The credit performance of private student loan ABS will stay weak in 2012 given the current different macroeconomic factors, Moody's Investor's Service stated in a report released today.

"Continued high unemployment combined with high debt burdens and declining income means that recent college graduates and, to a lesser extent their co-signers, will continue having difficulty repaying their student loans," Moody's Assistant Vice President Tracy Rice said.

Delinquency and default rates, which are key student loan performance indicators, will not decrease considerably until unemployment returns near pre-recession levels in 2015-2016, analysts said. But, their ratings of outstanding securitizations show this future negative performance.

Moody's thinks that 2012 private student loan ABS volume will stay flat next year at approximately $3 billion marketed in 2011 and perform better versus those issued prior to the start of the recession in 2009.

"The 2012 transactions will benefit more because the youngest borrowers will likely graduate into a stronger job market, which we forecast to occur in 2015-16," Rice stated.

These deals will benefit as well from better loan underwriting and stronger deal structures. These offerings will include increased credit enhancement and less risk of loan servicing or payment disruptions, that has characterized new deals in this sector since 2009.

"If a financial crisis hits again early in the securitizations' lives, we expect that student loans underlying 2009-12 securitizations will perform better than those underlying the older securitizations did during the last recession," Rice said.

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