Few Student Loans For Fed's Term Asset-Backed Loan Program
27 Février 2009 - 7:56PM
Dow Jones News
There could be one less candidate for the Federal Reserve's
program to jumpstart the asset-backed securities market.
With the administration of President Barack Obama planning on
taking over most student lending, there could be few, if any,
private lender loans to securitize.
That means there will be more money available from the Fed's
$200 billion Term Asset-Backed Securities Loan Facility, or TALF,
for other troubled areas like residential and commercial.
The Fed program, which could be expanded to as much as $1
trillion and is yet to be launched, initially set out to invigorate
student, auto and credit-card lending by accepting bonds backed by
such debt as collateral for government-sponsored lending. More
recently the Fed added bonds backed by commercial and residential
loans.
The student loan asset-backed securities market has been
dominated entirely by government-backed FFELP, or Federal Family
Education Loan Progam, loans. These were packaged into bonds by
private companies like SLM Corp. (SLMA), more commonly known as
Sallie Mae. This is the sector that may soon cease to exist.
"The budget proposal seeks to eliminate all private lending so
there will be no private lender FFELP student loan asset-backed
securitization," said Joseph Astorina, a securitization research
analyst at Barclays Capital in New York, referring to
government-backed student loans, which comprise the bulk of the
market.
Of the $28.12 billion issued in 2008, there was only one $140
million private student loan deal. The rest were all backed by
FFELP loans.
So far this year, Student Loan Corp. (STU) is the only student
loan issuer with a $547 million deal.
That said, the government could securitize federal student loans
in the future, Astorina said, noting that the latest move "is
effectively eliminating FFELP student loan asset-backed securities
as an asset class."
Private student lenders like Sallie Mae, Nelnet Inc. (NNI),
Student Loan Corp. and others will only have "some legacy loans or
private loan originations but that's probably about all," Astorina
said.
In December, Sallie Mae had said it has "ample assets" that
would qualify for the Fed's program.
It expected to use it because the program would be
"substantially less expensive" than its borrowings from banks,
according to Al Lord, Sallie's chief executive officer, speaking at
a Goldman Sachs Financial Services Conference in December.
At the time, the company estimated about $23 billion of its
assets would be eligible for the TALF program.
Sallie Mae and Nelnet spokespeople didn't immediately return a
call seeking comment.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com