Student loan securitizations usually come in a single flavor, private or government guaranteed, but the Vermont Student Assistance Corp. is prepping one that includes both types of loans.

The $59.7 million 2014-B is a refinancing of a transaction that the state agency completed in 1995; the loans backing the earlier deal will be transferred to the new indenture. Kroll Bond Rating Agency has assigned a preliminary ‘A’ rating to a single tranche of notes to be issued, reflecting the higher level of risk of private student loans originated prior to 2011. The senior tranches of deals backed exclusively by Federal Education Loan Program (FFELP) loans typically earn triple-A ratings. This type of collateral is at least 97% guaranteed by the U.S. Department of Education.

The Vermont Student Assistance Corp. will service the loans and Nelnet will provide backup servicing.

Morgan Stanley is the underwriter.

Approximately 58% of the loans in the portfolio are FFELP loans and 42% are private loans. The FFELP pool consists of approximately 65.2% consolidation loans, which are less likely to be refinanced; 26.6% Stafford loans, and the remainder represents Parent Loan for Undergraduate Students (PLUS) loans and Graduate PLUS loans.

Among the deal’s strengths, according to Kroll, the collateral is well seasoned, which generally results in lower default levels. About 50.2% of these loans will benefit from floor income. For loans disbursed before April 1, 2006, lenders are entitled to the excess between the coupon rate on the loan that the borrower pays and the special allowance payments (SAP)-determined yield. In a low interest rate environment, such as the current one, the trust can keep the extra interest income above the SAP-determined rate on the loans, called floor income.

Among the deals weaknesses is the fact that the private loans were mostly originated before 2011, when underwriting criteria was not as robust as the corporation's more recent originations. All of the private loans are deferred interest and principal payment loans that require payment only after the student leaves school. Co-signed loans, which generally perform better than loans that are not co-signed loans, represent 43.2% of the private collateral.

The corporation’s primary private loan product, the Advantage loan, represents the majority of the private loan pool (approximately 75.1%), followed by law loans (approximately 11.3%), Green Mountain loans (approximately 9.1%), and several older loan programs, which account for the remainder. This portion of the pool is well seasoned: Approximately 94.5% of the pool is in active repayment status, of which 74.9% of the pool has been in repayment for more than three years.

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