S&P Announces: U.S. Student Loan ABS Issuance Continues Record Growth; Defaults at All-Time Low

Business Wire, Jan 21, 2004

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 21, 2004

Record growth in public and private issuance volume in the U.S. student loan ABS market rated by Standard & Poor's Ratings Services should continue to follow its upward trend in 2004, according to credit analyst Christopher Conroy, a director in Standard & Poor's Structured Finance Ratings group in New York. Total issuance rated by that group reached $51.8 billion in 2003, up from $27.2 billion in 2002, and $11.4 billion in 2001.

Moreover, as the economy recovers, the high levels of deferment and forbearance experienced in recent years, indicators of stress on the borrowers, have been diminishing. In fact, the sector is currently witnessing an all-time low default rate and stable performance.

Sallie Mae, the market's largest issuer, will continue to actively use securitization as a financing tool. As the plan to complete privatization in 2006 draws closer, securitization becomes increasingly more important for Sallie Mae. "Sallie Mae is changing its funding structure by not issuing any new GSE debt and is replacing it with ABS borrowings," said Mr. Conroy. Sallie Mae had 16 transactions in 2003, totaling $29.9 billion, up from nine transactions in 2002, which totaled $13.9 billion. Sallie Mae represented 58% of rated volume in 2003, up from 51% in 2002.

In 2003, for the first time, Standard & Poor's rated existing or new trust indentures by the following issuers: Missouri Higher Education Loan Authority, First Marblehead Corp.'s National Collegiate Student Loan Trusts, Colorado Student Obligation Bond Authority, Finance Authority of Maine, Indiana Secondary Market for Education Loans, Kentucky Higher Education Student Loan Corp., and the State Board of Regents of Utah. GMAC was the market's only first time issuer in 2003 with its GMAC Education Loan Funding Trust-1 series 2003-1. Standard & Poor's expects to rate additional first-time issuance in 2004.

Also contributing to the record issuance is the continued strong consolidation loan growth. "Most issuers are still tapping the auction-rate market to finance these longer-term assets," said credit analyst Michael Binz, a director in Standard & Poor's Structured Finance Ratings group in New York, "but with the tremendous growth of all student loan assets, and limits on the auction-rate market's ability to absorb that growth, issuers are diversifying into the deeper and more cost efficient LIBOR markets."

Foreign investment in student loan ABS has also contributed to overall issuance growth, with a greater number of bonds being placed every year in Europe and, most recently, Asia.

Growing college costs mean that the Federal Family Education Loan Program and alternative loan originators are seeing more and more borrowers. "Increasing tuition costs above the federal loan limits and the market's comfort with alternative loan products are also fueling growth in the private student loan market," said Mr. Binz.

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