This is the third of 10 articles taking an updated look at our most widely read stories of the year. The first two can be found here: SolarCMBS.

The Obama Administration’s efforts to ease the debt burdens of college students have had unintended consequences for investors in federally guaranteed student loans.

Until recently, these bonds were seen as seen as ultra-safe because the Department of Education guarantees at least 97% of the principal balance and interest payments of the collateral. But the government does not guarantee timely repayment. And repayment rates have slowed considerably over the past couple of years, in part due to the growing interest in a generous repayment program.

Over the summer, Moody’s Investors Service and Fitch Ratings put some $37 billon of FFELP bonds under review for possible downgrades, citing the risk that they might not pay off at maturity. Both rating agencies are reviewing their rating criteria t address the slower rate of repayment.

The possibility that these bonds, most of which are rated triple-A, could be cut to low investment grade, or even junk, prompted a sharp selloff. It impacted not just FFELP bonds, but bonds backed by private student loans, which are not even eligible for the repayment plans causing problems for FFELP investors.

By the fall, spreads on both FFELP and private student loan bonds had stabilized as the securities attracted a different investor base looking for higher yields. Nevertheless, the market remains vulnerable to the timing and magnitude of rating actions or a maturity default, according to Bank of America Merrill Lynch. “This could pressure spreads as the calendar moves closer to year-end, especially if investors become forced sellers,” the firm stated in an October report.

The ratings reviews and subsequent selloff also spurred servicers into action. Navient, by far the biggest student loan servicer, is now providing additional information on repayment status, though other servicers have yet to follow suit.

Servicers are also taking steps to avoid downgrades.TThrough the nine months of this year, Navient called $428 million of FFELP bonds at risk of maturity default.

Navient has also amended a total of 33 securitization trusts since 2014 to allow it to buy back 10% of the initial assets. As of June 30, it had exercised loan purchase rights for $428 million. This may not be sufficient to mitigate rating agency concerns, however, since the buybacks are optional. Both Moody’s and Fitch have also said that they would consider the ability of the sponsor to make such purchases to determine if the maturity risk has been sufficiently reduced.

A third option under consideration, repackaging certain FFELP ABS tranches into new securities with extended maturity dates, might not pass muster either.

A fourth option, extending the legal final maturity dates for existing bonds, is more palatable to the rating agencies. But it may require 100% bondholder approval and so makes more sense for closely held issues.

In the meantime, issuance of new FFELP bonds has been at a standstill since mid-year, though a few sponsors, including Sallie Mae and the Massachusetts Educational Financing Authority, have tested the market for private student loan backed securities and private student loan revenue bonds.

There’s still more for FFELP invbestors to worry about: Marketplace lenders are stealing some of their best collateral. Two online lenders, Social Finance and CommonBond, have been targeting borrowers with extremely strong credit with loans that allow them to consolidate their existing loans, including those made under the Federal Family Education Plan. They both market to graduates with advanced degrees from prestigious universities.

Remove them from FFELP pools, Moody’s warns, and there is an even higher concentration of borrowers who are either delinquent, in forbearance, or in an income-based repayment plan.

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