Fitch's Student Loan Industry Review: 2009 and Outlook for 2010 had the following highlights:
- Surprised by slowed momentum of student loan reform bill: "The momentum around changes to the FFELP program slowed significantly, surprising many. The proposed abolition of FFELP was on a fast track to becoming a reality by the end of the year after easy passage of the Student Aid and Fiscal Responsibility Act (SAFRA) in the House of Representatives in the third quarter; however, the bill is having a more difficult time in the Senate. FFELP disbursements shrank as more schools switched to the Federal Direct Loan program."
- Debt swap proposal and any change to treatment of private loans in bankruptcy may impact ABS ratings: "Also in 2009, Congress considered a proposal to give borrowers an opportunity to swap their private student loans with government loans, and held hearings on whether there should be more circumstances under which private student loans could be discharged. Both initiatives could have a material impact on ratings of private student loan ABS."
- People Capital in their latest weekly update indicated one group's opposition to the debt swap proposal: "The Financial Services Roundtable sent a letter to the Senate Banking and Health, Education, Labor and Pensions Committees that expressed opposition to S. 1541, the "Private Student Loan Debt Swap Act of 2009," sponsored by Senator Sherrod Brown (D-OH). The legislation proposes to allow some private education loan borrowers to refinance, or "swap," some or all of their private education loan debt into a government student loan program. The group contends that the bill would limit the availability of credit, reduce student choices and increase the costs of student loans for all borrowers. Another concern of the Financial Services Roundtable is that the legislation would "severely disrupt the efforts of the private student loan industry to proactively work with customers in distress." The group notes that lenders are aggressively working to modify private education loans for those who are having difficulty repaying. They also take issue with proposed intervention into the consumer credit markets to remove performing loans from the private sector in order to generate "savings" within the federal budget. They state this would "set a dangerous precedent."
- While private loan volumes were down (see SLA estimates here), one bright spot was tax-exempt bond market for state issuers: "Private student loan volume declined sharply as lenders tightened their underwriting criteria amid mounting loan losses. One bright spot, however, was the tax-exempt bond market as several state, or quasi-state, agencies were able to tap the market to issue non-AMT private student loan ABS particularly in the second half."
- Expect continued deterioration in private loan performance: "Fitch expects continued deterioration in performance for private student loans as delinquencies continue to climb and losses increase. A sustained downturn could have lasting adverse cumulative effects on certain trusts as defaults rise further and recovery efforts remain challenging due to economic conditions. In line with recent history, private student loan rating actions are expected to remain issuer, product, and structure specific. Transactions backed by
direct-to-consumer originated collateral and those with premium proceeds structures are most vulnerable to downgrades..."