Private Student Loans Eye Slow Rebound from Crisis

Private student loan delinquencies – those 90 days or more past due – decreased about 4.9 percent in the fourth quarter of 2009, down from a high of 6.34 percent in the third quarter, according to just-released figures from TransUnion.

The quarterly decline represents a reversal of a five-quarter trend that began in the second quarter of 2008, the credit-reporting agency said. The 30-day student loan delinquency rates saw a 6.6 percent drop, down from a high of 8.06 percent in third quarter 2009.

This is the first bit of good news in months for the private student loan industry, decimated by the financial crisis and credit crunch, and now facing an uncertain future with sweeping reform signed by President Obama last month.

However, year-over-year comparisons show different results.  For the fourth quarter, the 30- and 90-day delinquency rates are up from 2008 – 10.4 percent and 11.67 percent, respectively. And from 2007, the rates are also up – 16.93 percent and 15.52 percent, respectively.

As graduation looms across the country for college students, the specter of having to start paying back thousands in student loans looms over their financial future.

Meanwhile, high school graduates are facing a bit of a “roller-coaster” student loan industry as they had toward college, according to Thomas Morrissey, manager of TransUnion’s Analytic and Decisioning Services business unit.

President Obama on March 30 signed into law the first overhaul of the federal student loan system in decades. The reform promises to bolster Pell Grant funding, make it easier for graduates to repay college aid and save $68 billion by eliminating “middle-men” bankers.

The financial crisis fueled a collapse in the private student loan industry. Most specialty private lenders are out of the market, and the capital markets are not rushing to invest in securities backed by student loans.  

“Public sources have estimated that 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,” Morrisey said. “Federal loans, which faced similar funding challenges … still, increased more than 30 percent for the same period.”

TransUnion expects the number of new private student loans to remain flat, possibly incurring an up-tick by the end of 2010, then recover by the 2011/2012 school year.

As government loans retake a larger share of the student loan business, private loans are expected to steadily regain prior market share as the economy rebounds, TransUnion says, “due to escalating tuition costs, no expected increase in federal loan limits and a still-soft real estate marketplace.”

TransUnion’s figures are based on private student loans, which comprise about 20 percent of the student loans issued in the United States. The remaining 80 percent are estimated to be federal or government-backed loans. TransUnion culled from its U.S. consumer credit database and used proprietary analytics to determine the delinquency trends.

The highest private student loan delinquency rates – 90 days or more past due – were in Florida (9.44 percent); Mississippi (9.09 percent); and Tennessee (9.07 percent). The lowest delinquency rates were in Vermont (3.28 percent); New Hampshire (3.60 percent); and North Dakota (3.75 percent).

J. Lipsky

Hello, I am John, born in Cedar Rapids, but lived a lot of years in Latin America. I am an economist and have specialized in credit and debt. Originally sovereign debt, but later on, in credit score management and debt consolidation. I write for many publications. Here in eCreditDaily, I write about credit, second chance banking, and debt. I also write for other websites and bulletins about inflation and country risk.

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