Posts tagged 'Student Loans'

Student debt’s subprime problem

This may sound familiar:

  1. Conventional wisdom says people who own Asset A do better than people who don’t, and that society as a whole would be better off if more people end up owning Asset A
  2. Asset A is expensive, so many people borrow to buy it
  3. Credit constraints limit how many people can buy Asset A
  4. Then, for some reason, lenders become a lot more willing to fund purchases of Asset A, so demand for Asset A goes up a lot
  5. Supply of Asset A isn’t initially big enough to accommodate the extra demand, so prices go up and lots more gets created
  6. All the extra spending temporarily boosts GDP above what it otherwise would have been
  7. Partly because of 1 and 6, regulators take a light-touch approach, which enables (encourages?) lots of fraud
  8. It turns out there were good reasons why credit had previously been constrained, and the new borrowers can’t repay their debts
  9. Credit conditions, prices, and rates of asset ownership eventually return to where they were before but not until after a lot of people suffer losses from the previous credit expansion

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The growth of US student loan debt: causes and consequences

The chart from Goldman economists breaks down the various causes behind the rapid expansion of student loan growth in the past decade. As you can see, both rising tuition and a higher share of students borrowing have contributed just as much as higher student enrollment. Read more

A good(ish) trend in US student lending

Shahien Nasiripour and Counterparties (Shane Ferro & Ryan McCarthy) had great pieces recently about the latest trends in student lending and their potential wider implications for the economy. We also recommend this explainer from Dylan Matthews about the new jump in rates for certain kinds of student loans.

Our own view has been that the ongoing growth of student lending is unlikely to represent a systemic financial risk, but it’s hard to imagine that it doesn’t have some damaging macroeconomic effects in the short- to medium-term. Read more

Student lending vs the housing bubble

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Damn straight I’m a college grad! Paper or plastic?

It’s the kind of motto one sees on a T-shirt in a shop in the touristy part of town, but over the last few years it’s had a particularly painful ring of truth to it. Students in America are staying in education longer and are struggling to obtain full, gainful employment once they leave. This, combined with the rising costs of tuition, has seen the outstanding balance of student debt go past the one trillion mark and delinquency rates increase.

Talk is in the air of a bubble, as pundits point to student loans themselves and to the securities that are built from them. But is what’s going on “a bubble” in the usual sense? And more importantly, what does this say about college education in America? Read more

Trading in America’s students expands

Alright, we put our hands up, we’ve been reading Zero Hedge.

His Anonymous Handsome Midriffness is busy being his usual self, and on this topic he’s made us go hmmm about a certain Wall Street Journal story concerning SecondMarket Holdings, Inc. The platform is launching a service that will allow lenders to sell exposure in student loans to (accredited) investors. The WSJ describes it thus (emphasis ours): Read more

Having toilet-papered a tree, students move on to trash ABS market

Evidently it’s time to get very excited about the risks posed by increasing student debt in the US, particularly as rates of delinquency are on the rise. Pretty graphs first, details follow…

Holy household debt, Batman! Student loan balances have surpassed credit card use and are still growing! Read more

Student Loan In-securities

As the topic of student loans has been gaining momentum this election year, it might be worth taking a moment to examine some not-so-rosy points about the whole business.

First some background. In the world of US student loans, Uncle Sam reigns supreme. A recent research note by Credit Suisse noted that since the abolition of the Federal Family Education Loan Program (FFELP) in 2010, the government has become owner of an estimated 88% of total outstanding student debt. Read more

The coming firesale of student loan ABS

The potential contents of a firesale if there is a downgrade of the US’s AAA rating are receiving a fair bit of attention, as investment funds weigh up what they can and should do in the event.

Defeased or prefunded securities are uniquely vulnerable and, according to a note out Thursday by Citigroup’s securitised products team, so are the $250bn of asset backed securities linked to the Federal Family Education Loan Program (FFELP). Read more

Things affected by a US downgrade

The list comes to us from Moody’s, which looks at the possible ratings impact of a US sovereign downgrade in Monday’s structured finance quick check. Now the credit rating agency has said before that it will place the US government’s triple-A rating on review for downgrade if there’s no “demonstrable progress” on the debt ceiling talks. Unsurprisingly, a downgrade of the US would have a ripple effect on a number of other assets which are directly linked to the fortunes of the States.

Let’s get the quirky stuff out of the way first. The Israeli bonds, we think, are USAID bonds issued by the State of Israel in the early 2000s and fully guaranteed by the USA. The Egyptian bond is another US-guaranteed issue apparently done earlier this year in an effort to plug Egypt’s budget gap after the spring uprising. Read more

For-profit colleges live to default another day

This is what a collective sigh of relief in the for-profit college sector looks like:

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Further further reading

For the commute home, where you always over-deliver on expectations,

– Google misses earnings expectations. Read more

“Gainful Employment” survives shutdown negotiations

And we’re not just talking about national zookeepers.

Here’s a Steve Eisman-friendly tidbit from the government shutdown negotiations, courtesy of the Higher Ed Watch blog on Saturday: Read more

Student loans: debt, defaults and delinquents

The Everest for-profit education network says of a decision to attend one of its colleges: “It’s a decision that deserves respect.

Perhaps — but it’s definitely risky. Read more

The biggish short — subprime student loans

Hello, my name is Steven Eisman.

“Hi Steve, we loved the Big Short. Thanks for your email — yes, let’s grab a coffee and discuss why you’re shorting the for-profit college industry.”*   (*FT Alphaville translation.) Read more