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US Student Loan ABS

US Student Loan ABS. September 2013. FFELP Student Loan ABS - Overview. FFELP ABS ratings are expected to mostly remain stable , given the U.S. government guarantee on collateral. Rating outlook on ‘ AAAsf ’ bonds remains negative , reflecting Fitch’s outlook on US sovereign rating .

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US Student Loan ABS

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  1. US Student Loan ABS September 2013

  2. FFELP Student Loan ABS - Overview FFELP ABS ratings are expected to mostly remain stable, given the U.S. government guarantee on collateral. Rating outlook on ‘AAAsf’bonds remains negative, reflecting Fitch’s outlook on US sovereign rating. Fitch expects to complete its review of tax-exempt ARS transactionsbyearly October. The review has resulted in downgrades of bonds issued from two trusts. Fitch is monitoring operational risks arisen from issuer/servicer reorganizations and delays in Federal Direct Loan allocation to nonprofit servicers. Fitch plans on publishing its student loan performance indices by end of the year. The indices will track student loan defaults, delinquencies, deferment and forbearance.

  3. FFELP Student Loan ABS – Straight-A Refi • Straight-A term-out accelerated in Q2 2013. • As of July 31, 2013, total Straight-A outstanding balance was $0.6 billion from two issuers. At its peak, the conduit financed $40 billion of FFELP loans.

  4. FFELP Student Loan ABS – ARS Refi • Since 2010, over half of the Fitch-rated student loan ARS have been either paid off or refinanced. • Currently, the total balance of Fitch-rated FFELP ARS stands at $19 billion, or approximately 10% of all FFELP ABS rated by Fitch. • Ratings on ARS continue to be under stress as long as the auction rate market keeps failing. • Tax-exempt ARS transactions have benefited from the low interest rate environment, but are exposed to significant interest rate risk as rates move up. • Taxable ARS with a Net Loan Rate cap that prevents negative spread are in a better position.

  5. FFELP Student Loan ABS – US Sovereign Rating • Fitch affirmed US sovereign rating at ‘AAA’ in June 2013. Rating Outlook remains Negative. • Failure to raise the federal debt ceiling in a timely manner will prompt a formal review of the US sovereign rating and likely lead to a downgrade. • FFELP ABS would be directly impacted by a rating action on the US sovereign. • Most FFELP ABS transactions do not have sufficient internal credit enhancement to support ‘AAAsf’ ratings without the government guarantee and SAP.

  6. Private Student Loan ABS - Overview Private student loan ABS ratings remain under pressure. Gradual relief is expected as economic and employment conditions improve. Transaction performance varies by issuer and structure. ABS issued before the crisis are more susceptible to downgrade than those issued afterwards. Post-crisis loans were underwritten under stricter standards (cosigner requirement, higher FICO cutoff, in-school repayment, etc.). However, credit quality of new originations may deteriorate as issuers look to boost volume by easing underwriting standards. Legislation on dischargeability in bankruptcyof private student loans, if passed, could drive up defaults and bring down recoveries.

  7. Private Student Loan ABS – New Programs • State programs continue to issue prefunded ABS with bonds rated at ‘Asf’ level. • The Bipartisan Student Loan Certainty Act of 2013, enacted on Aug. 9, 2013, links interest rates on Federal Direct loans to 10-year Treasury. Fitch views the new pricing regime as favorable for private lenders to compete as market rates move up. • In analyzing ABS backed by new private student loan programs, Fitch considers the following, among others: • Experience of program originators and servicers, • Underwriting standards, • Performance history of proxy programs, and • School portfolio. • Rating cap will most likely be applied, and in some cases, Fitch may decline to rate at all.

  8. Appendix: SLM FFELP Non-Consolidation Defaults

  9. Appendix: SLM FFELP Consolidation Defaults

  10. Appendix: SLM Private Student Loan Defaults

  11. Disclaimer Fitch Ratings’ credit ratings rely on factual information received from issuers and other sources.Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at thetime a rating was issued or affirmed. The information in this presentation is provided “as is” without any representation or warranty.A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does notaddress the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned.A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion ofFitch Ratings. The agency does not provide investment advice of any sort. Ratings are nota recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.

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