Some student-loan issuers and administrators tackle the risk of problem loans through the asset-backed market. Others prefer to deal in no-problem loans securitized for investors.
The Pennsylvania Higher Education Assistance Agency (PHEAA) is back with its second securitization this year of federally guaranteed student loans, many of which are impaired or consolidated loans belonging to stressed borrowers.
SoFi Lending Corp., meanwhile, is prepping its fifth asset-backed pool of student loan refis to highly paid, advanced degree professionals.
The SoFi Professional Loan Program trust will issue $584.4 million in notes through its latest 2016-E transaction. The SoFi notes are ultimately backed by $624.8 million in loans originated through the refinancing programs by the San Francisco-based lender, and are split between tranches of variable-rate and fixed-rate loan refis.
The Class A-1 notes due 2039 totaling $164.6 million are comprised of variable-rate loans will itself carry a floating-rate coupon, while the fixed-rate Class A-2A notes maturing in 2036 ($203.3 million) and Class A-2B notes also due 2036 ($155.2 million) are secured by the group of fixed-rate loans.
The split for the A-2 notes feature a front-pay feature for the A-2A notes which will need to be paid in full before any principal reduction payments are allocated to the back-pay A-2B bonds (the fourth such SoFi securitization to feature companion front-pay/back-pay structures).
The Class A notes are supported by 16.5 overcollateralization, including subordination, excess spread over the return on the loans and a 0.25% reserve account equaling a 0.25% share of the related notes. The $624.8 million in collateral is the largest among any of SoFi’s asset-backed pools marketed this year to investors.
All three tranches carry provisional ‘AAA’ ratings from DBRS.
The Class B and C notes (a face value of approximately $61.2 million combined) contain a mix of variable-rate and fixed-rate refinancing loans.
Like prior SoFi transactions, the company is marketing its collateral of loans issued to borrowers with high-quality credit attributes. These borrowers (77.7% of which have a graduate degree from SoFI’s list of eligible schools) have a weighted-average FICO score of 761, weighted-average incomes of $185,034 and monthly free cash flow (after expenses) averaging $7,794.
Those figures, in fact, exceed that of previous SoFI portfolios: the 2016-E borrowers earn $5,947 more than the borrowers in the prior SoFI 2016-D pool, and $390 more in monthly available cash. Average loan sizes are down ($79,926) compared to the average of $80,762 in this year’s deals.
The corhort default rate for schools in the SoFi collateral pool is 3.74% vs. 6.5% for private four-year institutions.
SoFI has originated about $7.9 billion in refi loans to 95,000 borrowers nationwide, according to DBRS, and only 102 of those loans have ever exceeded a 60-day delinquency. The lender also originates and markets to investors its pools of mortgages and unsecured consumer loans issued to its highly paid borrower base.
PHEAA is marketing $375.7 million in bonds secured by Federal Family Education Loan Program (FFELP) loans, a majority of which (over 72%) are consolidation loans it services and administers as a quasi-public national student aid and loan servicing agency.
PHEAA Student Loan Trust 2016-2 consists of $375.7 million in senior Class A notes and a subordinate $7 million Class B notes series. Fitch Ratings assigned preliminary ‘AAA’ structured finance ratings to the senior notes, but Standard & Poor’s had them one notch lower at ‘AA+’.
The proceeds will be used to acquire additional FFELP loans for the trust.
The aggregate principal the loans in 2016-2 totals $371.6 million through 26,580 borrowers that have an average balance of $13,980. These borrowers have an average interest rate of 5.13%.
PHEAA’s transaction is a follow-up to its September package of $545.5 million in notes through the 2016-1 series – which was the first PHEAA securitization packaged since April 2015.
Nearly 25% are re-performing loans that have returned to “rehabilitated” status after nine consecutive timely payments. Rehabilitated loans historically have a higher rate of defaulting again, so the agencies bake in higher loss expectations for those segment of loans. S&P expects default rates between 40-45% for the rehab loans, compared to 11.5% to 12.5% for the remainder of the pool.
Fitch assumed a base case default rate of 25.8% for all the loans – computed by the 15.75% rate for non-rehab loans and 56% for rehab FFELP loans.
A significant share of other loans in the pool are in deferment (7.3%), forbearance (11.6%) or been assigned to income-based repayment programs (11.7%).
Moody’s Investors Service and Fitch Ratings have previously warned that increasing use of income-based repayments which allow borrowers to reduce monthly P&I payments could put many loans at risk of not paying off at maturity.
The PHEAA is a national provider of student financial aid services in loan guaranty, servicing, and financial aid processing.