Private Student Loan Defaults to Decline Further in 2014: Moody's

The number of graduates who default on private student loans will continue to decline in 2014, according to a new report from Moody's. But the aftereffects of the financial crisis are likely to keep default rates above pre-recession levels for the foreseeable future.

Moody's private student loan default rate index declined to 3.4% in the fourth quarter of 2013, down nearly a percentage point from the same period a year ago. While defaults are likely to drop further throughout the next year, Moody's predicts that the index will remain above its pre-recession average of 2.5%.

"The default rate will remain higher than it was before the recession, so as long as unemployment, a key driver of student loan defaults, remains high," Moody's analyst Stephanie Fustar, who authored the report, said in a press release Tuesday. "Moreover, even as the unemployment rate improves, high student loan debt, persistent underemployment and lower earnings will continue to make it difficult for graduates to make their loan payments."

More graduates evaded serious loan delinquencies in the fourth quarter. The number of people who were late on their payments by 90 or more days fell to 2.2%, down from 2.4% during the same period in 2012. Compared to the previous quarter, however, 90-day delinquencies actually rose by 0.2 percentage points. The increase was driven by Sallie Mae's transition to a new servicing platform in the summer of 2013, according to the report. Sallie Mae expects the uptick in delinquencies to be temporary.