the semesters and books,” said Diana Geremias, an NMSU graduate student who took about $20,000 to be able to afford her undergraduate degree. “I worked part-time, I was in school full time. In terms of financial aid, I was still under my parents, so my parents made too much for me to get any get any kind of money to help with tuition and what not, so loans were my only other option.”
According to Martinez, the biggest challenge for universities is that it doesn’t matter how much money the student borrows. Whether a student receives $1 or $3,000, if he or she defaults on it, it counts against the cohort default rate.
“If you’re coming here, if you need to borrow a loan, only borrow what you need,” Martinez said. “We need to be on point with educating our students about borrowing those loans and what all goes into that, and sometimes it’s not a fun conversation, but it’s necessary so that way they know the implications when they get out of here.”