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Even fewer advanced degrees in Navient's next student loan ABS

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Navient’s next offering of student loan bonds has even lower exposure to borrowers with advanced degrees.

That’s partly because, unlike the servicer’s previous deal, which was backed entirely by loans refinancing the debt of borrowers who have completed their education, the bulk of the collateral for Navient Private Education Loan Trust 2018-D (78.2%) is made up of in-school loans.

Even among the refinance loans, however, the exposure to borrowers with advanced degrees has fallen, to just under half (48.9%), according to DBRS. All were made using the NaviRefi loan program, which was launched in February 2018 and targets existing Navient student loan borrowers considered to be at risk of refinancing with a competitor. The program is administered by Earnest, an online lender founded in 2013 and acquired by Navient in November 2017.

The NaviRefi borrowers have a lower risk profile than borrowers under the company’s standard student loan refinance product; those in 2018-D have an average age of 40, significantly higher than the average borrower age of 32 represented in the 2018-C transaction,

Further, the weighted average time since graduation for the Navient 2018-D NaviRefi borrowers is 125 months, significantly higher than the weighted-average time since graduation of 61 months in 2018-C.

The NaviRefi loan pool’s strong credit quality is evidenced by a weighted average original FICO score of 780, a weighted average income of $131,534 and a weighted average borrower free cash flow per month of $4,611.

The in-school loans are also seasoned; all were made under programs administered by the former Sallie Mae before Navient was spun off from Sallie Mae in 2014.

DBRS expects defaults over the life of the 2018-D transaction to reach 8.8%, in its base-case scenario.

Four tranches of notes will be issued in the transaction; the three tranches of Class A notes benefit from hard credit enhancement of 22.73% and are provisionally rated AAA; a single tranche of Class B notes benefits from 12.03% credit enhancement and is rated AA.

The three senior tranches are not created equal; although they benefit from the same amount of credit enhancement, No principal will be allocated to the Class A-2A Notes and Class A-2B Notes until the Class A-1 Notes are paid in full. This means that the Class A-2A and Class A-2B notes will be outstanding longer than the Class A-1 notes. Because of their longer duration, the Class A-2A and Class A-2B notes are exposed to more credit risk.

Likewise, no principal will be allocated to the Class B Notes until the Class A-2A Notes and Class A-2B Notes are paid in full.

To build additional credit support early in the transaction, the structure incorporates a full turbo feature whereby 100% of remaining available funds after paying senior transaction fees, note interest and certain shortfalls will be used to pay principal on the Class A Notes until the overcollateralization reaches either 16.20% of the then current pool balance or $42,687,169 – whichever is greater.

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Student loan ABS Consumer ABS