The Education Finance Council (EFC) said today that non-profit student loan organization should be exempt from the 5 percent credit risk retentions rules.
In the absence of exemption, the EFC proposes that the agencies clarify that risk is already retained by nonprofit student loan organizations, because the assets are kept on balance sheet or the issuers provide adequate overcollateralization in transactions.
In a letter submitted today to the six federal agencies that proposed the rules to implement the credit risk retention requirements as required under the Dodd-Frank Act, the EFC highlighted the nuances of nonprofit student loan organizations in comparison to for-profit issuers.
The letter also highlights the structural differences between nonprofit and for-profit securitization transactions, the history of investor interest in nonprofit student loan bonds, and the alignment of nonprofit alternative student loan programs and consumer interests.
“The rule is based on the fact that sponsors of securitizations in most asset classes use a transaction structure where they sell assets to a separate issuing entity, so the original sponsor of the transaction doesn’t retain any risk,” said EFC President Vince Sampson. “Nonprofit student loan issuers don’t sell or transfer assets to an issuing entity. They keep the underlying student loans on their balance sheets, effectively already retaining all of the risk.”