Student Loan ABS Issuance Down 58% in First Quarter
Issuance of bonds backed by student loans fell 58% during the first quarter as the credit crunch continued to take its toll on the market.
While the performance of Federal Family Education Loan Program student loan asset-backed securities remained well within expectations, disruptions in the capital markets have put significant pressure on many student loan lenders, with private student loan ABS showing greater vulnerability to negative performance trends, according to the latest Student Loan Report Card from Fitch Ratings.
The economic and legislative landscape continues to apply pressure on many issuers, as several student loan securitizations have been postponed during first-quarter 2008. Additionally, the cost of funds has increased, partly due to auction-rate market volatility.
Despite this, FFELP collateral performance has not deteriorated, as it benefits from a minimum 97% government guarantee.
Awaiting an improvement in the capital markets and legislative changes, issuers have financed student loan collateral through other means, such as warehouse lines or internal capital sources, or have permanently or temporarily changed their business models to not originate FFELP collateral, Fitch says.
This disruption in the student loan market may result in government intervention to provide financing to students through its lender of last resort program as well as by purchasing FFELP student loans at par program in the secondary market.
Access to capital has been greatly curtailed by all of these trends, causing several student loan lenders to suspend or completely terminate their lending operations,’ said Senior Director Andrea Murad. ‘With the financial guarantors and insurance providers experiencing difficulties due to higher projected losses, issuers that used to obtain wraps and insurance policies now face additional challenges in accessing the public ABS market.
Fitch’s Student Loan Report Card newsletter includes a summary of the legislation intended to create contingency lending plans that are in various stages of progress in Congress.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
