Dominion Bond Rating Service today published an updated rating methodology for federal student loan ABS. Through the revised methodology, DBRS discusses the unique qualities of the Federal Family Education Loan Program (FFELP) loans, how these loans are financed via the capital markets, as well as the rating agency's specialized approach for rating ABS backed by FFELP loans.

"Although FFELP loans are at least 97% guaranteed, the loans include terms that introduce a variety of risks to ABS transactions,"  said DBRS Senior Vice President David Hartung in a company release. "These risks include liquidity risk, prepayment risk, interest rate and basis risk, as well as servicer risk. The loans are complex, unsecured,long-term instruments that often have large balances and are made most often to borrowers with little or nocredit histories. Given the number of variables in FFELP loan ABS transactions, DBRS provides a comprehensive, logical and transparent approach to analyzing the credit quality of these bonds."

The strategic highlights of this FFELP loan  methodology are issuer-specific default assumptions derived from standard deviations of the base case and issuer-specific deferment as well as forbearance assumptions. Additionally, the methodology pays close attention to delinquency assumptions that are considered sensitive to borrower benefit programs, a concise and logical approach to interest rate and basis risk, and the integration of servicer evaluations into the ratings process.

"Updating the DBRS FFELP loan ABS criteria continues our commitment to the ABS market," says DBRS Managing Director Michael Nelson in the same release. "In addition to superior analytics, investors can expect to receive timely and insightful commentary on the FFELP ABS asset class from DBRS so that they can make more informed decisions."

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