The private student loan default rate remains higher than pre-recession levels despite decreasing year over year in 2012, according to Moody’s Investors Service.
According to the ratings agency quarterly report on non-federally guaranteed student loan performance, the annualized default rate in fourth-quarter 2012 was 4.5%, down from 5.2% in fourth-quarter 2011, for the third consecutive quarter of sizeable year-over-year improvement. But the rate remains nearly twice as high as it was prior to the recession.
The 90-plus delinquency rate was 2.5% in fourth-quarter 2012, down from 2.7% in fourth-quarter 2011, for the eleventh consecutive quarter of year-over-year improvement. Ninety-plus delinquencies will continue to drop slowly as they have since peaking in mid-2009, said Moody’s.
"We will continue to see high rates of default because the unemployment rate, the key credit driver of student loan defaults, will remain high at 7.0%-8.0%," said Moody's AVP-Analyst Tracy Rice.
Rice said that while improving unemployment will help borrowers repay their loans, the high student loan debt and lower earnings will continue to make repayment difficult.
Moody's private student loan indices track ten years of credit performance data on 68 private
student loan securitizations that the agency rates, representing over $40 billion in outstanding pool balance.
