Monday, March 11, 2013

Here We Go Again! Student Loans Being Packaged as Investment Vehicles.

The Wall Street Journal has reported that billions  of dollars in student loans are now being packaged together as investments for investment banking clients around the world. 

Reminiscent of the recent mortgage loan crisis that occurred only 5 years ago, and that we are still feeling the pain from today, thousands of student loans are being bundled together so that they can be sold as "safe and secure" interest bearing securities. 

SLM Corporation (NYSE: SLM), the largest student loan company in the United States, sold $1.1 billion of the loans recently, and demand was high enough to make it glaringly obvious that few lessons were learned from the mortgage crisis, and investors are willing to "reach for yield," or take a lot more risk if it means earning some extra percentage points in return. 

Interest rates in the current investment environment are at historically low levels, and SLM Corporation is taking advantage of the climate by offering investors the chance to make a little extra money, while at the same time ridding their balance sheet of billions of dollars in loans to students with limited job prospects in a dismal market for young graduates.

Interestingly, student loan levels are rising, delinquencies and defaults are rising, and yet many banks are now choosing this time to package the loans and sell them to investors... if only these banks had some sort of responsibility to actually care for their clients or customers.

Cheers, and responsible investing : )


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