Fitch Ratings has affirmed the class A and B notes of Nelnet Student Loan Trust (Nelnet) 2004-3, Nelnet 2005-2, Nelnet 2005-3, Nelnet 2005-4, and Nelnet 2006-1.
Fitch has also affirmed the class A notes of Nelnet 2004-4. The affirmations reflect the strong collateral performance for the transactions, in line with Fitch's expectations since the last review. All affirmed classes passed all credit and maturity stresses at the notes' corresponding rating levels.
Fitch upgraded the class B notes of Nelnet 2004-4 from 'AAsf' to 'AAAsf'; the upgrade reflects high and increasing total parity available to the bonds that can withstand Fitch's 'AAAsf' credit stresses. The bonds' maturity risk is also considered commensurate to a 'AAAsf' rating.
Fitch also revised the Rating Outlook on the class B notes of Nelnet 2005-2 and Nelnet 2005-3 to Positive from Stable. The Positive Outlook reflects strong transaction performance and increased credit enhancement (CE) available to these bonds and highlights positive rating momentum should the current trend of building CE and stable asset performance continue through 2022.
The Negative Outlook on all of the 'AAAsf' rated bonds reflects Fitch's Negative Outlook on the U.S. sovereign's 'AAA' Issuer Default Rating (IDR).
RATING ACTIONS
Entity / Debt
Rating
Prior
Nelnet Student Loan Trust 2004-4
A-5 64031QBK6
LT
AAAsf
Affirmed
AAAsf
B 64031QBL4
LT
AAAsf
Upgrade
AAsf
Nelnet Student Loan Trust 2005-3
A-5 64031QCD1
LT
AAAsf
Affirmed
AAAsf
B 64031QCE9
LT
AAsf
Affirmed
AAsf
Nelnet Student Loan Trust 2006-1
A-6 64033HAA7
LT
AAAsf
Affirmed
AAAsf
B 64031QCU3
LT
Asf
Affirmed
Asf
Nelnet Student Loan Trust 2004-3
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VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
U.S. Sovereign Risk: The trust collateral comprises Federal Family Education Loan Program (FFELP) loans, with guaranties provided by eligible guarantors and reinsurance provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. The U.S. sovereign rating is currently 'AAA'/Outlook Negative.
Collateral Performance:
Nelnet 2004-3: Fitch assumes a cumulative default rate of 16.25% under the base case scenario and 48.75% under the 'AAAsf' credit stress scenario. Fitch assumes a sustainable constant default rate (sCDR) of 3.00% and a sustainable constant prepayment rate (voluntary and involuntary prepayments; sCPR) of 8.0% in cash flow modelling. Fitch applies the standard default timing curve in its credit stress cash flow analysis, in accordance with its FFELP criteria. The trailing 12month (TTM) levels of deferment, forbearance and income-based repayment are 4.2%, 6.9%, and 19.1% respectively, and are used as the starting point in cash flow modelling. Subsequent declines or increases are modelled as per criteria. The borrower benefit is assumed to be approximately 0.14%, based on information provided by the sponsor.
Nelnet 2004-4: Fitch assumes a cumulative default rate of 22.25% under the base case scenario and 66.75% under the 'AAAsf' credit stress scenario. Fitch assumes a sCDR of 4.00% and a sCPR of 8.0% in cash flow modelling. Fitch applies the standard default timing curve in its credit stress cash flow analysis, in accordance with its FFELP criteria. The TTM levels of deferment, forbearance and income-based repayment are 4.8%, 8.1%, and 24.0% respectively.
Nelnet 2005-2: Fitch assumes a cumulative default rate of 16.75% under the base case scenario and 50.25% under the 'AAAsf' credit stress scenario. Fitch assumes a sCDR of 3.00% and a sCPR of 8.0% in cash flow modelling. The TTM levels of deferment, forbearance and income-based repayment are 4.6%, 7.1%, and 16.8% respectively. The borrower benefit is assumed to be approximately 0.17%, based on information provided by the sponsor.
Nelnet 2005-3: Fitch assumes a cumulative default rate of 17.25% under the base case scenario and 51.75% under the 'AAAsf' credit stress scenario. Fitch assumes a sCDR of 3.00% and a sCPR of 8.0% in cash flow modelling. The TTM levels of deferment, forbearance and income-based repayment are 5.1%, 7.6%, and 19.9% respectively. The borrower benefit is assumed to be approximately 0.18%, based on information provided by the sponsor.
Nelnet 2005-4: Fitch assumes a cumulative default rate of 15.00% under the base case scenario and 45.00% under the 'AAAsf' credit stress scenario. Fitch assumes a sCDR of 2.50% and a sCPR of 8.0% in cash flow modelling. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the 'AAAsf' case. The TTM levels of deferment, forbearance and income-based repayment are 4.0%, 7.2%, and 19.6% respectively. The borrower benefit is assumed to be approximately 0.18%, based on information provided by the sponsor.
Nelnet 2006-1: Fitch assumes a cumulative default rate of 13.25% under the base case scenario and 39.75% under the 'AAAsf' credit stress scenario. Fitch assumes a sCDR of 3.00% and a sCPRof 8.0% in cash flow modelling. The TTM levels of deferment, forbearance and income-based repayment are 4.0%, 6.0%, and 16.3% respectively, and are used as the starting point in cash flow modelling. The borrower benefit is assumed to be approximately 0.24%, based on information provided by the sponsor.
The above assumptions were used as the starting point in cash flow modelling and subsequent declines or increases were modelled as per criteria. Fitch applied the standard default timing curve in its credit stress cash flow analysis, in accordance with its FFELP criteria. Fitch also assumed the claim reject rate to be 0.25% in the base case and 2.0% in the 'AAAsf' case.
Basis and Interest Rate Risk:
Nelnet 2004-3: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of October 2021, 99.1% of the principal balance is indexed to one-month LIBOR with the rest indexed to 91 Day T-Bills. All notes are indexed to three-month LIBOR.
Nelnet 2004-4: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of October 2021, 90.4% of the principal balance is indexed to one-month LIBOR with the rest indexed to 91 Day T-Bills. All notes are indexed to three-month LIBOR.
Nelnet 2005-2: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of September 2021, 98.8% of the principal balance is indexed to one-month LIBOR with the rest indexed to 91 Day T-Bills. All notes are indexed to three-month LIBOR.
Nelnet 2005-3: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of September 2021, 99.7% of the principal balance is indexed to 91 Day T-Bills. All notes are indexed to three-month LIBOR.
Nelnet 2005-4: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of September 2021, 96.0% of the principal balance is indexed to one-month LIBOR with the rest indexed to 91 Day T-Bills. All notes are indexed to three-month LIBOR.
Nelnet 2006-1: Basis risk for these transactions arises from any rate and reset frequency mismatch between interest rate indices for Special Allowance Payments (SAP) and the securities. As of September 2021, 100% of the principal balance is indexed to one-month LIBOR. All the notes are currently indexed to three-month LIBOR.
Payment Structure:
Nelnet 2004-3: CE is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of the current reporting period, total and senior effective parity ratios (including the reserve) are 102.13% (2.09% CE) and 109.85% (8.97% CE). Liquidity support is provided by a reserve, which is currently at its floor of $2,011,386.13. The transaction will continue to release cash as long as the target overcollateralization amount of $921,831.95 is maintained.
Nelnet 2004-4: CE is provided by overcollateralization excess spread and, for the class A notes, subordination. As of the current reporting period, total and senior effective parity ratios (including the reserve) are 109.34% (8.54% CE) and 124.92% (19.95% CE). Liquidity support is provided by a reserve, which is currently at its floor of $2,991,407.19. The transaction will continue to release cash as long as the target overcollateralization amount of $2,152,841.15 is maintained.
Nelnet 2005-2: CE is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of the current reporting period, total and senior effective parity ratios (including the reserve) are 104.23% (4.06% CE) and 113.72% (12.07% CE). Liquidity support is provided by a reserve, which is currently at its floor of $2,976,292.60. The transaction will continue to release cash as long as the target overcollateralization amount of $1,433,657.96 is maintained.
Nelnet 2005-3: CE is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of the current reporting period, total and senior effective parity ratios (including the reserve) are 105.56% (5.26% CE) and 116.47% (14.14% CE). Liquidity support is provided by a reserve, which is currently at its floor of $1,988,699.90. The transaction will continue to release cash as long as the target overcollateralization amount of $ 1,325,800.10 is maintained.
Nelnet 2005-4: CE is provided by overcollateralization, excess spread and, for the class A notes, subordination. As of the current reporting period, total and senior effective parity ratios (including the reserve) are 101.11% (1.10% CE) and 106.15% (5.80% CE). Liquidity support is provided by a reserve, which is currently at its floor of $2,841,887.45. The transaction will continue to release cash as long as the target overcollateralization amount of $ 1,116,965.95 is maintained.
Nelnet 2006-1: Credit enhancement (CE) is provided by overcollateralization (OC), excess spread and for the class A notes and subordination. As of the current reporting period, for Nelnet 2006-1, total and senior effective parity ratio (which includes the reserve account) are, 100.74% (074% CE) and 105.30% (5.03% CE) respectively. The required reserve account balance is 0.25% of the current pool balance with a floor of $2,951,197. Excess cash is currently being released from the trust.
Operational Capabilities: Day-to-day servicing is provided by Nelnet, Inc. Fitch believes Nelnet to be an acceptable servicer, due to its extensive track record as one of the largest servicers of FFELP loans.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Nelnet Student Loan Trust 2004-3
Credit Stress Rating Sensitivity
Default increase 25%: class A 'AAA 'sf'; class B 'AAAsf'
Default increase 50%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.50%: class A 'AAAsf; class B 'AAsf'
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'AAAsf'; class B 'AAAsf'
CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 25%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 50%: class A 'AAAsf; class B 'AAAsf'
Remaining Term increase 25%: class A 'AAAsf'; class B 'AAAsf'
Remaining Term increase 50%: class A 'AAsf'; class B 'AAsf'
Nelnet Student Loan Trust 2004-4
Credit Stress Rating Sensitivity
Default increase 25%: class A 'AAA 'sf'; class B 'AAAsf'
Default increase 50%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.50%: class A 'AAAsf; class B 'AAAsf'
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'AAAsf'; class B 'AAAsf'
CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 25%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 50%: class A 'AAAsf; class B 'AAAsf'
Remaining Term increase 25%: class A 'AAAsf'; class B 'AAAsf'
Remaining Term increase 50%: class A 'AAAsf'; class B 'AAAsf'
Nelnet Student Loan Trust 2005-2
Credit Stress Rating Sensitivity
Default increase 25%: class A 'AAA 'sf'; class B 'AAAsf'
Default increase 50%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.50%: class A 'AAAsf; class B 'AAAsf'
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'AAAsf'; class B 'AAAsf'
CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 25%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 50%: class A 'AAAsf; class B 'AAAsf'
Remaining Term increase 25%: class A 'AAAsf'; class B 'AAAsf'
Remaining Term increase 50%: class A 'AAAsf'; class B 'AAsf'
Nelnet Student Loan Trust 2005-3
Credit Stress Rating Sensitivity
Default increase 25%: class A 'AAA 'sf'; class B 'AAAsf'
Default increase 50%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.25%: class A 'AAAsf'; class B 'AAAsf'
Basis spread increase 0.50%: class A 'AAAsf; class B 'AAAsf'
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'AAAsf'; class B 'AAAsf'
CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 25%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 50%: class A 'AAAsf; class B 'AAAsf'
Remaining Term increase 25%: class A 'AAAsf'; class B 'AAAsf'
Remaining Term increase 50%: class A 'AAAsf'; class B 'AAAsf'
Nelnet Student Loan Trust 2005-4
The current ratings reflect the risk the senior notes miss their legal final maturity date under Fitch's base case maturity scenario. If the margin by which these classes miss their legal final maturity date increases, or does not improve as the maturity date nears, the ratings may be downgraded further. Additional defaults, increased basis spreads beyond Fitch's published stresses, lower-than-expected payment speed or loan term extension are factors that could lead to future rating downgrades.
Nelnet Student Loan Trust 2006-1
Default increase 25%: class A 'AAAA 'sf'; class B 'AAsf'
Default increase 50%: class A 'AAAsf'; class B 'Asf'
Basis spread increase 0.25%: class A 'AAAsf'; class B 'Asf'
Basis spread increase 0.50%: class A 'Asf; class B 'BBBsf'
Maturity Stress Rating Sensitivity
CPR decrease 25%: class A 'AAAsf'; class B 'AAAsf'
CPR decrease 50%: class A 'AAAsf'; class B 'AAAsf'
IBR usage increase 25%: class A 'AAAAsf'; class B 'AAAsf'
IBR usage increase 50%: class A 'AAAsf; class B 'AAAsf'
Remaining Term increase 25%: class A 'AAAsf'; class B 'AAAsf'
Remaining Term increase 50%: class A 'AAAsf'; class B 'AAAsf'.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Nelnet Student Loan Trust 2004-3
No upgrade sensitivity is provided for the class A notes given Fitch rates them 'AAAsf'.
Credit Stress Sensitivity
Default decrease 25%: class B 'AAAsf'
Basis Spread decrease 0.25%: class B 'AAAsf'
Maturity Stress Sensitivity
CPR increase 25%: class B 'AAAsf'
IBR usage decrease 25%: class B 'AAAsf'
Nelnet Student Loan Trust 2004-4
No upgrade sensitivity is provided for the class A and B notes given Fitch rates them 'AAAsf'.
Nelnet Student Loan Trust 2005-2
No upgrade sensitivity is provided for the class A notes given Fitch rates them 'AAAsf'.
Credit Stress Sensitivity
Default decrease 25%: class B 'AAAsf'
Basis Spread decrease 0.25%: class B 'AAAsf'
Maturity Stress Sensitivity
CPR increase 25%: class B 'AAAsf'
IBR usage decrease 25%: class B 'AAAsf'
Nelnet Student Loan Trust 2005-3
No upgrade sensitivity is provided for the class A notes given Fitch rates them 'AAAsf'.
Credit Stress Sensitivity
Default decrease 25%: class B 'AAAsf'
Basis Spread decrease 0.25%: class B 'AAAsf'
Maturity Stress Sensitivity
CPR increase 25%: class B 'AAAsf'
IBR usage decrease 25%: class B 'AAAsf'
Nelnet Student Loan Trust 2005-4
The current ratings are most sensitive to Fitch's maturity risk scenario. Key factors that may lead to positive rating action are sustained increases in payment rate and a material reduction in weighted average remaining loan term. A material increase of credit enhancement from lower defaults and positive excess spread, given favorable basis spread conditions, is a secondary factor that may lead positive rating action.
Nelnet Student Loan Trust 2006-1
No upgrade sensitivity is provided for the class A notes given Fitch rates them 'AAAsf'.
Credit Stress Sensitivity
Default decrease 25%: class B 'AAAsf'
Basis Spread decrease 0.25%: class B 'AAAsf'
Maturity Stress Sensitivity
CPR increase 25%: class B 'AAAsf'
IBR usage decrease 25%: class B 'AAAsf'
Remaining Term decrease 25%: class B 'AAAsf'
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
NELNET, INC. 
