Fitch Ratings expects the amount of student loans in deferment and forbearance to increase over the next six months as pressure on consumers mounts given the weak employment situation and increasing consumer leverage, according to the latest student loan asset-backed securities newsletter published this week by Fitch. However, while downward rating volatility has persisted in other asset-backed (ABS) sectors, bonds collateralized by student loans have held up well due in part to the relatively stable excess spread prevalent in student loan portfolios.

The newsletter also highlights the historically low interest rates, noting that the consolidation trend that began three years ago will continue for at least another year. However, Fitch views the growing amounts of consolidation loan collateral making its way into current and future securitizations as a positive trend.

In the second quarter of 2003, Fitch assigned ratings to 28 student loan ABS transactions accounting for over $12.8 billion of new student loan-backed bonds. Sallie Mae accounted for approximately 54% of the overall securitization volume, with approximately $6.9 billion in the second quarter and $13.2 billion through June 30.