Fitch Ratings, a major agency that gauges the health of financial instruments, sees a river of red in the private student loan market.
With anywhere from 22% of 55% of trusts issued by National Collegiate Student Loan Trust, Fitch Ratings on October 1, 2013 downgraded 42 classes of the portfolio.
That may not mean much to you, but consider the broader context.
More Private Student Loans In Default
According to Fitch, defaults on private loans held by National Collegiate Student Loan Trust range approximately from 22% to 55% depending on the trust.
Fitch’s outlook for the future performance is also considered negative because the trusts continue to experience high default levels in excess of Fitch’s initial expectations.
Overall, there’s about $8.1 billion in private student loans in default.
- Fitch Takes Rating Actions on National Collegiate Student Loans
- Here’s How Private Student Loan Debt Became A $150 Billion Burden
More Federal Student Loans In Default
The federal student loan default rate is at the highest rate in nearly 20 years, with 1 in 10 recent borrowers defaulting on federal student loans within the first two years. This, according to annual figures released on September 30, 2013 by the U.S. Department of Education.
The statistics don’t get much better with older loans, either. For loans that are 3 years into repayment, one in seven borrowers with federal student loans are in default.
All This As Student Loan Debt Grows To Epic Proportions
There’s $1.2 triilion in outstanding federal student loan debt.
That doesn’t count the private student loans.
There are approximately 37 million student loan borrowers with outstanding student loans today.
If that doesn’t make your head spin, not much will.
- Student Debt Swells, Federal Loans Now Top a Trillion
- Chronicle of Higher Education
- Federal Reserve Board of New York
National Collegiate Student Loan Trust Leading The Next Perfect Storm?
The last time a field of securitized trusts went down we were talking about the foreclosure market. And though that debacle left us with a hangover that persists 5 years later, there was one major difference – the mortgage lenders had houses they could take back to minimize their losses.
What can a private student loan lender do if you fail to pay? They can sue you and, in some places, levy your bank account or slap a garnishment on your wages. Doing so will provide a payment stream, but only a small one at best over a course of years.
If you decide to fight the lawsuit, you have a chance of either winning or getting a settlement out of the lender because in some ways they’re at your mercy.
Though I’m no fortuneteller, I’m willing to bet Fitch’s actions in downgrading the creditworthiness of National Collegiate Student Loan Trust is just the beginning.