When it comes to relative value in student loan pools, analysts with Lehman Brothers say the more seasoned the better. Student loan prepayment rates, driven by consolidation, are expected to skyrocket for 2Q05 as the interest rate on Stafford loans was reset upward by 193 basis points last Friday, and the U.S. Department of Education recently allowed borrowers to consolidate loans while still in school.

This combination of factors means that student loan ABS with a lower percentage of borrowers currently in school will be buffered from the pre-reset consolidation craze, and will likely experience lower prepayments than more recent vintages. A 2005 vintage, for example, will have a far greater number of "fresh borrowers," or those who have had less of an opportunity to consolidate, than a 2000 vintage, said Lehman analyst Dan Mingelgrin. Borrowers who have been out of school for five years or so are considered more "burnt out," he added.

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.