Student Loans in the News: Student Loan Bonds
A brief round-up of recent articles and blog posts that discuss current student loan debates and data
About the author: Kevin Mahoney, CFP® is a fee-only financial advisor in Washington, D.C. Kevin's work with his clients focuses on paying off student loans, buying a house, investing savings, and budgeting. Kevin is the founder & CEO of Illumint, a virtual financial planning firm specifically designed to help couples and young families with their financial decisions.
A Borrower Will Be 114 When Bonds Backed by Her Student Loans Mature
Wall Street Journal
Author Cezary Podkul writes:
"Altogether, Americans owe about $1.5 trillion in student loans, a small slice of which is held by investors who bought bonds backed by the loan payments. The standoff between investors and ratings firms over the bonds’ potential defaults shows how long it will take some borrowers to pay off their debt. It also shows the potential burden faced by the federal government, which guarantees most of the investor-held loans and owns the majority of the remainder.
For investors, these bonds are appealing because the government guarantee means there is little risk and because they pay a healthy yield, which is generally higher than riskier bonds backed by credit-card debt. Investors can always sell the bonds if they don’t want to hold them to the maturity date.
Bond-ratings firms like Moody’s Corp. and Fitch Ratings follow strict rules. They will downgrade a security if they don’t think it will pay off by the due date, even when the underlying loans are guaranteed by the federal government. 'Even in the event all principal will eventually be received after the maturity date, this still must be treated as a default, technical or otherwise,' Sandro Scenga, a spokesman for Fitch, said in a statement."
[Read the entire article over at the Wall Street Journal]
Here's how to decide whether you should refinance your student loans
Author Eric Rosenberg writes:
"Private lenders and loan companies like SoFi, Earnest, and Commonbond offer loans to pay for your education as well as refinance loans that can repackage existing student debt. Sites like Credible allow you to compare multiple quotes in one place. Getting a preliminary quote isn't hard: You just enter some basic information online. The more information you enter, the more detailed your quote will be.
Your options to refinance may vary based on your credit history and current debt load. Shopping around will help you find the best deal to refinance your loans. The most important place to look when shopping around is the interest rate. You should never refinance at a higher interest rate than you pay today. Only refinance if you will save money.
If you have a willing cosigner with excellent credit, it could be a path to a lower interest rate that saves you even more over the life of the loan.”
[Read the entire article over at Business Insider]
Changing Court Attitudes on Bankruptcies
Inside Higher Ed
Author Kery Murakami writes:
"A decision this week by a federal judge in New York illustrates how some courts have in the past few years made it easier for people with crippling student loan debt to file for bankruptcy, say consumer advocates and legal experts.
But while advocates like John Rao, a National Consumer Law Center bankruptcy expert, see the trend as positive, they still believe federal laws need to be changed to make it easier to discharge student loans through bankruptcy.
The issue has risen in prominence as the number of Americans with student debt has grown to an estimated 45 million, with many unable to repay their loans. Advocates as well as some lawmakers, including Senator Elizabeth Warren, the Massachusetts Democrat who is seeking her party's presidential nomination, have said changes in federal law and legal interpretations by the courts have made it notoriously difficult to get student loans discharged through bankruptcy.
Before changes to federal law in 1998, those unable to repay student loans had been able to file for bankruptcy after five years without proving the debt posed an 'undue hardship.' But after changes by Congress, those seeking relief through bankruptcy for student loans, unlike other forms of debt, have to show they meet the hardship standard regardless of how old the loan is."