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According to the Federal Register, student loans are securitized which means that student loans were sold or are pooled with other student loans endorsed into a trust. These trusts are called asset backed securities.
Asset Backed Securities collateralized by student loans (“SLABS”) comprise one of the four (along with home equity loans, auto loans and credit card receivables) core asset classes financed through asset-backed securitizations and are a benchmark subsector for most floating rate indices. Federal Family Education Loan Program (FFELP) loans are the most common form of student loans and are guaranteed by the U.S. Department of Education ("DOE") at rates ranging from 95%-98% (if the student loan is serviced by a servicer designated as an "exceptional performer" by the Department Of Education the reimbursement rate was up to 100%). As a result, performance (other than high cohort default rates in the late 1980s) has historically been very good and investors’ rate of return has been excellent. The College Cost Reduction and Access Act became effective on October 1, 2007 and significantly changed the economics for FFELP loans; lender special allowance payments were reduced, the exceptional performer designation was revoked, lender insurance rates were reduced, and the lender paid origination fees were doubled. See: Wikipedia See: Impact of Securitization and securitization-a-primer
According to SEC rules student loans are supposed to be transferred into a trust; however they never actually deliver the note. If the note is NOT indorsed into the trust the note is void and uncollectable.