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Moody's Places 69 Aaa-Rated Bonds Backed by Student Loans on Review for Downgrade

Strategic Insights

— 1 min read

Moody's Investors Service has announced that it will review for downgrade the ratings on 69 Aaa-rated bonds issued by 39 securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). This decision follows the announcement on May 16, 2025, that Moody's downgraded the long-term issuer and senior unsecured ratings of the Government of the United States of America (US) to Aa1 stable from Aaa negative. The US Department of Education's guarantee of FFELP loans for at least 97% of defaulted principal and accrued interest has the largest impact on the credit quality of these securitizations. Moody's will assess the impact of the US government's rating downgrade on the guarantee payments and consider updated performance data on the underlying loan pools and available credit enhancement during the review period.

Key Takeaways:

  • Moody's has placed 69 Aaa-rated bonds on review for downgrade, affecting 39 securitizations backed by student loans under the FFELP.
  • The rating action is driven by Moody's downgrade of the US government's long-term issuer and senior unsecured ratings to Aa1 stable from Aaa negative on May 16, 2025.
  • The US Department of Education's guarantee of FFELP loans is critical to the credit quality of these securitizations.
  • Moody's will assess the impact of the US government's rating downgrade on guarantee payments and consider updated performance data on underlying loan pools and available credit enhancement.
  • The principal methodology used in these ratings is "FFELP Student Loan Securitizations" published in December 2024.
  • Factors that could lead to an upgrade or downgrade of the ratings include the adequacy of credit enhancement, paydown speed of the loan pool, and potential downgrades of swap counterparties.

Statistics:

  • 69 Aaa-rated bonds are on review for downgrade.
  • 39 securitizations are affected by this rating action.
  • The US Department of Education guarantees FFELP loans for at least 97% of defaulted principal and accrued interest.
  • The principal guarantee payments are a critical component of the credit quality of FFELP securitizations.

Sources:

  • Moody's Investors Service, "Rating Action: Moody's Places 69 Aaa-rated bonds backed by student loans on Review for Downgrade" (2025)
  • Government of the United States of America, "Moody's Downgrades US Sovereign Rating to Aa1 Stable" (May 16, 2025)
  • Moody's Investors Service, "FFELP Student Loan Securitizations" (December 2024)

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