Tuesday, March 5, 2013

WSJ 'Student-Loan Securities Stay Hot': The Myster is Why?


by R. Simon, R. Ensign and A. Yoon (3/14/2013) WSJ, p. C1-2.

[excerpted] Student loans are souring at a growing rate - and investors can't seem to get enough.

SLM (Sallie Mae Corp.,) the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans.

Demand for the riskiest bunch . . . was 15 times greater than the supply.... [end]

Majia here: These private loans are probably going to have high default rates because students with private loans often have higher debt levels, many times acquired at for-profit universities, such as the University of Phoenix.

So, I'm confused. Why is there demand for the the tranched risk of these securitized private student loans?

I can understand purchasing CREDIT DEFAULT SWAPS on the tranched risk of these securities. I'd use credit default swaps to bet the riskier instruments will default.

Maybe investors are purchasing both the tranched risk and the CDS?

Who is selling CDS on private student loan-based securities?

What is going on here?


REGARDING STUDENT LOAN DEBT AND FOR-PROFITS
Check out Propublica's analysis and the Senate Report on For-Profits and Student Debt here
ProPublica's Account
Senate Report


 

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