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LIBOR transition and student lending: More homework coming

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The Alternative Reference Rates Committee (ARRC) market consultation

Considerations for LIBOR transition in the consumer loan market

The publication of the Alternative Reference Rates Committee’s (ARRC) variable rate private student loans (VRPSL) consultation marks a significant step in the progress of LIBOR transition for the consumer loan market. As we have seen with other cash products, the ARRC’s fallback consultation intends to bring together lenders, borrowers, investors and other stakeholders to ensure perspectives of all those impacted are taken into consideration in the final recommendations. Market participants taking a proactive role in the consultative process have the opportunity to influence market solutioning industry-wide.

In responding to the consultation, market participants should consider the following:

  • Borrowers, already facing mounting debt burdens, have been further impacted by the economic downturn caused by COVID-19 related measures. Advocacy groups will attempt to ensure the plight of these borrowers are not further exacerbated by market forces such as LIBOR transition. We expect discussions on potential remedies for student loan borrowers will be front and center in the upcoming presidential election.
  • Lenders will need to be proactive in their approach to communicate the effects of transition on borrower monthly payments - with a goal of minimizing value transfer at the borrower’s expense. Approaches that are not well thought out have the risk of turning a market event into a reputational challenge.
  • Securitization issuers should consider the additional risks to deal structures that may arise from student loan assets that transition utilizing the proposed fallback language, and what additional structural enhancements may be necessary to counterbalance them.

Responses are due back to the ARRC by May 29, 2020.

Please connect with us if you have questions or need additional clarification. 

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John Garvey

Global Financial Services Leader, PwC US

Chris Kontaridis

US Deals, Strategy & Operations Leader for Tax Reporting & Strategy, PwC US

Jeremy Phillips

Asset & Wealth Management, Partner, PwC US

John Oliver

Partner, PwC US

Justin Keane

Financial Services, Principal, PwC US

Jessica Pufahl

Financial Services, Partner, PwC US

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