Moody’s Reviewing Some Student Loan Securities After Auction Interest Rates Rise
Moody’s Investors Service said higher auction rates for securities backed by student loans could lead to a downgrade of some that have low collateral.
The ratings agency said under-collateralized subordinate tranches of student-loan backed securitizations “have become vulnerable to downgrade risk to the extent that this higher than usual pricing is sustained.”
Student loan lenders package loans into bundles and sell them to investors in a process called securitization. These securities can consist of various loans that have different ratings. The layers of like-rated loans are called tranches.
Moody’s said interest rates on these securities have “increased dramatically” since August 2007, but that most student-loan backed securities should be able to handle the higher payments.
The agency is reviewing the situation.