Fitch Ratings has published an updated methodology for rating bonds backed by federally guaranteed student loans to account for the impact of generous repayment programs.
It follows in the footsteps of Moody’s Investors Service, which completed a similar review of its criteria for rating Federal Family Education Loan Program ABS last month.
Both rating agencies raised the alarm last year about heavy usage of income-based repayment plans, collectively putting some $40 billion of bonds under review for a possible downgrade. And both subsequently shelved their ratings reviews in order to conduct wholesale reviews of their rating criteria.
And now Fitch, like Moody’s, is applying the new criteria to the entire universe of student loan bonds that it rates, although Fitch did not comment in its release about whether this would result in additional downgrades.