Just as the student loan ABS sector was digesting proposed cuts to federal student loan subsidies proposed by Congress, it was hit with a Bush administration proposal to cut lenders' special allowance payments (SAP) by 50 basis points in the 2008 budget plan. If Congress sanctions the changes, then it could change operations at several student loan providers. Future student loan ABS structures might experience declines in excess spreads from their existing levels, say industry observers.

Although the president's proposal did not specify which federal student loans would be targeted for the reduction, the expected cuts might be applicable to all FFELP types, Claire Mezzanote, a managing director at Fitch Ratings said during an industry conference call on Thursday morning about the student loan sector.

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