The government-backed student loan market may be nearing a crisis, but private student loans continue to be a very good bet for lenders, according to a study released Thursday.
The amount of private student loan debt outstanding has stayed relatively flat over the past five years, while the delinquency rate has declined, according to a report from the San Francisco-based MeasureOne, which provides data and analysis on student loans. In contrast, federal student loan debt has grown from $577 billion in 2008 to more than $1 trillion today.
The delinquency rate (90 or more days late) for private student loans has fallen to just over 3% at the end of the third quarter, from 6% in early 2009, MeasureOne said in the report released early Thursday. That rate is far below the rate for all student loans, which the Federal Reserve Board estimated at 21% late last year.
The charge-off rate for private loans fell to a five-year low of 3% in the third quarter, after peaking at nearly 10% four years ago.
Private student loans are education loans not backed by the federal government, though they are often secured by the assets of a borrower or the borrower's family. Private loans represent only a small fraction of total student debt, with the seven largest lenders holding about $63 billion in total debt, according to MeasureOne. There are also about $15 billion worth of securitized private loans outstanding.
Private student loans generally fetch much higher rates than federal loans. While most government-backed loans charge 3.86%, the average interest rate on a private loan was 7.9% last year, the CFPB estimated.
Part of the reason for the improving performance of private student loans is that lenders have become more cautious. For the 2012/2013 academic year, 86.65% of private student loans had a cosigner, compared with 75.33% for the 2008/2009 year, MeasureOne said. The percentage of loans that are certified by the borrower's school meaning that the school confirms that the size of the loan is appropriate has risen to 95.75% for past academic year, from 88.30% five years ago.
The seven largest lenders in the private student loan market are Discover Financial Services (DFS), First Marblehead (FMD), PNC Financial Services Group (PNC), RBS Citizens, Sallie Mae, SunTrust Banks (STI) and Wells Fargo (WFC), according to MeasureOne.