Moody's: Private student loan default rate index will continue to decline
New York, June 18, 2013 -- The private student loan default rate index will continue to fall year over year in 2013 with the pace of improvement continuing in the teens, as it has in the last four quarters, says Moody's Investors Service in its first-quarter performance report on the sector. The default rate index of non-federally guaranteed student loans in 2013 will still be higher than pre-recession levels, according to "Private (Non-Guaranteed) Student Loan Performance Improves Across All Measures."
Though still high by historical standards, the unemployment rate, the key driver of student loan defaults, has been improving and is likely to stay between 7.0% and 8.0% in 2013. "A decline in unemployment means borrowers will be better able to repay their loans; however, high student loan debt and lower earnings will continue to make repayment difficult," said Moody's AVP-Analyst Stephanie Fustar, author of the report.
The default rate index for first-quarter 2013 was 4.0%, down considerably from 5.0% in first-quarter 2012. The year-over-year decline of more than 18% marks the fourth consecutive quarter of sizeable year-over-year improvement. The rate is still about 50% higher than pre-recession levels, but is an improvement from prior quarters, when it was about twice as high.
The 90-plus delinquency rate index was 2.4% in first-quarter 2013, down slightly from the same period in 2012. "Ninety-plus delinquencies will continue to decline slowly, as they have since peaking in mid-2009," says Moody's Fustar.
The PSL Indices track more than ten years of credit performance data on 71 private student loan securitizations that Moody's rates, representing approximately $40 billion in outstanding pool balance.