The private or non-guaranteed student loan default rate index was stable at 4.8% for 3Q11, as reported by Moody’s Investors Service's private student loan indices,

The rating agency's indices track the key performance measures of $42 billion of private student loan ABS.

Moody's said that delinquency trends showed that defaults might increase slightly early next year, although analysts expect the default rate index to stay range bound in 2012.

Although stable, the default rate index is actually over two times higher versus the average “run rate” prior to the recession. The rate is also lower compared to its record-high of 7.6% in 3Q09.

For the upcoming quarters, the rating agency thinks that the slight uptick in the current 90-plus delinquency rate to keep the default rate index close to its current level in 4Q11. Analysts anticipate that the index will go up slightly in 1Q12 given the increase in the current 30-89 day delinquency rate.

The unemployment rate, which is a key driver of student loan credit performance, is still close to historically high levels. It is expected to remain between 8.5% and 9.5% through 2012. High unemployment, rising debt and declining income would mean obligors will still have a hard time repaying their student loans, a factor that keeps defaults high.

Co-signed loans, which have two obligors on the hook for repayment (usually the student and his or her parent(s)), have outperformed non-co-signed loans, the rating agency said. Moodys believes these trends will continue in 2012.

High unemployment will continue to weigh down student loan performance, the rating agency said. This will cause defaults to stay high. Unemployment for the total population aged 16 and over is still high, although it is improving slowly. The average unemployment rate dipped to 9.2% for the first three quarters of this year from 9.8% for the first three quarters of last year.

However, the average unemployment rate for young college graduates aged 20 to 24 is at an eight-year record-high of 9.5% for the first three quarters of the year. The rate has yet to show any sign of improvement. It rose from 9.1% for the first three quarters of 2010. This trend for the age group contrasts to the improvement in unemployment for the overall population.

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