Troubling Performance by Private Student Loans

Private student loans only make up a portion of the student loan business, but they have a special niche in providing risk-based pricing on loan products to students.  For some students, they make sense.  For others, they represent an opportunity to get in over your head.  Loan limits on private loans are very high – as much as $40,000!

My Rich Uncle is a lender that should be less vulnerable to the downtown than other private lenders, if only because they target students in graduate school who are likely going to find high-paying jobs.  They focus on mba students, medical school students, and law students.  More than 35 percent of their loans go to people in graduate school, and more than two-thirds of their loans have someone acting as a co-signer.

The chart below, listed in their 10-q filing last spring, suggests that even this group is having some trouble paying back their loans.

Both delinquincies and forebearances are increasing

The loans in this analysis consist of loans held in MRU’s portfolio, rather than the ones that they have already securitized and sold to investors.

MRU points out that delinquincies are not as high as in January 08.  True, but the overall trend still shows that cracks are appearing in these portfolios.  Moreover, January is a hard month for student loan portfolios because it represent the time when many of the previous spring’s graduates are first being asked to make loan payments.  There is a natural bump-up, where non-performance essentially captures months of unobserved student loan non-payment all at once.

So, this is surprising and significant because it is a cut of the population that should be relatively able to afford their debts.  These are not students who have completed two semesters of a beauty salon academy.  Rather, they are graduate students, or students with co-signers, or both.

These are not people who would want to run away from debt.  They have spent years developing skills and a professional identity.  To see forebearances and delinquincies go up like this is to see how hard it is for young people with skills to break into the job market.