Few Student Loans For Fed's Term Asset-Backed Loan Program

There could be one less candidate for the Federal Reserve's program to jumpstart the asset-backed securities market.

With the administration of President Barack Obama planning on taking over most student lending, there could be few, if any, private lender loans to securitize.

That means there will be more money available from the Fed's $200 billion Term Asset-Backed Securities Loan Facility, or TALF, for other troubled areas like residential and commercial.

The Fed program, which could be expanded to as much as $1 trillion and is yet to be launched, initially set out to invigorate student, auto and credit-card lending by accepting bonds backed by such debt as collateral for government-sponsored lending. More recently the Fed added bonds backed by commercial and residential loans.

The student loan asset-backed securities market has been dominated entirely by government-backed FFELP, or Federal Family Education Loan Progam, loans. These were packaged into bonds by private companies like SLM Corp. (SLMA), more commonly known as Sallie Mae. This is the sector that may soon cease to exist.

"The budget proposal seeks to eliminate all private lending so there will be no private lender FFELP student loan asset-backed securitization," said Joseph Astorina, a securitization research analyst at Barclays Capital in New York, referring to government-backed student loans, which comprise the bulk of the market.

Of the $28.12 billion issued in 2008, there was only one $140 million private student loan deal. The rest were all backed by FFELP loans.

So far this year, Student Loan Corp. (STU) is the only student loan issuer with a $547 million deal.

That said, the government could securitize federal student loans in the future, Astorina said, noting that the latest move "is effectively eliminating FFELP student loan asset-backed securities as an asset class."

Private student lenders like Sallie Mae, Nelnet Inc. (NNI), Student Loan Corp. and others will only have "some legacy loans or private loan originations but that's probably about all," Astorina said.

In December, Sallie Mae had said it has "ample assets" that would qualify for the Fed's program.

It expected to use it because the program would be "substantially less expensive" than its borrowings from banks, according to Al Lord, Sallie's chief executive officer, speaking at a Goldman Sachs Financial Services Conference in December.

At the time, the company estimated about $23 billion of its assets would be eligible for the TALF program.

Sallie Mae and Nelnet spokespeople didn't immediately return a call seeking comment.

 
   -By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; [e-mail]