With mounting concerns regarding defaults on student loans, I thought it would be interesting to review some seasoned loan data to see what the trends were. Going to First Marblehead's ABS web site, I analyzed their The National Collegiate Student Loan Trust 2003-1. This trust holds a portfolio of student loans amounting to $687.5 million. It is a relatively seasoned portfolio with over 97.5% of loans in repayment as of their latest 4/30/08 reporting period. The following table indicates how defaults have risen on this portfolio over the last two years (please note that defaults are measured as a percentage of loans in repayment):
Reporting period Default Rate
10/31/2006 5.67%
1/31/2007 6.22%
4/30/2007 7.06%
7/30/2007 7.69%
10/31/2007 8.74%
1/31/2008 8.94%
4/30/2008 9.21%
These rising default rates have made investors skittish about private loans which has effectively shut down the securitization market for these loan types. The April 30, 2008 report also indicated that forbearances stood at 13.4% of loans in repayment, up from 9.9% in the January 31, 2008. A forbearance is a period of time during repayment in which the borrower is granted permission to temporarily postpone making regular monthly payments. This is often an early harbinger of defaults to come.
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