Some lenders that administer student loans are planning a big sale. Securities made up of or combined with student loans are set to go on the market very soon. Should governments be on the hook for federally backed loan credit sold by private businesses? Are these companies relying on taxpayers for a bailout?
Resource for this article: Student loan backed securities up for sale by Personal Money Store
The administration of student loans
Since the student loan program started, private businesses have administered these loans. Private companies administer the loans, but the government backs them up should the students default on the loans. The original theory was that this private system would get students the best personal loans. The federal government will take over the administration of the loans, thanks to a student loan reform bill that was most recently passed.
Securities backed by student loans
Like the subprime mortgage securities created by Wall Street, student loan securities are "bundled.” Investors buy and sell these "loan-backed securities". Because these student loans are government-backed, they are considered “safer” investments. A student loan group owned by Citibank is selling $ 855 million. Bank of America is also going to be selling $ 1.23 billion of student loan backed bonds. Sallie Mae may also sell $ 1.7 billion in bonds.
Are these bonds and securities good investments?
The student-loan backed securities being sold as federally guaranteed loan securities will benefit the companies and investors. The federal government and taxpayers who take on the risk of these student loan bonds, nevertheless, will not be seeing much benefit. This situation has been partially resolved, but not entirely. The new student loan bill removes private companies from the middleman position. At the same time, will the federal government continue to sell these securities? If the government agency does, at least the taxpayers will see the benefit.
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