Interest rates on Federal Direct Subsidized Loans today doubled to 6.8% from 3.4%; but the higher rates won’t have too much of an impact on securitization deals backed by these loans.
The interest rate hike only affects new loans originated under the Federal Direct Lending Program, which are not securitized, according to a JP Morgan report published today.
Analysts at Moody’s Investors Service said in a report that private student loan securitizations are more affected by higher rates because these securitizations contain a higher proportion of loans to students currently in school. These students are eligible for new federal loans.
Moody’s said that loans to borrowers who are currently in school constitute 10%-50% of 2008-13 private loan securitizations it rates.
On the FFELP loan securitization side fewer than 5% of loans in these securitized pools are to borrowers currently in school.
“Although many media accounts portray the increased rates as harmful to students who would be driven further into debt, the overall effect on student loan securitizations is minimal,” said Moody’s.