The removal of FFELP is a going concern for certain student loan issuers/servicers that have predominantly existed for the purpose of purchasing,originating,and servicing loans under the program, a Fitch Ratings report said. 

The program's end means that many state- based, quasi-governmental, and not-for-profit  issuers  are changing  their  business  models as they are no longer able to purchase or originate new loans, leaving them with a portfolio that will run-off overtime.  

Fitch believes these developments  pose additional risks to transactions serviced by such entities and could have a negative impact on future rating performance without any mitigating factors.

In  many  cases,  the  issuer's  new  business model consists of becoming a servicer  for  the  new  Federal  Direct  Loan Program (DLP).  Not-for-profit issuers' business models have traditionally focused on the  FFELP. 

The new business models for these  issuers often consist of servicing the DLP and, to a lesser extent, beginning a private student loan program.

"If an issuer that is changing its business model and has a potential going concern issue,  due to an unproven business model, is also the servicer or administrator, the ABS transactions  under management can be exposed to significant additional operational risks," Fitch analysts said. "If the servicer/administrator is unable  to perform its duties or unable to perform its duties appropriately due  to  financial  stress,  several  issues arise within student loan ABS."
Fitch believes the presence of a backup service provider can lessen the risks associated with the transition of business models. "A properly contracted backup service provider can mitigate these  risks and protect student loan ABS from increased stress and further losses and potential rating actions," Fitch analysts said.

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