DBRS Morningstar’s Federal Family Education Loan Program Student Loan ABS Sector Outlook—Stable Amid Coronavirus
Because of the ongoing impact of the Coronavirus Disease (COVID-19) on the U.S. economy and on borrowers’ abilities and willingness to repay outstanding debts, our outlook on the Federal Family Education Loan Program (FFELP) student loan asset-backed securities(ABS) sector is stable.With the closure of many nonessential businesses across the U.S., jobless claims have exceeded 30 million over the last six weeks ended April 25, 2020. We expect obligor credit deterioration, particularly for weaker credit obligors, as performance on FFELP student loans is highly correlated with the unemployment rate. While we expect an increase in defaults, this will largely be mitigated by the U.S. government's guaranty that includes at least 97% of outstanding principal and accrued interest. Increased use of forbearance and income-based repayment will slow principal payments on FFELP student loans, stressing cash flows of FFELP ABS transactions, especially if the economic stress extends.
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