Student Loan Auction Rate Securities (also referred to as SLARS or Student Loan ARS) are securitizations, typically of very large student loan pools, held in a trust estate. Active securitizers include Sallie Mae, non-profit specialized student loan lenders and for-profit lenders with roots in the non-profit sector. Student loans have historically had low expected losses and longer maturities than other loans. In addition, most student loans are guaranteed, often by the federal government.
Unfortunately, student loans have also historically had low profit margins. Thus, when the student loan securitization market began in 1992, it was critical that student loan pools be financed at low rates. As a result, SLARS have the most severe failure rate of all classes of auction-rate securities. In addition, SLARS issuers may have more limited options for refinancing than other issuers in the ARS market. SLARS, in other words, likely have among the poorest prospects for liquidity and tend to trade at significantly higher average discounts than MARS and ARPS.