Moody's Investors Service concluded its review of two federally guaranteed student loan securitizations originally sponsored by GCO Education Loan Funding Corp.

The rating reviews take into account the slower rate of repayment of the collateral.

In a report published Monday, the rating agency said it confirmed the rating of 11 classes of notes, upgraded the ratings of one class of notes, and downgraded the ratings of nine classes of notes of GCO Education Loan Funding Trust-I and GCO Education Loan Funding Master Trust-II.

In total, some $1.74 billion of securities were affected.

These bonds were once considered nearly risk free, because the U.S. government guarantees at least 97% of the defaulted principal and accrued interest of the bonds. However, the rate of repayment has over the past few years as more borrowers take advantage of deferment, forbearance, and plans that adjust repayment in line with their income. While investors will eventually receive their principal and accrued interest, the failure to pay off at maturity is considered an event of default.

. The securitizations are backed by student loans originated under the Federal Family Education Loan Program (FFELP) that are guaranteed by US government for a minimum of 97% of defaulted principal and accrued interest.

The notes were placed under review in June, after Moody's updated FFELP ratings methodology; it now derives the expected loss of each tranche by running its standard 28 cash flow scenarios and using the weights associated with each scenario.

Moody’s has stated that it will complete its review of all of the FFELP bonds it had under review by December.

Editor's note: The original version of this article mistated the date of the Moody's report.

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