There is a big sale of student loans planned – and the loans are all federally backed. These securities are likely to be sold soon, and are sold on a regular basis. Is it a good idea to sell government-backed loan credit? Are these businesses relying on taxpayers for a bailout?
Article source: Student loan backed securities up for sale by Personal Money Store
How student loans have worked
Student loans are privately administered, but not for much longer. Private companies administer the loans, but the government backs them up should the students default on the loans. In theory, students get the best personal loan through this private lending system. A new student loan bill changed this practice, and the federal government will now administer loans.
The student-loan backed securities
Much like the subprime mortgage securities that very nearly brought down the entire economy, student-loan backed securities are “bundled.” A group of loans is combined and re-split into “loan-backed securities” that are bought, sold, and traded by investors. Many investors consider these "safe" investments because they’re government backed. $ 855 million worth of student loan securities could be sold by Citigroup. Bank of America is preparing a comparable $ 1.23 billion sale. Sallie Mae is preparing on selling $ 1.7 billion's worth.
Are these securities a good investment?
Because they are federally guaranteed loan securities, these student-loan backed bonds will definitely benefit those that buy into them. The people that really take on the risk, though – the taxpayers – will not see any benefit from the sale of these student loan bonds. This is a situation, luckily, that has already been resolved – partially. The middleman position is being typically removed by probably the most recently-passed student loan bill. At the exact same time, will the federal government continue to sell these securities? At least the taxpayers will see the benefit if the government does continue this practice.
No comments:
Post a Comment