Despite paring back its COVID-19 relief programs last summer, elevated levels of pandemic-related forbearance rates remain a challenge for legacy Federal Family Education Loan Program (FFELP) student loans managed by Navient Corp.
Ratings agencies stated in new reports analyzing the lender’s new securitization pool that they will maintain higher assumed forbearance rates because of potential repayment problems that economically stressed borrowers may face with the ongoing coronavirus spread.
Approximately 43.2% of FFELP loan balances in the $766.5 million Navient Student Loan Trust (NAVSL) 2021-1 remain in some type of deferment, income-based repayment status or forbearance program that extends the original maturity.
The elevated forbearance levels, along with a lower percentage of consolidated loans (including undergraduate and graduate debt) prompted Moody’s Investors Service to estimate net losses of 0.8% on the deal – an increase from its 0.5% cumulative net loss projection for NAVSL 2020-2.
In response to the COVID-19 outbreak, Navient extended a three-month forbearance program for borrowers last spring. That forbearance allowance was reduced to one month beginning in July, but Navient will be “reviewing the COVID-19-related forbearance program on an ongoing basis and may revise it to better respond to borrowers' needs as the pandemic runs its course,” according to Moody’s.
The new transaction, Navient’s first for 2021, includes two classes of fixed- and floating rate senior notes totaling approximately $756 million. The notes have preliminary triple-A ratings from Moody’s and DBRS Morningstar.
S&P Global Ratings assigned an AA+ to the notes, since its cash flow modeling for the notes partially relies on the AA+ sovereign rating the ratings agency has assigned the U.S. since 2011. (The loans are 97% reinsured by the U.S. Department of Education).
The pool consists of 93,686 loans with an average balance of $19,923 at a 5.25% interest rate. The loans have an average 180 months remaining before maturity.
