People Were Right: The Next Round of Default Will Be Student Loans

 

All Rights Reserved

 I have had a few conversations with other ‘educated’ people in different fields regarding student loans. It’s pretty much the same: I’ve been paying for this amount of time, payments don’t make a dent, I am using up all of my deferments and forbearance and the balance keeps growing, and I or my spouse is unemployed. Looking at this article, it sounds like SLM operates its business identical to the housing market:  

Student Loan Corp. Plans to Issue $855 Million of Asset-Backed Securities – BloombergJune 29 (Bloomberg) — Student Loan Corp., the lender majority-owned by Citigroup Inc., plans to sell $855 million of asset-backed securities, according to a person familiar with the offering. 

The loans are guaranteed by the U.S. government, said the person, who declined to be identified because the terms aren’t public. Bank of America Corp. is also selling $1.23 billion of bonds backed by government-guaranteed student loans. SLM Corp., known as Sallie Mae, is marketing a $1.7 billion offering tied to private loans, or those that don’t carry the guarantee, a person familiar with that offering said. 

This year, $8 billion of asset-backed securities tied to student loans have been sold, compared with $10.4 billion during the same period in 2009, according to data compiled by Bloomberg. Sallie Mae hasn’t issued debt linked to private student loans, which is harder to sell because it lacks a government guarantee, since the Federal Reserve ended its program to thaw credit markets in March. 

It’s usual business practice to sell off high risk, potential bad debts or debts the lender perceives he won’t get payment on. It’s kind of like the sinking ship, when people are throwing off the heavy load, but as it’s still sinking they think throwing off ropes, socks and buckets will keep it afloat; it will for a short extended period of time. Unless the actual hole in the boat is fixed, it’s going under. OR… 

I wonder if SLM selling those securities to a company it will later buy? So if these are considered high risks, sell them to another company and let them have those debts as part of their assets, then buy them back or buy the actual company which is holding the debts. Similar to when debtor consolidate your loans with one company and leave SLM, SLM buys that company and though you have a consolidated loan, SLM has you back into her economic grip (I have personal knowledge of this) 

Look at the description of the bonds, sounds like securities sold with the promise that the individual will be in debt forever so whoever buys will have a recurring revenue stream upheld by the ‘educated’, unemployed who purchased a bad bill of goods. 

Also being marketed this week is a $650 million sale backed by auto loans from Richmond, Virginia-based CarMax Inc. World Financial Network Bank is issuing $450 million of bonds backed by credit-card payments, and a leasing unit of Sydney-based Macquarie Group Ltd. is selling $500 million of securities backed by auto leases from Australia. 

Whether it be mortgages, home equity loans, student loans, car loans or credit cards, these corporations are literally banking on the fact that the consumer is willing to incur debt with exhorbitant interest. While you struggle to make payments, your debt is repackaged into a new ‘product’ for others to “invest” and have a slice of the interest pie, with their second homes and yachts…this is very interesting. 

p.s.: Here’s some news about Sallie Mae from this past month:  

Starting this summer, Uncle Sam will be your banker for federal student loans: Families can expect a streamlined process and some other perks: May 30, 2010, http://articles.baltimoresun.com/2010-05-30/business/bs-bz-ambrose-student-loans-20100530_1_federal-student-loans-direct-lending-parent-loan 

Woohoo, it just gets better! This article was published in the New York Times on May 28, 2010: Placing the Blame as Students Are Buried in Debt [http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html?pagewanted=1&ref=business&src=me ] 

UPDATE:Sallie Mae ‘Interested In Exploring’ Citi’s Student Loan Ops, May 19, 2010, http://online.wsj.com/article/BT-CO-20100519-711314.html?mod=WSJ_latestheadlines 

Sallie Mae sells center to Aegis “saving jobs”: http://www.businessweek.com/ap/financialnews/D9FPF5H81.htm 

Advertisements

5 Comments »

  1. Beth Boyea Said:

    Sallie Mae is a fraud just like Citi, do not comply business with them, my advice. If I would had known the small print when I was 18 and rushing to get into my freshmen classes I would have re-thought this issue. Getting an education is not what you think when you invest from Sallie Mae, they are a corrupt organization.

  2. Sovereign Defaulting on Debt Said:

    This is so unbelievably troubling.

    • A Law School Victim Said:

      Troubling but reality.

  3. A Law School Victim Said:

    Everything is a risk…ayeh, but you may have a higher probability of making alot of money that way rather than practice law…

  4. ScammedHard! Said:

    How do I bet against these securities so that I can make the inevitable killing once the student loan market collapses?


{ RSS feed for comments on this post} · { TrackBack URI }

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: