This year's T-Bill auction will boost student loan rates by 184 basis points, pushing the variable rate on FFELP loans to 4.84%, and Stafford loans originated to 6.54% during the in-school, deferment and grace periods, and to 7.14% during repayment status. Market watchers say the new rates will prompt a consolidation rush, and cause sharp prepayment speeds on outstanding FFELP deals in 2H06.

For its part, RBS Greenwich Capital says it expects outstanding FFELP deals to experience sharp increases in prepayment speeds in the second half of 2006, as they did the same period a year before. Driven by a rush to consolidate, prepayment speeds on Sallie Mae's FFELP transactions 2000-1 to 2005-2 climbed to 40 to 65 CPR the second and third quarters of 2005, up from 15 to 30 CPR in the first quarter.

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