Private Student Loan Delinquency Rates Decline

The 30-to-89 day delinquency rate for undergraduate loans was 2.6% at the end of the first quarter, compared with 1.6% for graduate loans, while the rate of loans 90 days delinquent or longer was 2.1% vs. 1.1%.

Annualized charge-offs declined by 17.7% year over year to 2.3% of loans in repayment, the lowest first quarter charge-off rate since before the financial crisis, MeasureOne said.

This compared with the charge-off rate of 5.1% in the first quarter of 2011. The research showed that borrowers are using forbearance judiciously, with 2.2% of private student loans in forbearance, a year-over-year decline of 4.1%.

Forbearance refers to a borrower-requested status in which no payments are being made, but interest accrues.  

Virtually all private student loans have received school certification, in which the institution verifies actual funds needed and receives the funds on the student’s behalf. According to the report, all the active originating lenders in the consortium require school certification as a core part of their private loan programs, believing this acts as a protection against overborrowing by matching costs to funding.

Higher school certification rates directly correlate to improved loan performance and repayment rates, the report said.

MeasureOne noted that roughly 94% of undergraduate private student loans included a co-signer in the 2015–16 academic year, as did 61% of graduate private student loans. Most co-signers were parents and other close family members.

Co-signers, the report said, enable lenders to extend credit they would otherwise be reluctant to extend, based on documented ability to repay and support repayment of the loan obligations.

“The data speaks for itself and shows that most families with private student loans are paying on time, selectively using forbearance and avoiding default,” Chris Keaveney, president and chief credit officer for MeasureOne, said in a statement.

Keaveney said the fact that repayments were rising while use of forbearance was declining showed that the private student loan business was in good health.