Massachusetts Educational Financing Authority (MEFA) plans to issue a $184 million of bonds backed by fixed-rate, private student loans that it originates, according to a Fitch Ratings presale report.

MEFA, Issue I Series 2014 will be collateralized by approximately $485 million existing fixed-rate private student loans that originated with proceeds from earlier bond issuances and approximately $195 million new fixed-rate private student loans.

Fitch has assigned a preliminary ‘A’ ratings to the transaction. The bond has a credit enhancement of 8.06%.

MEFA’s loan programs are intended to assist eligible borrowers in financing their undergraduate or graduate education beyond what Federal Direct Loan Program (FDLP) and other federal assistance affords.

The borrower must either be a Massachusetts resident or must be attending a school in Massachusetts.

Xerox is the originator and servicer for MEFA. The company uses FICO score underwriting with parameters set by MEFA.

Fitch wrote in its presale report that private student loans have a higher risk of net loss compared to the government-guaranteed loans. However, the loss severities are lower on private student loans when compare to other unsecured consumer loans such as credit cards. That is because the student loans are non-dischargeable in bankruptcy court, unlike other consumer asset classes.


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