Fitch Ratings  said today that a substantial rise in defaults would lead to incremental losses in privately funded student loan ABS pools.

The ratings agency said that federally backed student loans, because they are government guaranteed, could withstand the recent expansion of student loan debt and would not likely affect most ABS pools.

The Federal Reserve Bank of New York's "Quarterly Report on Household Debt and Credit" indicated that student loans now stand at $904 billion outstanding.

According to Fitch estimates, approximately 85% of the student loan ABS outstanding is federally guaranteed. Defaults and delinquency rates are less likely to impact bondholders of these FFELP ABS trusts as the loans are typically at least 97% guaranteed by the Department of Education.

The remaining 15% of the student loan receivables outstanding are private loans, which do not have a government guarantee. Fitch rates approximately $187 billion FFELP backed securitizations and $35 billion in private student loan ABS.

"Bondholders of securitizations backed by private student are more sensitive to credit risk and defaults rates have trended higher than expectations in recent years," said Fitch analysts in a report today. "As a result, private student loan ABS have experienced higher ratings volatility and downgrades, although transactions issued more recently have been structured more robustly to withstand our new, higher default assumptions."




Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.