SoFi's latest professional loan program was backed by loans refinancing the debt of borrowers with advanced degrees, like dentists.

Social Finance (SoFi) has kicked off 2018 with a bang, offering their bonds backed by loans, refinancing student debt of borrowers with advanced degrees, or high incomes. The SoFi Professional Loan Program is estimated to be worth $720.1 million in private student loans.

SoFi has been completing these offerings for years, but this time, their bonds are benefiting from a 23.44% credit enhancement as well as an excess spread of between 2-5%.

SoFi is releasing three tranches of senior Class A notes totaling $677.3 million, that have been given a preliminary AAA rating by Moody’s Investors Service. The first tranche consists of $55 million Class A-1 notes that are backed by a floating-rate and carry a variable-rate coupon. While the $358.5 million Class A-2A and the $236.8 million of Class A-2 notes are both backed with fixed rates.

Compared to the last release of bonds by SoFi in December, these latest bonds have a bit of a higher percentage of loans to borrowers who currently carry an undergraduate degree, compared to a graduate degree. Additionally, these loans have a slightly higher percentage of Parent PLUS loan refinancing. However, this should not make buyers pass, as the average borrower in this latest release of bonds have a 722-weighted credit score, average income of over $170,000, and average cash flow after expenses of $7,285 per month.

Well, what does this mean for those who have borrowed? Well for those who went to law, dental, medical, or business school, the bonds to your loans are probably being sold off. This isn’t necessarily a bad thing, nor is it out of the norm for student loan financers to sell off debt like this, especially low-risk loans like these.

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SoFi is making a choice, instead of dealing with the sensitivity of student loan financing, they are choosing to sell off their top-rated loans in a bundle to the highest bidder. These bidders will make long-term interest off the loan but could be in for losses if defaults start to occur. However, this is why the AAA rating is important, as this set of loans is the crème of the crop of student loan borrowing.

The reason for this is these are high-value degrees, with individuals that have a large income to match it. The risk of default or issues down the line is minimal, and companies will pay for the chance to manage these bonds over the long run. Nothing will change for the front-end consumer of the SoFi Professional Loan Program, but for SoFi proper they make a huge profit off your debt, and that can be unsettling for some. But what can you do to prevent this?

Besides paying off your loan in full, there is nothing that the average student can do to prevent your debt from being included. This is a normal practice within the debt industry, and it just so happens that SoFi is one of the true industry leaders in packaging their AAA bonds to spin a profit. 

Image Copyright © Herry Lawford