Developments in Student Loan Finance

Abstract

Summer 2015 will mark five years from the end of privatesector origination of student loans under the Federal Family Student Loan Program (FFELP). Since that time, all subsidized and unsubsidized Stafford loans, PLUS loans, and Federal Consolidation loans have been made solely under the Federal Direct Loan Program. This article describes various student loan financing activities prevalent in the financial marketplace, as seen through the eyes of an attorney active in this field, including a lexicon of student loan categories and terms used in the industry, various key criteria that have been developed for student loan securitizations since the financial crisis, currently used student loan asset-backed security (ABS) structures, current regulatory issues, and an outlook for student loan securitization in the future. The student loan ABS asset class has grown since the financial crisis, annualized defaults have declined steadily over the past five years, and the Dodd–Frank burdens are considered onerous but manageable. There is a need for more private-sector student loan ABS origination, but as more student loans are originated by the private sector to creditworthy borrowers, more investors will take notice. Policy changes at the federal level may also present new opportunities for the student loan finance industry.