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NMSU at risk of financial aid penalty

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LAS CRUCES – Nearly one in 10 New Mexico State University students who began repaying student loans in 2009 have already defaulted, according to U.S. Department of Education data.

If NMSU’s loan default rate continues to worsen, future freshmen could face a mandatory 30-day wait before receiving loans, making it more difficult for them to pay tuition, buy books and manage other college bills typically due before classes start.

Nationally, about 7.2 percent of students who attended public colleges and universities and began repaying in 2009 have defaulted, up from a 6 percent default rate the prior year, according to federal data.

At NMSU, 9.9 percent of student loans entering repayment since 2009 have defaulted, a jump from 7.9 percent defaults for the 2008 class. The group includes all students who began repaying loans that year, regardless of whether they graduated from college. Federal loans typically require payments beginning six months after a student stops attending classes.

“We have been working on this for a while. Those are things you don’t do overnight,” NMSU vice president of student affairs Bernadette Montoya said about improving the university’s default rate.

NMSU, like other New Mexico colleges, already requires financial counseling before loans are issued and when students leave school. Now, the university has turned to a Nebraska group to help it analyze why its default rate is more than double the 4.5 percent defaults reported at University

of New Mexico and New Mexico Tech. Montoya said a detailed report is expected in early December.

“I’m having difficulty pinpointing any specific one thing,” she said. “Hopefully, within a few weeks when I get our analysis, I’ll have a better idea.”

The Obama administration has written new rules on student loans, expected to take effect next year, that should offer some relief to students still in school. Under the changes, some people won’t have to make payments that exceed 10 percent of their disposable income.

The Department of Education through this year required freshmen loan delays and other federal loan restrictions for colleges with a two-year default rate higher than 10 percent within the last three years. Starting next year, the penalty rate will adjust to account for changes in the official default rate calculation.

The official rate for each school includes all branch campuses. At New Mexico State, it also includes Do a Ana Community College.

Two of New Mexico’s four-year colleges have already exceeded the 10 percent default rate that can trigger penalties. Eastern New Mexico and Western New Mexico universities each reported loan default rates of at least 11 percent. However, loan data there is more variable because the schools issue fewer loans. Both Eastern and Western combined have fewer than half the number of borrowers at NMSU.

Despite the potential penalties for a default rate over 10 percent starting next fall, Eastern will continue to disburse freshmen loans before the start of school, said Brent Small, director of financial aid at Eastern. Small said he interprets the rules differently.

A U.S. Department of Education spokeswoman did not return calls for comment.

ENMU President Steven Gamble said the school’s 11.7 percent default rate is unacceptable and requires immediate improvement. He said the high rate is driven primarily by practices at one of the school’s branch campuses, but wouldn’t specify which one. The school has two-year branches in Roswell and Ruidoso.

“We know we don’t have a good explanation or a good excuse,” Gamble said. “We’re just working on it as hard as we can right now. Hopefully, it will get better.”

The highest loan default rate in New Mexico is 14.8 percent at New Mexico Junior College in Hobbs. Several community colleges in the state have also exceeded the 10 percent default rate. But in New Mexico the cost of attending a community college is far less than for other state schools, making it easier for students to enroll without relying entirely on loans.

Going over 10 percent defaults triggers restricted disbursement rules, but the Department of Education has been slow to enforce default policies, said Elwood “Woody” Farber, president of the New Mexico Student Loan Guarantee Corp., which manages loan payments for students across the state. The group through 2009 was responsible for issuing federal loans to students, but that responsibility has since shifted to individual schools.

“It’s not something that I have seen heavily enforced,” he said of the freshmen loan disbursement limits.

Starting next year, the government will switch its official measure to defaults within three years of leaving school, instead of two, and shift the penalty point up to 15 percent to account for projected increases because of the longer time period, according to new federal rules released this month.

Under the new three-year calculation, NMSU’s default rate would jump nearly four percentage points to 13.7 percent, according to federal draft estimates, within 2 percentage points of incurring next year’s federal penalty.

“We feel confident that we are going to be able to manage that,” Montoya said. “We would never want to put our students in jeopardy for losing any kind of financial aid.”

Under the new three-year default calculation using draft data, ENMU’s rate would jump to 16.8 percent. Western’s would increase to 13.5 percent.

UNM default rates, by comparison, would increase to just 5.8 percent using the new three-year measure.

“The reasons we think ours is good and has been good historically is we give a good education at a good value and students get good jobs,” said Terry Babbitt, the UNM associate vice president for enrollment management. “… I think our students are frugal. I think they borrow money when they need it, and I think they get a strong payoff on it.”

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