SLM Student Loan Trust 2013-3 Annual Report - How They Did This Year

I’ve put together this guide to help you understand how SLM Student Loan Trust 2013-3 performed this year. Think of this as a cheat sheet to help you decide if this investment fits your goals.

1. What does this trust do?

This isn't a typical business that sells products. It is a financial vehicle created in 2013 to hold a pool of student loans. These are mostly Federal Family Education Loan Program (FFELP) loans, which started with a balance of about $1.2 billion. You invest by buying Asset-Backed Securities (ABS). As students pay back their loans, you receive payments. It is a passive way to collect interest, managed by Navient Solutions, LLC.

2. Financial performance

This trust doesn't "grow" like a normal company. Its success depends entirely on students paying their loans and the government’s guarantee on those loans. The trust is currently in "run-off" mode, meaning it is slowly winding down as loans are paid off. The original $1.2 billion balance has dropped significantly as investors receive their principal back. Your returns come from the cash flow of the remaining loans, minus small servicing fees of 0.09% per year.

3. Major risks

This is the most important section. Be aware of the legal clouds hanging over the companies managing your investment:

• Navient’s Legal Troubles: Navient faces many lawsuits regarding how they handle loan repayments. If they lose these cases, they could face financial penalties or operational issues. This might hurt their ability to manage the trust’s assets effectively.
• The Trustee’s Legal Issues: The trustees—Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas—are involved in long-running legal battles. These cases involve claims that the banks mismanaged other trusts years ago.
  • The Good News: Both banks state that these lawsuits will not affect their work for this specific trust. They note that the trust’s assets are legally separated from the banks' own money.
  • The Reality: While the banks claim these issues are separate, the lawsuits are massive and have lasted for years. These legal distractions could theoretically lead to a change in trustee or higher administrative costs if the banks’ stability suffers.

4. Future outlook

The future of this investment is predictable but sensitive. It relies on two things: borrowers paying their loans and the legal stability of the companies managing the paperwork. There is no new strategy coming. The goal is simply to collect payments until the loans are gone. Expect a steady decline in the loan balance as the trust approaches its final maturity date. Cash flows will continue to pay down senior notes before junior ones.

The Bottom Line: This is a "set it and forget it" investment, but it comes with legal baggage. You aren't betting on a company’s growth; you are betting on borrowers paying their debts and the legal survival of the companies managing the paperwork. While the trustees claim their issues won't impact this trust, the scale of their legal battles is something every investor should keep in mind.

Decision Checklist:

• Are you looking for passive income? This trust is designed to pay out as loans are settled.
• Are you comfortable with "run-off" assets? Remember that the principal balance will continue to shrink over time.
• How do you feel about legal risk? Ensure you are comfortable with the ongoing litigation involving the servicer and the trustee, even if they maintain that the trust’s assets are protected.