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."

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