Private student loans from the heady underwriting period leading up to the financial crisis are well past their most perilous early years. That, combined with an improving job market, would seem to bode well for securities backed by these loans. However, a structural flaw could prove fatal for investors in the subordinated tranches of older private student loan-backed securities (SLABS).

“Banks providing private student loans today are using much tighter underwriting criteria, but I would be cautious about getting into any securities originated between 2005 and 2008 unless you understand how their collections are being managed,” said Bill Weyandt, president and chief risk officer at Austin-headquartered Loan Science, which manages $1 billion in private student loan portfolios and provides a variety of consumer-loan support services.

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