In a recent report by MeasureOne, a credible reporting and analytical organization, promising student loan trends were discovered for the academic year of 2016-2017. Unaffiliated with Federal student loan trends, private student loans have seen a general decrease in the rate of write-off and delinquency on both the graduate and undergraduate level. These rates have reached historical levels when comparing them to the big picture over the past half-decade. This is sure to make President-elect Trump happy who has been perceived to have notions for privatizing the student loan industry.
To start, the report found the best private student loan origination volume in the last year. MeasureOne discovered that the current academic year saw an increase of 5.47% in loan origination overall. Of these loans, 89% were for undergraduates while the remaining 11% were intended for graduate students.
In conjunction with this origination boost, the second half of 2016 saw promising delinquency trends which pertain to both early and late stage delinquency. The early stage delinquency rate for undergraduate loans fell by 67% from 2009 to a new low of 2.8%; late stage delinquency rate is at 2.1%, a 71% decline. The same statistics for graduate private student loans are 1.9% for early stage delinquency and 1.2% for late stage (53% and 56% declines, respectively).
For the big picture, early stage delinquency is down 8.8% to 2.7% of all private student loans, and the overall late stage delinquency rate declined by 15% to 1.9%. This is considerably better than federal loan performance at a delinquency rate of 5.41%. In addition to these promising trends, more positive news was found in the MeasureOne report.
Annual write-offs by private lenders decreased by a hefty 21% down to 1.9%. A write-off is a failed loan which is taken as a loss, so this means that private loan performance overall has improved. This is in stark contrast to the Federal default rate of 10.7%. Additionally, this write-off rate does not come close to Federal loan forgiveness which is slated to forgive a much more significant portion of student loan debt.
These private student loan trends shed quite a bit of hope on the private market. After all, if this success can be repeated, then a very different loan situation may be a reality in the next ten years. Despite this hopeful thought, this data is not indicative of future performance.
For any significant changes to occur, a considerable portion of student loan borrowers must transition over to the private market. It is no guarantee that this portion of borrowers would perform as well as the current private student borrowers. On top of this, private lenders have much stricter underwriting criteria compared to the Federal government and FAFSA. With this in mind, it is not surprising that private student loan performance outstrips Federal loan performance.