Moody’s May Reduce Ratings on $34 Billion of Student-Loan Bonds

Moody’s Investors Service said that it may lower ratings on about $34 billion of securities backed by U.S. government-insured student loans.

The review of portions of 57 transactions reflects the risk that some of the bonds from the deals may not be paid off by maturity amid a slowdown in how quickly borrowers are repaying the underlying loans, according to a statement from the credit grader.

“Recoveries upon default would be very high, although the timing of such recoveries would depend on the transaction structures and voting rights upon default for each,” Moody’s said in the statement Monday.

The debt rankings are being threatened amid the U.S.’s sluggish economic recovery from the 2007-09 recession, as borrowers miss payments or tap relief programs, including increasingly popular income-based and similar repayment arrangements being pushed by the Obama administration. Those plans make monthly bills more affordable while extending loan terms.

Even after the financial crisis, the share of Federal Family Education Loan Program debt in plans including deferment, forbearance, income-based repayment or extended repayment programs has remained between 20 percent and 30 percent for consolidation loan pools and between 40 percent and 50 percent for non-consolidation loan pools, Moody’s said.

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