The last three months of 2009 saw a decrease in late payments for private student loans and reversed a five-quarter trend of rising delinquencies, according to the first publicly released analysis of private student loan payment data from credit reporting agency TransUnion.
The agency’s data, based on 270 million consumer credit files, recorded a 4.9 percent drop in the ratio of delinquent private student loans — defined as private student loans past due by 90 days or more — to 6.03 percent in the fourth quarter of 2009, down from the third-quarter rate of 6.34 percent (“Student Loan Late-Payment Rate Falls,” Chicago Sun-Times, May 2, 2010).
The decline in private student loan payments 90 days or more past due put an end to a trend of increasing delinquencies that began in the second quarter of 2008. The 30-day delinquency rates saw an even greater drop, falling 6.6 percent to 7.52 percent, down from a third-quarter high of 8.06 percent.
Also encouraging is TransUnion’s finding that the average outstanding balance for delinquent private student loan accounts, $13,033, was lower in the fourth quarter than the average outstanding balance of $17,754 on current and active accounts.
Data Shows Possible Link Between Private Student Loan Delinquencies and Unemployment
At a state level, the three highest fourth-quarter delinquency rates for private student loans were in Florida (9.44 percent), Mississippi (9.09 percent), and Tennessee (9.07 percent), where government data shows significant jumps in unemployment.
The three lowest fourth-quarter private student loan delinquency rates were in Vermont (3.28 percent), New Hampshire (3.6 percent), and North Dakota (3.75 percent), states where, although unemployment has risen, the increase has been more modulated than throughout the rest of the country.
Falling Private Student Loan Delinquencies Good Short-Term News for Lenders Looking for Long-Term Recovery
While late payments on private student loans are down from the previous quarter, TransUnion’s year-over-year data reveals that delinquencies have grown sharply over the preceding 24 months. The fourth-quarter 30- and 90-day private student loan delinquency rates are up 10.4 percent and 11.67 percent, respectively, from 2008 and up by 16.93 percent and 15.52 percent, respectively, from 2007 (“TransUnion: Student Loan Delinquencies Down This Quarter, but Rise Year Over Year,” TransUnion press release, April 27, 2010).
Delinquency rates at Sallie Mae, the largest lender of private student loans, are in line with the trends identified by TransUnion, notes Tim Ranzetta for the Student Lending Analytics Blog. In the fourth quarter of 2009, Sallie Mae’s 90-day-plus delinquencies were running at 6.1 percent, down from 6.2 percent in the previous quarter, while both of these quarters mark a substantial spike from the delinquency rates of around 4 percent in the fourth quarter of 2008 (“TransUnion Finds Private Student Loan Delinquencies Decline in 4Q 2009,” April 27, 2010).
“Given that Sallie Mae seems to be a barometer for the industry,” Ranzetta writes, “readers might be interested to know that 90-day-plus delinquencies in the first quarter, 2010, rose to 6.4 percent (from 6.1 percent the previous quarter), which the company attributed to seasonality” — a majority of borrowers graduating in May and June, entering repayment in the fourth quarter of that year, which then results in a higher saturation of delinquent accounts in the first quarter of the following year.
Despite this surge in year-over-year delinquencies and the fact that investors are still cool to securities backed by student loans, TransUnion is predicting that the future long-term outlook for lenders of private education loans will be more favorable, at least in terms of the volume of new private student loans issued.
“The total dollar value of new private loans originated in 2009 fell by nearly half when compared to the private loan heydays of 2006 and 2007. [But] federal loans, which faced similar funding challenges …, still increased more than 30 percent for the same period,” said Thomas Morrissey, manager of TransUnion’s analytic and decisioning services business unit.
“Even as government loans retake a larger share of today’s student loan business,” explains Morissey, “private loans are expected to steadily regain a good portion of their prior market share as the economy rebounds due to escalating tuition costs, no expected increase in federal loan limits, and a still-soft real estate marketplace” that continues to make it nearly impossible for families to draw on home equity and home equity lines of credit to help pay for college.
TransUnion is predicting the number of new private student loans to remain flat throughout most of 2010, possibly see a slight increase around the year’s end, and then recover by the 2011–12 academic year.
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