The three major sector of the student loan asset-backed securities (SLABS) market experienced saw increases in metrics such as charge-offs, delinquencies, forbearances and deferments in Q1 2022, as well as a small quarterly decrease in prepayment speeds, according to a recent assessment from Morningstar | DBRS.
Those changes, however, were generally slight across the board, so industry observers did not raise alarms about SLABS’ immediate or near-term performance. The notes’ underlying loans are expected to continue to be resilient, based on borrower profiles.
Among refinance SLABS, borrowers were financially strong when the loans were originated, and they work in professions with low unemployment rates, according to DBRS. Cumulative chargeoffs on the oldest vintages, particularly 2013 and 2014, were 0.2% and 0.3% of the initial principal balances, after 57 and 61 months of seasoning, respectively.
Similarly, average monthly 30-plus day delinquencies were 0.38% of the total outstanding principal balance, a slight increase from 0.32% that the pools experienced in Q4 2021, but more than twice the 0.17% recorded in Q1 2021.
Borrowers that availed themselves of forbearance represented 0.56% of the total principal balance of outstanding refinance ABS transactions, a drop from 1.27% in Q1 2021, according to DBRS. As for deferments, on average the deferment usage rate was 0.47% in Q1 2022, an increase from the average usage rates of 0.32% recorded in Q1 2021, the rating agency said.
There was a slight uptick from the average rate of 0.44% in Q4 2021, the rating agency noted, which reflected a general increase in deferment usage over time. In June 2018, for instance, deferment usage was 0.10%.
“The general increase over time is likely attributable to lenders originating a growing proportion of loans to borrowers who are refinancing only undergraduate degrees,” according to DBRS’s report.
Among traditional private SLABS, total securitized volume stood at about $122.7 million, a small increase over the prior quarter, and a year-over-year increase of 11.9%. DBRS noted that outstanding securitization balance continues to decline, overall, the effect of prepayments and regular loan amortization. The latter continues to outpace growth in ABS collateral volumes.
As for ABS performance among private SLABS, the rating agency noted that annualized gross defaults were 1.8% of the repayment balance, compared with 1.7% in Q4 2021, and 1.3% in Q1 2021.
Despite these results, annualized gross defaults remain low and are about 77% lower than the peak annualized gross defaults of about 8.0% that the segment experienced in Q3 2009.
According to DBRA, securitizations completed after 2008 were secured by loans to stronger borrowers than those in pre-crisis vintages.
As for FFELP student loan ABS, 10.4% of average repayment balances was 30-days delinquent. Forbearances stood at 10.6% of the outstanding balance, a bump up from the average forbearance rate of 10.5% in Q1 2021, according to the rating agency.
