The number of borrowers who are behind on private student loan payments has fallen to the lowest level since before the financial crisis, when many banks exited the business.
What’s more, late payments are likely to keep declining, according to MeasureOne.
Early-stage delinquencies (30 to 89 days past due) declined to 2.61% of loans in repayment from 2.99% a year earlier and 3.59% in the first quarter of 2013. They are also well off their quarterly peak of 6.93% in the fourth quarter of 2008.
Serious delinquencies (90-plus days past due) declined even further, to 2.20% of loans in repayment from 2.54% in the first quarter of 2014 and 2.92% in the first quarter of 2013
Annualized charge-off rates declined to 2.71% from 3.17% a year earlier and 3.5% two years earlier.
“The private student loan market is back to its pre-crisis levels in terms of high repayment rates and low delinquency rates,” Dan Feshbach, MeasureOne founder and chief executive officer, said in a statement accompanying the report.
“Applying standards and practices common with other types of consumer loans, like focusing on a borrower’s ability repay, the private student loan market continues to improve its already-strong performance while helping more families afford higher education,” he said.
Borrowers generally use private student loans to cover gaps between the cost of education and the amount of financing they can obtain in the form of federally guaranteed loans. Since the financial crisis, lenders still in business have tightened underwriting criteria, increased their use of co-signers who have a documented ability to repay, and have asked schools to verify the amount that students need to borrow before disbursing directly to the school.
MeasureOne’s latest report indicates that loan performance continues to improve with each subsequent origination vintage. For example, the percentage of borrowers who had missed two successive monthly payments one year after obtaining their loans went from 4.5% for the 2008/2009 academic year to 2.3% for 2009/2010 to 1.5% for 2010/2011 to 1.2% for 2011/2012 to 1.1% for 2012/2013 to 1% for 2013/14.
MeasureOne said that this trend reflects both improvements in underwriting and general improvements in the economy over time.
The better performance of more recent vintages implies that the delinquencies are likely to decline at an even faster pace going forward. That’s because, over time, loans originated more recently with lower delinquency rates will become a larger proportion of the overall market.
Moreover, even for older vintages that are not performing as well, delinquencies and charge-offs have generally declined in each quarter after origination.
Late-stage delinquencies show almost the same exact pattern.
The report analyzes loan data from MeasureOne’s Private Student Loan Consortium, a group of the nation’s six largest active private student lenders and holders of private student loans: Citizens Bank, Discover Bank, Navient; PNC Bank, Sallie Mae Bank, and Wells Fargo Bank. Together, they represent approximately 71% the total outstanding balance of all private student loans.
From the first quarter of 2014 to the first quarter of 2015, outstanding balances for the six consortium participants grew by 2.12% to $65 billion.
While aggregate originations for the six participants are growing modestly each year, the private student loan market overall appears to be contracting slightly, according to MeasureOne. This reduction is due to the fact that the portfolios of former market participants are paying down gradually.
Forbearance continues to be used judiciously, with 2.22% of loans in forbearance as of the first quarter.
At the end of the first quarter, approximately 76% of outstanding private student loans were in repayment status. This level has remained stable since 2011, with about 75% of loans in active repayment at any given time.