U.S. federal student loans, which include Federal Family Education Loan Program (FFLEP) and Direct loans, spiked to 13% according to data reported by the U.S. Department of Education last Friday;but the hike in defaults won't impact student loan ABS tied to this collateral.
The higher loan defaults come on the back of tweaks the U.S. Department of Education made to how it measure defaults, which now entails measuring borrower defaults at three years after repayment begins. The reporting method previously measured defaults at the two-year point, according to an Oct. 4, Citigroup Global Markets research report.
The default rate spiked to 23% for obligors who attended for-profit schools. This group, according to the report, makes up almost 50% of defaults and only one-third of the borrowers.
Standard & Poor's said in a sector update on Wednesday that the higher default rates on federal student loans will have little direct impact on FFELP SL ABS credit since a minimum of 97% of the loans backing these deals are covered by government guarantees.
Student loan ABS year-to-date issuance is $16bn, above the $14bn for full-year 2011, according to S&P. This year’s issuance is mainly from term securitizations of FFELP auction-rate refinancing and student loans in the Straight-A conduit.
The deal is backed by FFLEP loans, guaranteed by the U.S. Department of Education.
