LAS VEGAS - The private student loan ABS market is expected to continue its growth in 2006.

The skyrocketing cost of tuition, combined with the not-so-rapidly rising level of federal student loan maximums, is causing borrowers to increasingly turn to the private market to finance their educations, according to industry sources. These factors, along with the growth in the number of students, have made conditions ripe for private student loan companies to turn to the ABS market for financing.

John Hupalo, executive vice president with First Marblehead Corp., a significant issuer in the private student loan market, said part of the reason private student loans have become such a popular offering with issuers is competition among banks.

He made his comments at the American Securitization Forum's ASF 2006 conference here last week.

As larger lenders try to get on "preferred lender lists," their margins on the loans are shrinking as they struggle to offer more competitive pricing.

"Private loans are no longer the loss leader, but the yield saver," Hupalo said. "This is not your father's student loan business."

Of the $222 billion involved in education funding last year, $19 billion was in private student loans. Hupalo expects the private student loan market to increase 8% over the next two years.

For investors unfamiliar with private student loans, Amy Vespiano, director of structured finance with Lloyds TSB Bank, said it is important to look at the underwriting criteria of the issuer. Servicer quality, as well as school and student-type breakdown, are also important in determining performance.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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