The Pennsylvania Higher Education Assistance Agency plans to issue a $517.8 million student loan securitization backed by Federal Family Education Loan Program (FFELP) loans.
The loans are reinsured by the U.S. Department of Education for at least 97% of defaulted and accrued interest.
Fitch Ratings has assigned preliminary ratings to the deal that is structured with one AAA’-rated, class A notes and AA’-rated class B notes. The class A notes ratings have been placed on ratings watch negative however because they are strongly tied to the U.S. Sovereign ratings, because the underlying collateral is guaranteed against default by the US Department of Education.
In an October report published by Moody’s Investors Service, analysts said that in typical FFELP student loan securitizations, the US Department of Education guarantees a minimum of 87% of defaulted loan principal and accrued interest. However, monthly defaults for FFELP loan pools underlying the securitization rated by Moody’s are currently only 0.3% to 1.0% of the pool balance.
Moody’s also noted that the currently low interest rate environment means that these deals do no rely “heavily on the minimum floating rate of return that the US Department of Education provides on FFELP loans,” because “the interest rated the student pays on their loans generally exceeds the minimum guaranteed rate of return, and therefore the securitizations earn the higher borrower rate.”