More rehabilitated student loans are headed for the securitization market through Navient Solutions, the nation’s largest student loan servicer and spin-off from SML Corp., better known as Sallie Mae.
A single class of floating-rate Class A notes totaling $896 million is being issued through the Navient Student Loan Trust in the seven-death conducted by Navient this year. The coupon rate is to be determined, but will be based on the one-month Libor rate. The notes will carry a legal maturity date of March 2066.
The notes have preliminary triple-A structured finance ratings from rating agencies Moody’s Investors Service, Fitch Ratings, and DBRS. Credit enhancement is 4.1%.
The loans are 97% guaranteed through the Federal Family Education Loan Program, and are all serviced by Navient. The collateral pool securing the notes consists of FFELP Stafford, consolidation, PLUS and Supplemental Loans for Students (SLS) programs. The pool consists of 23.6% unsubsidized Stafford loans, 22.6% subsidized Stafford, 30.7% unsubsidized consolidation , 18.7% subsidized consolidation, 4.1% PLUS and 0.2% SLS.
The average balance for student borrowers is $20,855, with a weighted average interest rate of 5.48%.
Navient has served up three all-rehab loan pools in four of its previous ABS transactions. While 77.6% are being repaid and current. 6.7% are in deferment at 15.7% are in forbearance.
Rehab FFELP loans are loans that previously defaulted but have been returned to good standing through a borrower making nine on-time payments in a 10-month period. While they benefit from the same guarantee, however, rehab loans have historically had higher default rates and also default more quickly than non-rehab loans.
This makes it more likely that bondholders will experience an interruption of payments when borrowers fall behind on payments. The Department of Education does not make good on principal and interest until bonds actually default.
Complicating matters for investors, however, is a new report from the Consumer Financial Proteciton Bureau which stated that students with rehab loans were far more likely to driven back into default due to gaps in programs to help students rehabilitate their loans.
The new transaction, Navient’s seventh of the year, comes just two weeks after its $1.015 billion 2016-6 deal
Navient owns and manages approximately $117.4 billion of student loans, of which $92.6 billion (79%) are federally insured, according to DBRs.