U.S. student loan ABS is poised for growth this year, according to Standard & Poor's. A combination of record college attendance, rising tuition costs - above the federal loan limits - and an increasing market comfort in private loan products are helping to fuel the private student loan market, the rating agency found.

While fewer borrowers are expected to consolidate their student loans, in part because of rising student loan interest rates, that decline in issuance should be offset by positive demographics, new ratings on municipal programs and increases in corporate issuance, according to S&P. Issuance is expected to be up by 5% in 2006, to reach $72.5 billion, compared to $69 billion of student loan ABS issuance seen in 2005.

Michael Binz, a managing director in S&P's structured finance ratings group, said in a statement that he is anticipating the sector will continue to shift from the traditional auction rate market to the Libor markets. "With the tremendous growth in volume in recent years and limits on the auction rate market's ability to absorb that growth, issuers are diversifying into the deeper and more cost-efficient Libor markets," he said. Binz added that foreign investment, particularly in Europe and Asia, is driving a substantial portion of demand for student loan ABS.

The rating agency said the credit outlook for the sector remains stable. Overall, the sector has improved over the past 10 years as schools with higher default rates have been eliminated from securitization pools and improved default prevention techniques have been employed, according to S&P.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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