July 2 (The following statement was released by the rating agency)
Still-rising college costs and the amount of U.S. student loans reaching an all-time high
have created a college tuition bubble, though student loan ABS performance stands to actually
improve over time, according to Fitch Ratings in a new report.
Outstanding student loans approached nearly $1 trillion at the end of last year,
becoming the second largest source of consumer debt after mortgage loans. That
said, student loan ABS performance is primed for a brighter outlook going
forward. The primary reason, according to Managing Director Michael Dean, is the
'Student loan ABS performance is highly correlated with the economy when it
comes time for students to begin paying their college debt back,' said Dean. Not
surprisingly, soaring unemployment during the credit crisis put performance into
a tailspin with both federal and private loans seeing a jump in delinquencies
and defaults. Flash forward to today's climate and the picture is notably
different. 'Graduating students are entering an improving job market, which
positions both federal and private student loan ABS programs for stronger
performance,' said Dean.
While FFELP-backed ABS still benefits from the government support, interestingly
enough it may be their historically more volatile counterpart that helps to
drive improving performance overall. Post-crisis private student loan ABS are
coming to market with much more credit enhancement and tighter underwriting on
the underlying loans. It is also important to note that ABS compose a relatively
small percentage of the student loan market overall.
'Less than 25% of the nearly $1 trillion in outstanding student loans is
securitized and funded through the ABS market,' said Senior Director Tracy Wan.
'Additionally, many private student loan lenders are pulling out of the market,
the less competition of which will help to preserve strong underwriting
'Student Loan ABS and the College Tuition Bubble' is available at
'www.fitchratings.com' or by clicking on the below link.
Link to Fitch Ratings' Report: Student Loan ABS and the College Tuition Bubble
(College Costs Continue to Rise, Despite Warning Signs)