Private student loan securitizations issued between 2010 and 2013 contain loans of stronger credit quality and are likely to perform better than 2006 to 2009 securitizations, according to Moody’s Investors Service.

The private student loan default rate index dropped to 3.6% in second-quarter 2013, the first time it has dipped below 4.0% since 2007, says Moody’s Investors Service in its second-quarter performance report on the sector.

Moody’s expects the default rate index of private student loans will continue to fall year over year in 2013 but will remain above pre-recession rates. According to the ratings agency, securitization issued between 2010 and 2013 contain loans of stronger credit quality and are likely to perform better than 2006 to 2009 securitizations.

"The default rate index will continue to fall in 2013, but will remain higher than average pre-recession levels of 2.5% because of the continuing high rate of unemployment," said Moody’s analyst Stephanie Fustar, author of the report. "Even though the unemployment rate for young college graduates has improved, higher student loan debt and lower earnings than pre-recession levels will limit borrowers" ability to repay loans."

The default rate index for second quarter 2013 was 3.6%, down from 4.2% in second-quarter 2012. It has fallen to less than half of the 7.9% peak in third-quarter 2009. The 90-plus delinquency rate for second quarter 2013 was 2.1%, down from 2.4% in second-quarter 2012.  

Moody’s private student loan indices track more than ten years of credit performance data on 72 private student loan securitizations that Moody's rates, representing approximately $40 billion in outstanding pool balance. Securitization by Sallie Mae, First Marblehead, The Student Loan Corp., Keycorp and Access Group make up 83% of the securitization represented in the Moody’s indices.

 

 

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