Last week, Joseph Cioffi moderated a panel on valuation and trends in student loan securitizations at the iiBig 11th Annual Education Finance & Loan Symposium. Below, he provides key takeaways from the conference and shares insights from his fellow panelists:
- Grant Carwile, Managing Director at SL Capital Strategies LLC
- Jonathan Riber, Senior Vice President, U.S. ABS at DBRS
- Melvin Zhou, Director, ABS Consumer at Kroll Bond Rating Agency
As the panel discussed at the conference, two of the best ways to understand student loan securitization is by considering it in the context of other secondary market choices available to originators and comparing it to other consumer credit markets, such as those for auto and marketplace lending.
Grant Carwile advised attendees of the many funding and liquidity alternatives for originators of student loans, covering all of the angles, including the economics that may drive an originator to follow an accumulation strategy relative to forward flow arrangements, whole loan sales and securitization. Grant further discussed the importance of market conditions to valuations and advised that investor considerations must include the potential enactment of debt relief programs and actions by the current or future administrations that may affect loan performance.
Jonathan Riber provided a securitization market overview, discussing the drop-off in issuance volume this year to date, while noting bright spots, such as growth in refinancings and the fact that performance remains closely tied to the unemployment rate. Jonathan also discussed DBRS's experience in student loan marketplace lending and the specific challenges of rating deals from online lenders, including lack of historical data versus traditional or legacy student loan lenders.
Melvin Zhou provided a review of structural and other differences between student loan securitizations and other markets, such as auto and marketplace lending, including loan duration, performance history, credit enhancement levels and uncertainty of payment flow. Melvin further informed the audience of positive lessons that can be learned from online lenders, including the use of alternative data, continuous adjustments to credit scoring and a nimble response to changes in the economic environment.
Overall, the panel's in-depth review of the state of the securitization market and other secondary market choices complemented other presentations at the conference, which highlighted lending and servicing opportunities being generated by new financing arrangements, such as Income Sharing Agreements and a growing sensibility of education as an investment rather than a spend, which could transform the way both borrowers and lenders view the market.
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