Fitch: Proposed HEA/FFELP Changes May Test U.S. Student Loan ABS.NEW YORK -- Altering both the Federal Family Education Loan Program The Federal Family Education Loan Program (FFELP) is a United States Department of Education program that provides for private organizations to market, originate, and service federally guaranteed loans, such as Stafford and PLUS loans to students and their parents. and Higher Education Act The Higher Education Act may refer to an Act of either the Congress of the United States or of the Parliament of the United Kingdom.
President Bush's fiscal 2006 budget calls for proposed changes to the FFELP FFELP Federal Family Education Loan Program , which has served as the primary source of loan collateral for the student loan ABS universe, as well as the HEA HEA Higher Education Academy (York, UK) HEA Higher Education Act of 1965 HEA Higher Education Authority HEA Health Education Authority HEA High Energy Astrophysics HEA Happily Ever After HEA Hockey East Association . These revisions, if implemented retroactively, may adversely affect collateral performance and result in negative rating actions to one of the more historically consistent performers in the ABS sector overall, though Fitch thinks retroactive enactment is unlikely. 'While most of the proposed changes to FFELP and HEA would actually have little to no bearing on student loan ABS collateral, some, such as allowing for loan reconsolidation Re`con`sol`i`da´tion n. 1. The act or process of reconsolidating; the state of being reconsolidated. and offering extended repayment terms, would have a more dramatic effect,' said David Hartung, Senior Director, Fitch Ratings. 'The budget proposal is clearly focused on cost cutting, and the question of who will bear the burden of that is one that will be debated extensively over the next several months.' While borrowers currently have limited opportunity to reconsolidate Re`con`sol´i`date v. t. 1. To consolidate anew or again. their loans, the new budget would allow for unlimited reconsolidation with a 1% loan origination fee per reconsolidation, a change that may adversely affect student loan ABS if the proposal is not limited to future new loan consolidation loans. Additionally, a proposal to prospectively reduce guaranty agency insurance and government reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. may increase Fitch's expected loss assumptions for student loan ABS going forward. 'Though many of the budget recommendations follow two years of congressional debate and reflects strong bipartisan opinion, other issues will still be hotly contested,' said Hartung. Fitch will continue to closely monitor the developments and provide the market with commentary. 'Pass/Fail: Impact of President's Fiscal 2006 Budget Proposal on Student Loan ABS Market' is available on the Fitch Ratings web site at www.fitchratings.com. |
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