The passing of 2007 marked a historic period in the U.S. student loan industry. An unprecedented amount of attention was directed towards student loan market participants in both federal and private programs. Business practices, underwriting, servicing and marketing practices were put under a microscope over the course of the year. As we enter the second month of 2008, education continues to be a hot topic in Congress with the presidential election fast approaching. Legislation passed in 2007 will begin to have its affects felt in 2008, with additional higher education reform proposals likely to follow.

The College Cost Reduction and Access Act, passed in September of last year, contains several changes to the federal financial assistance programs related to postsecondary education. The law could result in more than $20 billion being cut from the Federal Family Education Loan Program (FFELP), with the majority of the savings allocated across new and existing grant programs, interest rate reductions, and loan forgiveness programs. Reductions in special allowance payments (SAP) to loan holders and lower reimbursement rates on defaulted loans comprise a major portion of these cuts. While Fitch does not anticipate these changes will result in negative rating actions on existing FFELP ABS transactions, higher credit enhancement levels may be required for transactions including increasing levels of loans originated under these guidelines.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.