Moody's Investors Service's private student loan default rate index dropped to 3.4% in the fourth quarter of 2013, down from 4.5% in the fourth quarter of 2012.
The index tracks more than 10 years of credit performance on 72 private student loan securitizations, constituting around $40 billion in outstanding pool balance. The Moody's rated securitizations by Sallie Mae, First Marblehead Corp., The Student Loan Corp., Keycorp and Access Group make-up almost 84% of the number of the securitizations underlying the indices.
In a report published today, the ratings agency stated that it expects the default rate to continue to improve in 2014; however, due to the curent high levels of unemployment, the rate will remain above pre-recession levels, when it averaged 2.5% from the first quarter of 2003 through the third quarter of 2007.
Unemployment is a key driver of student loan defaults, and, despite some improvement “high student loan debt, persistent underemployment and lower earnings will continue to make it difficult for graduates to make their loan payments," said Stephanie Fustar, Moody's assistant vice president and analyst in the structured finance group.