Student Loans

Student Loans: 2019 60-Second Market Review and Insights

Sep 10, 2019 | By JOSEPH CIOFFI

Originations and Issuances, by the Numbers

Student loan debt stood at $1.6 trillion in Q2 2019, up from $1.53 trillion a year earlier, and now accounts for 10.7% of the $13.86 trillion in household debt, based on Federal Reserve Board of Governors and Federal Reserve Bank of New York data.

According to a report issued by DBRS, $19.4 billion in student loan asset-backed securities (SLABS) were issued in 2018, up 16% from 2017. Of the total 2018 SLABS issuances, student loan refinance (refi) ABS issuances were $6.3 billion, up 22% from 2017. Traditional private SLABS issuances, driven by Navient and Sallie Mae, accounted for $4 billion in 2018, a 62% increase compared to a year ago. Federal Family Education Loan Program (FFELP) SLABS issuances totaled $8.3 billion in 2018, a 2% increase from the previous year.

Performance and Practices

90+ day delinquencies stood at 10.83% in Q2 2019, down from 10.94% in Q2 2018 but remaining higher than delinquency rates for credit cards, auto loans and mortgages. In Q1 2019, MeasureOne reported that delinquencies and defaults for private student loans are at long-term lows, reflecting high asset quality and a greater percentage of loans being cosigned.

In the refi sector, 60+ day delinquencies in Q2 2019 remained very low at 0.11% (up from 0.07% in Q2 2018), according to DBRS. This is in contrast to 2.9% for private SLABS (representing no change from the previous year), and 6.2% for FFELP SLABS (down from 7.0% in Q2 2018). The refi sector continues to experience “better-than-expected” performance due to strong borrower credit profiles, which resulted in DBRS upgrading most classes of refi SLABS last year.

On the FFELP side, while increasing numbers of borrowers are using Income-Driven Repayment (IDR) plans, the Government Accountability Office recently found evidence indicating that these programs are being fraudulently used. This may increase the cost of loan forgiveness and lead to longer maturities and slow payment speeds in FFELP SLABS.

Looking Ahead

Amid lawsuits and investigations, states are continuing to drive consumer protection and increase their oversight of student loan servicers. Private student loan servicers will soon require a license in order to service loans in New York State, and California has published similar regulations.

A number of other recent proposals have sought to tackle the student loan crisis and provide relief to struggling borrowers. If approved, the Student Borrower Bankruptcy Relief Act of 2019 would remove the exception to discharge in bankruptcy for most student loans, and the Student Loan Debt Relief Act of 2019 would cancel up to $50,000 of outstanding student debt for 95% of borrowers. The Center for American Progress has also published a report urging Congress to end default and collection agencies and codify standards for loan servicing.

In the secondary market, low unemployment rates are having a positive impact on SLABS performance for now. Growth in the refi market has been strong, but this is contingent on borrower demand for refinancing, which may reduce if interest rates rise. Against the backdrop of global economic uncertainty, negative market sentiment – fueled by last month’s yield curve inversion – may affect confidence in the SLABS sector. While delinquency levels appear to be stable for the time being, these could be threatened in the event of an economic downturn and uncertainty over the employment rate.

Emily Hatchett, a paralegal in the Insolvency, Creditor’s Rights and Financial Products Group, assisted with this post.