Though the federal student loan default rate has continued to decline overall, Nevada’s rate climbed to the highest in the country for the 2016 cohort, according to U.S. Department of Education data. The national default numbers, released in September, arrived just before the Silver State began seeking out candidates for a new student loan ombudsman position to aid borrowers.
The numbers for fiscal year 2016 show the national average for federal student loan defaults reached 10.1 percent, continuing a drop that began in fiscal year 2011. In Nevada, the rate was 18.1 percent, up 2.8 percentage points from fiscal year 2015 data.
The default rate is calculated as the percent of individuals who entered repayment on their federal student loans in the stated fiscal year, in this case 2016, and defaulted within two years. The types of loans measured are considered in default if borrowers have not made their scheduled payments for at least 270 days.
The College of Southern Nevada reported the highest rate of the 23 Nevada institutions listed at 27.3 percent. That number indicates that of the 5,097 CSN students who graduated or dropped below half-time enrollment to enter repayment in the 2016 fiscal year, 1,396 were in default by September 2018.
The default rate was 5 percent for the University of Nevada, Reno and 6.5 percent for UNLV. Community colleges and other two-to-three-year degree institutions tend to have a higher default rate than four-year-or-more institutions. The federal loan default rate does not include private loans.
At the 16 private Nevada schools listed in the Department of Education’s Cohort Default Rate Database, 4,368 of 19,815 individuals in repayment for the 2016 cohort went into default within two years, a 22 percent default rate.
A 2018 report by the Urban Institute found individuals who defaulted on student loans and had reached the collections process appeared to come from less wealthy neighborhoods than those who did not default. In that report, which examined data including public, private and parental loans, borrowers with less than $5,000 in student loan debt at the start of repayment were the most likely to default.
“Student loan defaulters are more likely to have utilities collections debt and medical debt. In addition, a small portion of student loan defaulters are in collections on retail debt or bank debt,” according to the report.
Borrowers who defaulted were also more likely to live in neighborhoods with higher populations of Hispanic and black adults than nondefaulters, and they tended to have lower credit scores in the year before repayment.
Nevada’s highest in the nation default rate “shows the need for us to do more to help people that are pursuing higher education make sure that they can access it affordably,” said Nevada Assemblyman Howard Watts, D-District 15.
Watts co-sponsored a bill in the recent legislative session that would have created additional regulations around the businesses that service student loans.
The language in Assembly Bill 383 was changed due to time and financial restraints, he said. However, as signed by the governor in June, it created a new position in the state treasurer’s office for a student loan ombudsman. The state is now screening candidates for the position with a goal of filling the role by the start of the new year, said state Treasurer Zach Conine.
That position’s work will be two-fold: helping potential borrowers understand the responsibilities and terms of student loans while ensuring those who’ve taken out loans are being treated fairly and understand their rights.
One of the goals is to offer Nevadans a neutral resource on student loans that doesn’t exist for the purposes of selling them something. Part of the logic behind the bill was a growing concern over students being steered into loans with unfair repayment terms nationwide and the lack of neutral resources statewide, Watts said.
A representative for the Legal Aid Center of Southern Nevada said the organization doesn’t often handle legal action on federal student loans. When someone asks for assistance, Legal Aid generally refers the individual to nonprofit credit counseling service Money Management International, or MMI.
Alma D. DeLeon, a certified consumer credit counselor working for MMI in Reno, said in an email that in her anecdotal experience, about 60 percent of the individuals she sees for credit counseling have student loan debt. About 40 percent of those individuals are in default.
Students loans are not included in debt management plans the company sets up for clients. Instead, she suggests contacting the creditor directly to set up a rehabilitation plan or arranging an appointment for student loan counseling.
“Bottom line is those in default are usually facing hardships and do not know where to turn. This can cost them more headaches and money,” she said via email. “I have seen consumers in retirement receiving Social Security getting their fixed income garnished to pay the loans.”
That heavy burden is something Conine hopes to help borrowers avoid, both by offering them information before they take out student loans and by assisting them should they fall prey to dishonest lenders.
The treasurer’s office plans to use its “full power” and consult with the attorney general’s office if necessary when encountering predatory and unscrupulous lenders, he said.
State lawmakers will receive a report from the ombudsman, and if servicers are not following best practices, legislators will also have the opportunity to address their concerns in future legislative sessions, Watts said.
“I’ve seen a lot of people from friends and just my broader personal network who struggle with student loan debt,” he said. “A lot of people I know went out of state to get an education and came back with student loan debt or moved here and brought their debt with them, and all of those people need assistance with figuring out what works best for them.”