Nelnet is in the market with a $408 million student loan securitization that is backed by rehabilitated Federal Family Education Loan Program (FFELP) loans.

The deal, called Nelnet Student Loan Trust 2013-5, has been assigned preliminary ratings by Fitch Ratings and Moody’s Investors Service. The $399 million, class A notes are rated ‘AAA’/ ‘Aaa’; and the $9 million, class B notes are rated ‘A’/‘A2’.

The pool consist of 100% of rehab FFLE loans, these are previously defaulted that have been made current. The rehab student loan borrower must make nine timely payments within a 10 month period for the loan to be considered rehabilitated.

Rehab loans can have much higher default rates than regular FFLEP loans but these loans still benefit from the government guarantee, explained Fitch.

“We expect the credit performance of rehabilitated FFELP loans to be more variable than non-rehabilitated loans and to be more impacted by the economy,” said Moody’s analysts in the presale report. “In addition, prepayment and default behavior is not well understood for rehabilitated loans due to limited historical performance data.”

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