In a remarkable achievement for the next-generation student loan provider, College Ave Student Loans recently completed its first student loan securitization. The bond issue, underwritten by Barclays, was very popular with investors.
This successful loan securitization program makes College Ave and other alternative lenders an ever-growing threat to margins and loan originations for traditional competition, meaning banks and other lenders, in private student lending. New firms such as College Ave are nimble and innovative with their use of mobile apps, streamlined technology, and repayment flexibility.
College Ave CEO Joe DePaulo was very pleased with the success of the bond issue and the strong ratings from the leading issuers. He commented, “The successful first securitization and ratings from DBRS and S&P further confirm the outstanding quality of our assets and portfolio.” Additionally, in a statement from the company’s headquarters in Wilmington, DE, College Ave confirmed their intention to offer an asset-backed bond on an annual basis going forward.
In the October 4 securitization announcement, College Ave claimed they have established over $2 billion in new “committed loan purchasing power” in the last year. The company plans to increase their staffing levels in Wilmington over the coming months. The capital backing for their student loans comes from “multiple sources” according to College Ave.
The College Ave transaction earned strong ratings from DBRS and S&P, the two major bond rating firms in the market. DBRS assigned the asset-backed bond an A-rating, a positive sign for College Ave’s ambitions in the securitization market. Standard & Poor’s issued a triple-B rating to the 2017 securitization, slightly lower but still a positive rating for the issue.
While repayment flexibility typically offers a challenge to bond underwriters, the market for student debt shows no signs of slowing down. Securitization is a good way for College Ave to improve their cash flow and free up capital for new loan-making. Threats from delinquency and default remain present in the market, as young Americans continue to struggle under record student debt.
The average student loan debt for the Class of 2016 was around $28,000 per borrower. In total, over 44 million Americans maintain student debt for a total loan debt of $1.4 trillion.
By offering refinancing, College Ave and some of the other best student loan refinance lenders have a chance to build large portfolios through existing loan obligations. College Ave offers refinance loans with interest rates ranging from 2.54% to 6.49%; both fixed-rate and variable-rate consolidation loans are available.
The success of College Ave derives from a simplified loan process and technology investments for potential and current student loan debt holders. It offers a wide range of loan offers for students and former students to help them pay off their loans quickly with flexible repayment options. The existing private student loan market is dominated by traditional players such as national banks, but the student borrowers’ appetite for better service and cheaper rates is disrupting the industry.
Author: Andrew Rombach
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