According to a presale reports from SP Global Rating and Moody’s Investors Service, the balances on formerly defaulted student loans that have since been rehabilitated to current status will make up only 20% of the collateral pool in the $498.3 million Nelnet Student Loan Trust (NLST) 2019-3 deal.
Three months ago, Nelnet completely filled out the pool for the $416 million NSLT 2019-2 transaction with rehab loans. (Rehab loans are considered current under Higher Education Act guidelines after a borrower makes nine consecutive timely payments).
Although rehabbed Federal Family Education Loan Program loans carry the same 97% insured guarantee of non-rehab loans through the U.S. Department of Education, they typically have higher net loss rates than non-rehab loans.
Also, the percentage of rehab student loans originated will impact the ultimate pricing on Nelnet’s deals. The senior notes for NLST 2019-2 priced at 90 basis points over one-month Libor with a 100% rehab loan portfolio, while NLST 2019-1 was only 30 basis points for a deal made up of 80% non-rehabilitated loans.
Besides FFELP loans, the pool also consists of 54.1% Stafford loans, 42.6% consolidation loans, and 1.2% of Parent Loan for Graduate Students and Supplemental Loans for Students (SLS) collateral. Nearly 83% of the seasoned loans are in repayment status and generating cash flow. Seventeen percent of the loans are in deferment or forbearance.
The notes offering will consist of a $485.8 million Class A notes tranche and a non-amortizing $12.5 million Class B offering. The notes carry a preliminary Aaa rating from Moody’s and AA+ by SP. SP limits Nelnet’s deals to the double-A rating ceiling because the federal guarantees behind them rely heavily on the U.S. government’s sovereign SP rating of AA+.