trends and predictions in the student loan market · lending deteriorating fast in nd north dakota...

Trends and Predictions in the Student Loan Market JAMES PARTRIDGE, SENIOR ECONOMIST

NASFAA 2016

2 2

»  Recent trends in the economy

»  Consumer credit

»  Student loan outlook

Agenda

<section title> # Trends in the Economy 1

4 4

-4

-2

0

2

4

6

8

12 13 14 15 16

Net exports Government Inventories Fixed investment

Consumers Lead the Way

Sources: BEA, Moody’s Analytics

Annualized % change

5 5

25 35 45 55 65 75 85 95 105 115

50

60

70

80

90

100

110

06 07 08 09 10 11 12 13 14 15 16

Univ. of Mich. 1966Q1=100 (L) Conference Board, 1985=100 (R)

Confidence Key to Spending…and the Economy

Sources: Conference Board, University of Michigan

6 6

0

5

10

15

20

25

30

40 50 60 70 80 90

100 110 120 130

80 83 86 89 92 95 98 01 04 07 10 13

HH debt/GDP (L) HH debt/disposable personal income (L) HH debt/net worth (R)

Relative Indebtedness Has Improved

Sources: Federal Reserve, Moody’s Analytics

Ratios of household debt, %

7 7

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

80 85 90 95 00 05 10 15

Household Balance Sheets Are Solid


Financial obligations (R)

Debt service (L)

% disposable income

<section title> # Consumer Credit 2

9 9

-20

-15

-10

-5

0

5

10

15

20

09 10 11 12 13 14 15 16

Bankcard Consumer Finance Retail Auto Student First Mortgage

Student Lending Slows As Cards Pick Up Balances of open accounts, yr/yr % change

Sources: Equifax, Moody’s Analytics

10 10

0

50

100

150

200

250

300

350

08 09 10 11 12 13 14 15

Student Auto Retail Consumer finance Bankcard

Nonmortgage Originations Rising Origination balances by qtr, $ bil


11 11

2

3

4

5

6

7

8

9

740

745

750

755

760

06 07 08 09 10 11 12 13 14 15 16

VantageScore 2.0 (L) 30+ days delinquent, % of $ balance (R)

Credit Scores Rising as Delinquencies Fall


Aggregate

12 12

0

2

4

6

8

10

06 07 08 09 10 11 12 13 14 15 16

Auto Bankcard Consumer finance Mortgage Student loan Retail

Serious Delinquency Rates Stabilizing 90+ days delinquent, % of outstanding balance


13 13

0

1

2

3

4

5

6

7

0.4

0.6

0.8

1.0

1.2

1.4

1.6

06 07 08 09 10 11 12 13 14 15 16

First Mortgage Bankcard Auto Student Loan (R)

Lending Deteriorating Fast in ND North Dakota 30 DPD delinquency rate, % of outstanding balances

Sources: Equifax, Moody’s Analytics Note: Student Loan is total delinquency.

14 14

0

1

2

3

4

5

6

7

8

9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

06 07 08 09 10 11 12 13 14 15

First Mortgage Bankcard Auto Student Loan (R)

Texas Is Somewhat More Resilient 30 DPD delinquency rate, % of outstanding $

Sources: Equifax, Moody’s Analytics Note: Student Loan is total delinquency.

<section title> # Student Loan Outlook 3

16 16

Student Loan Burden Is Large, Concentrated… Avg student loan debt* across 25- to 44-yr-olds, $, Feb 2016

Sources: Equifax, Census Bureau, Moody’s Analytics *Assumes 80% debt in 25-44 HHs

6,000 to 8,000 8,001 to 9,500

9,501 to 11,000 11,001 to 15,000

U.S.=9,500

U.S., 2006=4,000

17 17

0

10

20

30

40

50

60

70

80

Bachelor's degree Associate's degree No degree

2001 2013

…But Debt Mostly Held by More Educated


Distribution of student loan balances for young families, %

18 18

Performance Improving in Private Market… Cumulative Losses, Quarters Since Origination

Sources: Measure One, Moody’s Analytics

19 19

8.4 9.2

11.8 12.3 13.4

14.7 13.7

11.8

0

2

4

6

8

10

12

14

16

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

…And Federal Student Loans

Sources: Department of Education, Moody’s Analytics

Three-year cumulative default rate, %

20 20

0

.2

.4

.6

.8

1

2005 2010 2015

<= $20k $21k - $30k $31k - $40k$41k - $50k $51k - $60k $61+k

Sources: Moodys's Analytics, Equifax

By Borrower Income at Orig.Student Loan Non-Deferred Default Rate, % of $Income Matters for Loan Performance

Default Rate, % of $ by Income at Origination

21 21

Term Effect has Disappeared Default Rate, % of $ by Term

0

.5

1

1.5

2005 2010 2015

< 120 120+Sources: Moodys's Analytics, Equifax

By Loan Term (Months)Student Loan Non-Deferred Default Rate, % of $

22 22

-40

-30

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

West Midwest South Northeast

Growth Similar Across Regions Origination Balance, y/y % growth


23 23

4

5

6

7

8

9

10

06 07 08 09 10 11 12 13 14 15 16


South Beginning to Join the Pack Total delinquency, % of balance


24 24

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

06 07 08 09 10 11 12 13 14 15 16


Northeast Still Shows Fewest Losses Default, % of balance


25 25

New Loan Products Breakouts: »  Student loan split into “Deferment” and “Non-Deferment” categories »  Consumer finance split into “Installment” and “Revolving” categories

Credit Score Segmentation Enhancements: VantageScore 3.0 Bands:

4-7 Term Categories for Installment Loans: »  7 for auto

»  4 for student loans

Adding borrower age, income and presence of mortgage segments

CreditForecast.com Upcoming Improvements

»  5 for HELOANs

No score 300-529 530-579 580-619

620-659 660-699 700-719 720-739

740-779 780-809 810-850

»  6 for consumer finance

»  4 for first mortgage

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trends and predictions in the student loan market · lending deteriorating fast in nd north dakota...

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