NEW YORK--(BUSINESS WIRE)--
The recommendations made to private student lenders by several federal bodies would lower student loan defaults and boost recoveries but also delay cash flows on private student loan ABS deals, Fitch Ratings says.
The recommendations, including the creation of flexible repayment plans based on income and easy loan modifications, could be implemented in total or in part by private lenders. Many of the private student loan lenders already offer some form of the recommended repayment options.
Flexible repayment plans, if used judiciously, would likely lower delinquencies and defaults while cash flows would be delayed if borrowers on the level repayment plan switch to flexible repayment plans.
Loan modifications could increase recoveries. However almost half of federal loans that have been modified have subsequently returned to default and we believe similar results could be expected for private loans.
Of the often-quoted $1 trillion pool of outstanding student loans, only 15%, are private student loans that do not carry a U.S. government guarantee, as noted in our recent special report. Overall we view the credit prospects for private student loan ABS positively based on improvements in the economy.
Over this past week the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency urged private student lenders to create more flexible repayment terms, reduce interest rates and accept lower payments. Their recommendations were consistent with those included in the Consumer Financial Protection Bureau's "Student Loan Affordability" report published on May 8.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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