The Private Student Loan Report for the third quarter of 2016 has glad tidings to bring for the economy. When the recession hit in 2008, the student loan industry was rocked by economic shockwaves. Many Americans, drowning in debt, went into delinquency on their student loans. Private student loans suffered as well, but the newest report has a more hopeful message of a stronger and more stable economy with more borrowers able to make their payments and ultimately pay off their student loans.
Perhaps the best news out of the report is that the level of delinquency across the board is at the lowest level seen since the peak in 2008 to 2010. Delinquency can be categorized as early-stage, or from 30 to 89 days late, or late-stage, which is more than 90 days late. The statistics are then separated again between undergraduates and graduates. Early-stage delinquency hit the peak of 8.7% in 2008 for undergraduates and 4% in 2009 for graduates. Late-stage delinquency peaked at 7.3% in 2009 for undergraduates and 2.7% in 2010 for graduates. But last quarter, early stage delinquency fell to 2.8% for undergraduates and 1.9% for graduates while the late stage delinquency declined to 2.1% for undergrads and 1.2% for grad students.
A declining rate of delinquency means that more borrowers can pay back their loan, either because they are making enough money to handle them or because they have arranged good enough payment terms with their lender and aren't defaulting on their loan. Since unsecured debts like students loans and credit card debts are usually the first to fall delinquent, we can guess that these statistics shed light on better personal finance situations for borrowers all across the US.
Skeptics might say that a decreased rate of delinquency doesn’t necessarily mean that the economy is doing better overall. It’s possible that more student loans are in forbearance or were charge-offs, which would mean the economy is still suffering. The Private Student Loan report has encouraging statistics to suggest that this isn’t the case.
In fact, annualized charge offs are at 1.9%, again the lowest point since the economic catastrophe. This charge off rate represents a 61% drop since just five years ago in 2011. Forbearance is currently at 2.2%, which is a 1.5% decline, and deferred loans are at 18.2% which signifies a 3.2% drop. These figures give us more evidence that student loans are on steady ground and borrowers are able to enter repayment successfully.
The total number of loans in repayment increased 0.4% to 74.5% overall, loans in grace periods raised to 5.0%, and the overall debt of private student loans increased 0.8%. Private loan originations last year increased over 5% compared to the year prior, with that increase being made mostly by undergraduate loans. From these figures, we can see that students continue to borrow from private lenders for tuition costs, and we can estimate that the numbers will slowly move up across the board as current students graduate and leave the grace period. A portion of undergraduates will enter graduate studies, which expands these numbers further.
The statistics from Q3 Private Student Loan Report have been very promising as a measure of how well students are able to manage their loans, but the data also contains evidence that the parents of students are doing better as well. Last year, over 93% of students had a cosigner for their private student loans; the rest utilized student loans without a cosigner. This figure represents a large jump from the 08-09 academic year when it sat at 75.8%. On the other hand, graduate loans have cosigners 59.3% of the time, which is a steady decline. Together, these stats suggest that the parents of students are in better financial situations because they are able to offer themselves as a cosigner and that graduate level students are able to complete their studies on stable economic footing and have no need of a cosigner.
All things considered, the Q3 Private Student Loan report was a sign of good things to come from the private student loan sector - which has shown substantial growth recently. Not only has private student loans shown steady increase since the crash of 2008, they also show signs of growth for the next few years.