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Moody's: 2Q11 Sees Rise in Private Student Loan Defaults

The number of private student loans defaulting in 2Q11 increased by 5% from 1Q11, according to the Moody's Investors Service Private Student Loan Indices.

The figures showed that 5.4% of securitized private or non-guaranteed student loans defaulted in the second quarter. This is on top of a seasonal spike in the default rate for the 2010 securitization vintage, the rating agency said.

"Loan seasoning has been the primary driver of the improvement in defaults from after the peak rate," said Tracy Rice, a Moody's assistant vice president and analyst. "However, we think the bulk of this improvement in performance is behind us."

Behind the performance deterioration is the record-high levels of unemployment for young college graduates. Moody's expects the default rate index to stay close to its current level for the remainder of the year.

"A steady 90-plus delinquency rate from the first to second quarter should keep the default rate steady in the third quarter but the seasonally driven improvement in the 30-89 day delinquency rate should cause a slight improvement in defaults by year end," Rice said.

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