Student loan lender SLM Corp. is coming to market with a $2.2 billion transaction that, in a first for the lender, is secured by consolidated private student loans and direct-to-consumer (DTC) loans.

The transaction, SLM Private Credit Student Loan Trust 2007-A, is Sallie Mae's fourth issuance this year, according to Fitch Ratings. Private consolidated student loans comprise about 9.8% of the trust, while DTC loans comprise 9.4%.

Although the underlying loans carry no government guarantees, the loans are not dischargeable in bankruptcy, unless they pose an undue hardship on the borrower, or the loan is no longer used to pay for an education. Those features help reduce loss severity on defaulted loans. Further, the prepayment risk is lower compared with FFELP transactions, because unlike the government program, not many options exist for consolidation of private student loans. However, private student loans can be taken out through home equity loan financing, and consolidation loan products through private student loan programs, said the rating agency.

Funds from DTC loans are dispersed directly to borrowers, who are responsible for certifying their cost of attendance and their enrollment. The loans are generally priced higher than those originated through Sallie Mae's school channel.

Floating-rate notes in classes A-1, A-2, A-3, A-4A, B-1 and C-1 are expected to pay interest on a quarterly basis, benchmarked off of the three-month Libor, while the A-4B, B-2 and C-2 notes will pay according to the 28-day auction rate, according to Fitch.

Aside from Fitch, Standard & Poor's is also expected to rate the SLM 2007-A series bonds.

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

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