The private student loan default rate dropped to 3.4% in the fourth quarter ended December 31 and will continue to decline in 2014, according to Moody's Investors Service. But the rate is expected to remain higher than pre-recession levels, when it averaged 2.5% from the first quarter of 2003 through the third quarter of 2007.
"The performance of student loan deals continues to improve year over year," said Moody's Assistant Vice President and Analyst Stephanie Fustar, author of a fourth-quarter report on the sector. "But the default rate will remain higher than it was before the recession, so as long as unemployment, a key driver of student loan defaults, remains high. Moreover, even as the unemployment rate improves, high student loan debt, persistent underemployment and lower earnings will continue to make it difficult for graduates to make their loan payments."
The 30- to 89-day delinquency rate increased 19.4% from the second quarter of 2013, driven by Sallie Maes transition to a new servicing platform, according to Moodys. The increase was significantly higher than the average quarter-over-quarter increase of 7.2 percent for the same periods in 2010-12.
The 90-plus delinquency rate for third-quarter 2013 was 2%, down from 2.4% in the third quarter of 2012, marking the 14th consecutive quarter of year-over-year improvement.
Ninety-plus delinquencies will continue to slowly improve into 2014 as unemployment declines, Fustar said.
The private student loan indices track more than 10 years of credit performance data on 73 private student loan securitizations that Moodys rates, representing approximately $40 billion in outstanding pool balance.
Moody's Private Student Loan Indices track more than ten years of credit performance data on 72 private student loan securitizations, constituting around $40 billion (outstanding pool balance), that Moody's rates.
Securitizations by SLM, First Marblehead Corp., The Student Loan Corp., Keycorp and Access Group constitute almost 84% of the number of the securitizations underlying the indices.