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Rating Action:

Moody's reviews for downgrade several tranches in FFELP student loan securitizations as a result of the risk of default at maturity

08 Apr 2015

Approximately $3.0 billion of asset-backed securities affected

New York, April 08, 2015 -- Moody's Investors Service has placed on review for downgrade the ratings of 14 tranches in 14 securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). The loans are guaranteed by the US government for a minimum of 97% of defaulted principal and accrued interest.

Complete rating actions are as follows:

Issuer: Access Group, Inc. Series 2007-1

2007-A-3, Aaa Placed Under Review for Possible Downgrade; previously on Dec 18, 2013 Upgraded to Aaa

Issuer: Nelnet Student Loan Trust 2008-1

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on Aug 2, 2011 Confirmed at Aaa (sf)

Issuer: North Carolina State Education Assistance Authority (1995 Indenture)

2005 Ser. P, Aaa Placed Under Review for Possible Downgrade; previously on Aug 2, 2011 Confirmed at Aaa

Issuer: SLC Student Loan Trust 2008-2

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2005-1

Cl. A-2, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2005-2

Cl. A-5, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2007-2

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2007-3

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2007-7

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2008-1

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2008-4

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2008-6

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2008-7

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

Issuer: SLM Student Loan Trust 2008-8

Cl. A-3, Aaa (sf) Placed Under Review for Possible Downgrade; previously on May 5, 2014 Affirmed Aaa (sf)

RATINGS RATIONALE

The reviews for downgrade are a result of the increased risk that the tranches will not fully pay down by their respective final maturity dates. Failure to repay a note on the final maturity date represents an event of default under the trust documents. Recoveries upon default would be very high, although the timing of such recoveries would depend on the transaction structures and voting rights upon default for each transaction.

The risk is a result of low payment rates on the underlying securitized pools of student loans, driven by low rates of voluntary prepayments, high volumes of loans in deferment and forbearance, and the growing popularity of Income-Based Repayment (IBR) and extended repayment programs.

Voluntary prepayment rates in FFELP loan pools remain historically low as a result of sluggish economic growth and high unemployment rates among recent graduates. Although prepayments rose to 2%-3% of the loans in repayment in 2014, partly as a result of borrowers refinancing their FFELP loans through private student loans and Federal Direct consolidation loans, prepayments remain low relative to historical levels. Deferment and forbearance levels remain high throughout the life of the collateral pools, although they recently declined slightly from peak levels in 2009-11. As of December 2014, roughly 33% of loans in repayment in Navient's non-consolidation loan collateral pools were in deferment and forbearance, compared with 16% for Navient's consolidation loan collateral pools. The growing popularity of IBR, which extends the life of the loans to up to 25 years from the standard 10-year term of non-consolidation loans, and the extended repayment option (for borrowers with balances of more than $30,000) is further lengthening the weighted-average life of the student loan collateral pools. In some pools, loans in IBR and extended repayment represented 10%-12% of the balance of loans in repayment. Similar trends are common among most collateral pools underlying FFELP student loan securitizations.

The rating actions are focusing on tranches that mature in the next five years because they are at most risk of breaching final maturity dates. Tranches that mature after that could benefit from higher voluntary prepayments and lower deferment and forbearance rates as economic conditions continue to improve.

During its review, Moody's will evaluate recent and expected future pool amortization trends and structural features of the transactions. In addition, Moody's will consider Navient's December 2014 amendments to a number of its transactions that allow for the limited and discretionary repurchase of loans. Any such repurchases would accelerate the repayment of the related notes. In its review, Moody's will consider, among other things, the amount and timing of any such loan repurchases.

The principal methodology used in these ratings "Moody's Approach to Rating Securities Backed by FFELP Student Loans" published in April 2012. Policy page on www.moodys.com for a copy of this methodology

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Factors that would lead to a downgrade of the rating:

The factors that could drive the rating down are continued low levels of voluntary prepayments, high levels of deferment and forbearance, and growing use of Income Based Repayment or Extended Repayment plans.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The following disclosure applies only to credit ratings carrying the (sf) indicator: Moody's did not receive or take into account a third party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of these transactions in the past six months

The following disclosure applies only to credit ratings carrying the (sf) indicator: In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jinwen Chen
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Irina Faynzilberg
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's reviews for downgrade several tranches in FFELP student loan securitizations as a result of the risk of default at maturity
No Related Data.
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