Consolidated rehab loans make up bulk of Nelnet $271M SLABS pool

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Nelnet is sponsoring its second securitization of private student loans this year, in a deal focused on rehabilitated loans.

The $272.1 million Nelnet Student Loan Trust 2020-2, arranged by Bank of Montreal, is made up of nearly 50% of formerly delinquent loans which that have been cured to current status, according to a presale report from Fitch Ratings. (Nine months of timely payments within a 10-month period permits a loan to gain rehabilitated status under the standards of the Higher Education Act of 1965.)

Nelnet's two most recent student-loan ABS (SLABS) offerings have limited rehab loan exposure to no more than 25% of the collateral pool.

All of the loans in the collateral pool were issued prior to July 2006 under the former Federal Family Education Loan Program (FFELP), which assisted financing students for post-secondary education tuition and expenses. All of the loans are backed by eligible guarantors and reinsured for at least 98% of the principal and interest by the U.S. Department of Education.

Another aspect of the loans: All of them are consolidation loans of former Stafford and PLUS loans issued under FFELP, providing fixed-rate long-term extensions of up to 30 years for borrowers.

The total balance of the pool at the cutoff date was $272 million, with a weighted average borrower interest rate of 5.29% and average account balance of $33,433 for 8,134 borrowers (holding 14,240 loans).

All of the loans are also consolidation loans, with 12.56% in either deferment or forbearance. Another 14.5% of the pool are loans enrolled in the income-based repayment financial hardship program, a level in line with other Nelnet transactions, according to Fitch. (Consolidation loans have similar deferment and forbearance terms of Stafford loans, and receive the same interest subsidy payments from the Education Department if any or all of the underlying loans are subsidized.)

In addition to the rates earned from borrower payments, investors also receive excess special allowance payments that the Education Department makes to FFELP lenders to cover the difference between the amount of interest received from the borrower and what is provided under the Higher Education Act. The percentage varies on whether the loan was originated as a Stafford, PLUS or a post-2000 consolidation loan, and whether the loan holder is a profit or not-for-profit organization.

The capital stack of the transaction includes $264.3 million in Class A notes and $7.8 million in Class B notes, with an expected AAA rating from Fitch.

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