Alert

Nevada Adopts Student Loan Servicer and Private Education Lender Regulations

December 10, 2024

At the beginning of 2024, Nevada began to require companies that service student loans to obtain a license and comply with numerous operational requirements. The law also regulates companies that make or hold private education loans.[1] After numerous rounds of proposed rulemaking, the Nevada Department of Financial Institutions (DFI) issued implementing regulations on November 15, 2024, that address the process to obtain and maintain a servicer license, seek approval to operate as a federal student loan servicer, create a new limited purpose exemption to the lender license, and establish new substantive regulations that apply to servicers and lenders.

Student Loan Servicers

Licensing Standards and Requirements

The regulations establish the conditions for obtaining and maintaining a student loan servicer license. As a general matter, the regulations do not elaborate on the statutory requirements for who needs a license, how to apply for a license, or what standards the DFI will use to evaluate an application. However, the regulations require a licensed student loan servicer to have a place of business in the United States, in an area zoned for commercial use and not a residence. Licensees located outside of Nevada will need to accommodate the DFI for examination of the licensee’s records.

The regulations implement a tiered system for the amount of surety bond that a licensee must maintain. Prior versions of the proposed regulation would have required all licensees, regardless of the entity’s size, to maintain a significant surety bond. The final version of the regulation still requires a significant surety bond for large companies, as the amount will range from $50,000 to $250,000 based on the loan volume services in the prior year.

Companies whose servicing activity is performed pursuant to a contract with the United States Department of Education are exempt from the statutory license application procedures. The final regulations require such a servicer to submit a copy of the awarded contract, the necessary surety bond, and the filing fee to the DFI. The DFI will then issue a license to the federal student loan servicer and deem many, but not all, of the state’s substantive requirements to be satisfied.

Compliance Obligations

Nevada’s student loan servicing law regulates how a licensed servicer responds to student loan inquiries, servicing transfers, and loss mitigation efforts. The new regulations go further to regulate specific servicing practices, required consumer-facing communications, and internal policies and procedures. Licensed servicers will need to carefully review the new standards, including:

• a prohibition on sending any notice or communication, not just legally required content, through electronic means unless the student loan borrower has given clear written authorization to receive electronic communications;
• a requirement to provide student loan borrowers with monthly statements with prescribed information, including the interest rate and payments received;
• a requirement to develop and implement policies to identify, notify, and assist borrowers whose student loans are at risk of default;
• provide a payoff statement to a borrower within 5 days of a request;
• a requirement to post its Nevada-issued license number on its website;
• a requirement to post a specific notice of the borrower’s right to  file a complaint with the DFI on its website; and
• file a voluminous annual report with the DFI by April 15^th every year with information about fees, loan balances, loss mitigation efforts, collection efforts, and litigation.

Nevada law requires a licensed servicer to retain records for two years from when the loan is paid in full or assigned to collections. The new regulations set forth the specific information that must be retained, including records of telephone calls, any borrower request for an alternative payment allocation, and numerous types of internal servicing records. Servicers will need to update their internal record retention controls in anticipation of state examination and review.

Private Education Lenders

When Chapter 670B of Nevada law became effective on January 1, 2024, it established an atypical licensing framework for private education lenders. A private education lender is a person who makes or holds a private education loan. Instead of expressly stating that a specific license is required, private education lenders were told that they are not exempt from any other state license requirement to lend. The statute deferred to the rulemaking process, stating the Commissioner of the DFI would determine the particular license that a private education lender must obtain. The new implementing regulations address the mystery and require a private education lender to obtain a Nevada Installment Loan Company license.

The regulations introduce a new exemption to the lender license requirement for certain passive holders. A private education lender can claim an exemption from licensure if it does not originate or fund private student loans in Nevada, limits its Nevada activity to purchasing and holding private education loans, and contracts with a licensed student loan servicer. The lender will need to submit a request for the exemption and provide the information requested by the Commissioner as needed to support the request. The Commissioner reserves the right to require a company that is issued this exemption to report information to the DFI on an annual basis.

The regulations also require a private education lender, like a student loan servicer, to post a notice of the borrower’s right to file a complaint with the DFI on the lender’s website. Nevada law requires a private education lender to retain records for six years from when the private education loan account is terminated. The new implementing regulations describe the specific information that must be retained, including any electronic mail, the complete private education loan file, and documentation of the borrower’s monthly income at the time of origination, modification, and repayment or forbearance.

[1] AB 332, codified at Nev. Rev. Stat. §§ 670B.010 et seq.