News Column

Fitch: U.S. Senate Bill May Be Negative for Student Loan ABS

May 8, 2014



NEW YORK--(BUSINESS WIRE)-- The impact a U.S. Senate bill designed to address student loan indebtedness will have on federal and private student loan asset-backed securities (ABS) will depend on the participation rate, Fitch Ratings says. If a larger number of borrowers qualify, potential prepayments could affect subordinate student loan ABS bonds that rely heavily on excess spread for a full repayment of principal. We could also see principal reductions in outstanding Federal Family Education Loan Program (FFELP) and private student loan portfolios and higher level of prepayments on outstanding student loan ABS if there was high participation.

However, if a relatively small number of borrowers were to refinance, the impact would be minimally positive because it could prevent some at-risk borrowers from defaulting.

It is not possible, at this time, to assess the exact impact of the bill on student loan ABS until financial needs that would qualify borrowers have been fully defined.

The Bank on Students Emergency Loan Refinancing Act, introduced by Senator Elizabeth Warren on Tuesday May 8, would allow some borrowers to refinance their Direct Loan Program, FFELP, and private student loans disbursed prior to July 2013 at lower government rates and would allow for principal forgiveness and income-based repayment plans.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Melvin Zhou

Director

U.S. Asset Backed Securities

+1 212 908-0503

33 Whitehall Street

New York, NY

or

Rob Rowan

Senior Director

Fitch Wire

+1 212 908-9159

or

Media Relations

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com


Source: Fitch Ratings


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