DBRS Morningstar Releases Negative Private Student Loan ABS Sector Outlook Amid Coronavirus

DBRS Morningstar released a commentary, “DBRS Morningstar U.S. Private Student Loan ABS Sector Outlook—Negative Due to Coronavirus,” which highlights how the ongoing Coronavirus Disease (COVID-19) pandemic has affected the private student loan sector.

With the closure of many nonessential businesses across the U.S., jobless claims have exceeded 46 million since mid-March. We expect borrower credit deterioration as performance on private student loans (PSLs) is highly correlated with the unemployment rate.

Key highlights in the commentary include:

-- PSLs that are relatively unseasoned, particularly in scenarios where students are still enrolled in school or have recently graduated, are most vulnerable to performance deterioration.
-- Pre-financial crisis transactions include PSLs that were made with weaker underwriting guidelines and thus are generally more sensitive to adverse economic conditions.
-- PSL companies generally offer effective default mitigation tools whereby financially troubled borrowers can postpone principal and interest payments through forbearance.
-- In recent years, lenders that sponsor PSL securitizations have significantly strengthened their underwriting guidelines, incorporating stricter co-signer requirements and improved school and loan type quality.
-- PSL ABS transactions are typically structured with sequential pay mechanics and triggers that help protect against losses.

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information, visit www.dbrsmorningstar.com or contact us at [email protected].

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