DBRS today published its U.S. Private Student Loan Performance Report for 4Q11. The study contains indices that benchmark loan performance metrics for the private SLABS sector.
The indices look at three key metrics – gross default rates, delinquency rates as well as forbearance rates – for all 39 private SLABS deals that publicly report performance.
Additionally, the report has a vintage analysis for the performance metrics. It also contains commentary and analysis on the indices as well as the private student loan sector generally.
In terms of quarterly gross defaults measured as a percentage of loans in repayment, they rose to 1.47% in 4Q11 from 1.32% in the 3Q11. In the same way, the percentage of gross defaults as a percentage of original pool balance rose to 0.86% from 0.79%, DBRS said.
DBRS said that the gross default rates, while roughly 28% lower than their 3Q09 peak are still comparatively high at about triple the levels seen before the recession. In 4Q06,
gross defaults as a percentage of loans in repayment was 0.55% (versus the current level of 1.47%), while gross defaults as a percentage of the original pool was 0.25% (compared with the current level of 0.86%), DBRS reported.
Defaults have stayed comparatively high because of the still-weak job market, specifically for newly graduating college students. Furthermore, beginning salaries for those who can find work have dropped sharply in the past few years. This, together with bigger student loan balances, should contribute to defaults remaining high versus those prior to the recession.
When it comes to delinquencies as measured by loans 120+ days delinquent, they rose slightly to 2.62% in 4Q11 from 2.56% in 3Q11. This represents over a 160% rise versus 4Q06, where 1.00% of loans were 120+ days delinquent.
On the other hand, DBRS stated that the percentage of loans 60+ days delinquent dipped to 5.04% from 5.24% over the same time period. This represents a roughly 85% increase from 4Q06, when the percentage of loans that were 60+ days delinquent was 2.72%.
According to the report, the DBRS Forbearance Index continued on its downward trend in 4Q11 after a rise in the previous quarter. This represents ten quarters of drops over the past 11 quarters. The percentage of loans that are in forbearance fell to 3.74% in the 4Q11, (versus 3.91% in 3Q11). This percentage has decreased considerably from its 1Q08 peak of 13.34%, representing a 72% dip.
With respect to vintages, the 2007 vintage is still underperforming other vintages by a wide margin. Its cumulative default curve showed a slope that is much steeper versus the other vintages at similar points of aging, DBRS said.
By quarter 17 of seasoning, the 2007 vintage cohort has had over 3.5 times the levels of defaults that the 2003 vintage had gone through, and roughly 2.3 and 2.4 times the losses seen by the 2004 and 2005 vintages, respectively. It is roughly 1.8 times the cumulative loss curve of the next worst performing vintage that is 2006.