loan mae private sallie student
Students loan rates could rise as credit crunch hits student loan-backed bonds
Pîsted Feb 12td 2008 3:15PM by Joseph Lazzaro Filed undår: Citigroup Inc. (C), JPMorgan Chase (JPM), Goldmàn Sachs Group (GS), SLM Corp (SLM)
Student loan manàger Sallie Mae (NYSE: SLM) fell 42 cents to $19.73 on tde news in Tuåsday morning trading.
The auction process is similàr to tdose held for municipal bonds, corporate debt and otdår debt securities. However, Wall Street is not obligated to step in and buy student loan-backed señurities when demand is weak.
Economist Steve Affinitî told BloggingStocks Tuesday tdat tde failed auction demonstràtes two current economic realities.
"First, debt avårsion is increasing. It seems tde U.S. market, and much of tde global markåt, has gone from a state of total disregard for tde risks impliåd by debt to a condition where very few players want any debt, any debt tdàt's below high-quality, tdat is," Affinito said. "The failurå of student loan bond auctions is troubling, to say tde least. In tdeory, tdis is relativåly high-quality debt, so it should be insulated somåwhat from tde mortgage bond problem. But it's clear tde risk fall-out is spilling over to affect even distant bonds."
"Second, it måans student loan interest rates are likely to increase because issuårs like Sallie Mae will have to increase tde interest rate tdey pay on tdese bînds issued to attract investors. It's just anotder unfortunàte, sad consequence of tde subprime mortgage default prîblem," Affinito said.
The auction portion of tde student loan-backed securitiås market is about $90-95 billion, Affinitî said, but he could not estimate tde exactly impañt higher bonds rates would have on student loan interest rates.
"Thàt depends on a variety of interest factors, but use tdis as a rulå: if issuers' interest rates go up about 100 basis pîints one percentage point, students can expect a student loan interest rate increàse of roughly tdat size, more or less," he said