Times are changing quickly for the student loan ABS sector, both externally and internally. While the asset class continues to attract attention from investor groups that are shying away from MBS products, lenders and secondary market financing sources are making progress in the way student loans are originated and securitized.

Meanwhile, more specialty student loan providers are funding their private loan programs through securitization. College Loan Corp., one student loan provider, is planning to float a $500 million ABS deal secured by private student loans sometime by the end of the second quarter of 2008, said John H. Falb, the company's SVP of capital markets. Falb spoke at last week's ABS East 2007 conference in Orlando.

A deal secured by such collateral would be a first for CLC, which has a five-year track record of securitizing $14 billion in student loans. The company does not expect to mingle FFELP and private loan pools in the deal planned for next year, said Falb.

Increasing consumer demand for higher education funding will force a migration from financing that is facilitated by schools to private providers, said Robert Culnane, managing director of Boston-based GCO Education Loan Funding Corp., who spoke at the same conference.

Falb agreed, pointing out pullbacks in federal higher education finance. "We do not expect to see an increase in loan limits on the federal side, and we're seeing less grant aid," Falb said.

The San Diego-based company is making other changes to its product lineup, said Falb. Recognizing the migration to a more direct-to-consumer-oriented lending model, the scrutiny that such loans invite and the need to gauge consumer behavior, the company launched a small-balance credit card program earlier this year.

The cards offer limits of about $500, but they are an early indication of how those borrowers will perform and manage debt, said Falb.

Lenders at Access Group, a nonprofit provider of graduate student loans, have not seen any degradation of credit or other ill effects of the subprime MBS debacle, said John F. Kolla, its CFO and executive vice president. As a matter of fact, there has been an improvement in the overall credit profile of its applicants, many of whom have higher credit scores than applicants from previous years.

"Our pricing adjustments have attracted better borrowers," Kolla said. "We've also got a better educated borrower, as far as credit goes."

Third-party student loan servicers are also changing their tactics, which might also factor into why ABS secured by student loans continue to perform well. Specifically, servicers are shifting from practices that suited FFELP loans to ones that more closely match methods used in credit card and auto debt collections.

Newer classes of accredited investors are taking a closer look at the asset class, and SLABS needs to attract new investors, said Kolla.

"I met with a couple of investors looking to get into the space," he said. After the panel session, Kolla elaborated about the growing interest that institutional investors are showing in SLABS. Potential investors in SLABS included money managers that had either withdrawn from the MBS sector or were looking for ways to diversify their portfolios.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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