Moody’s Investors Service default rate index of non-federally guaranteed student loans dropped to 3.4% and will continue to fall year over year into 2014.However, the default rate index remains higher than pre-recession levels, when it averaged 2.5% from first-quarter 2003 through third-quarter 2007.
"Even though unemployment has improved, it remains high; the default rate is about 40% above the pre-recession average," said Moody's analyst Stephanie Fustar. "The improvement in unemployment is also offset by higher student loan debt and lower earnings, which make loan repayment difficult."
Sallie Mae's transition to a new servicing platform contributed to the increase of 20-89 day delinquencies by 19.4% from second-quarter 2013. The increase was significantly higher than the average quarter-over-quarter increase of 7.2% for the same periods in 2010-12.
The 90-plus delinquency rate for third-quarter 2013 was 2.0%, down from 2.4% in third-quarter 2012, marking the fourteenth consecutive quarter of year-over-year improvement. "Ninety-plus delinquencies will continue to slowly improve into 2014 as unemployment declines," said Fustar.
The PSL Indices track more than ten years of credit performance data on 73 private student loan securitizations that Moody's rates, representing approximately $40 billion in outstanding pool balance.
A report published this week by MeasureOne, a specialized data company that focuses exclusively on student loan data, said that private student loans perform significantly better than federal student loans.
Federal loans outstanding dwarf the size of the private student loans market. MeasureOne calculated total outstanding debt for private student loans is $63 billion; federal student loans outstanding debt is $1 trillion.
As of 3Q12, only 3.89% of private student loans were seriously delinquent and have further declined to 3% in the 3Q13 . The Federal Bank of New York estimated that as of 3Q12, 21% of all student loans were seriously delinquent.
“Given the size of federal student loans outstanding, relative to private student loans, it is clear that federal student loan programs statistically account for the overall student loan delinquency rates reported by the Federal Reserve Bank of New York,” the MeasureOne report said.