SLABS Parameters
Heatmap 1: Peak CDR % vs In-School Share % on Year 5 Total Parity %
Evaluating cohort default stress and student enrollment lags on asset-to-debt solvencyHeatmap 2: Prepayment CPR % vs FFELP Guarantee % on Class A WAL (Yrs)
Assessing refinancing consolidation velocity and federal claim recovery on debt lifeSLABS Cash Flow Waterfall Schedule
Annual pool balance, capitalized interest, gross defaults, claim recoveries, parity ratios, and turbo cash sweeps| Year | Pool Balance | Cap Interest | Defaults | Claim Cash | Class A Debt | Class B Debt | Class A Paid | Turbo Paid | Reserve Bal | Total Parity | Cash Status |
|---|
Student Loan ABS Structural & Credit Mechanics
1. Federal FFELP Guarantees vs Private Student Loans
Federal Family Education Loan Program (FFELP) loans carry a statutory guarantee from the U.S. Department of Education under the Higher Education Act. For loans originated between 1993 and 2006, the guarantee reimburses 98% of defaulted principal and accrued interest; for loans originated after July 1, 2006, the guarantee covers 97%:
In contrast, Private Student Loans carry zero federal guarantee. Private pools rely on credit underwriting (FICO scores, cosigners), higher gross borrower interest margins, and higher initial overcollateralization (7% to 12%) to absorb credit losses.
2. Special Allowance Payments ($\text{SAP}$) & Yield Preservation
Because borrower interest rates on federal loans may be fixed by statute or subject to statutory caps, the U.S. government pays quarterly Special Allowance Payments (SAP) to ensure trust yields remain competitive relative to floating money market indices (such as SOFR or 91-day T-Bills):
This mechanism eliminates interest rate basis compression, guaranteeing that the asset pool generates sufficient yield to cover floating-rate note coupons.
3. Borrower Status Migration & Capitalized Interest
Unlike auto or mortgage pools which immediately amortize, student loan collateral exhibits multi-year non-paying phases:
- In-School & Grace Status: Students make no payments. Accrued interest capitalizes onto loan principal ($B_t \leftarrow B_{t-1} + \text{Accrued Int}$).
- Deferment & Forbearance: Hardship pauses granted for unemployment, disability, or residency.
- Active Repayment: Standard level-debt amortization over 10 to 25 years.
Capitalized interest temporarily expands the collateral pool balance, but creates an initial cash flow J-curve requiring reserve funds to cover ongoing note interest.
4. Asset-to-Debt Parity Ratios & Turbo Amortization
The primary solvency covenant in SLABS transactions is the Asset-to-Debt Parity Ratio:
Whenever Total Parity is at or above 105.0%, excess spread is allowed to release to the sponsor. If parity breaches below 105.0%, the waterfall activates Turbo Amortization, trapping 100% of excess cash flow to pay down Senior Note principal until parity is restored.
Student Loan ABS Formative Assessment
Test your mastery of federal FFELP guarantees, SAP subsidies, capitalized interest, and parity covenantsRelated Institutional Structured Credit & Fixed Income Labs
Cat Bond & ILS Pricing Lab
Model catastrophe bonds, collateral SPV trusts, attachment layers & pricing multiples.
WBS Franchise Royalty Lab
Model brand IP ring-fencing, franchise royalty waterfalls, DSCR covenants & cash trapping.
Equipment Lease ABS Lab
Model commercial equipment leases, Fair Market Value residuals, DRV haircuts & turbo paydowns.
Auto Loan ABS & CNL Lab
Model retail automobile loan installment securitizations, Absolute Prepayment Speed, and CNL curves.