There is a big sale of student loans prepared – and the loans are all federally backed. These “securities” made of student loans are going to be sold soon. Is it a good idea to sell government-backed loan credit? Or are businesses relying on taxpayers to bail them out should something go wrong?
Source for this article: Student loan backed securities up for sale by Personal Money Store
How these banks got the loans
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 loans through this private lending system. A new student loan bill changed this practice, and also the federal government will now administer loans.
The student-loan backed securities
Like the subprime mortgage securities created by Wall Street, student loan securities are "bundled.” These loans are reorganized into products bought and sold by investors. Since the government backs the loans, they are considered a lot more "safe". $ 855 million worth of student loan securities can be sold by Citigroup. $ 1.23 billion of student loan backed bonds and securities can be sold by Bank of America. Sallie Mae will even sell $ 1.7 billion in bonds.
A intelligent financial investment?
The student-loan backed securities being sold as federally guaranteed loan securities will benefit the companies and investors. These student loan bonds will not end up benefiting the taxpayers that take on the risk of the student loan securities. This situation has been partially resolved, but not entirely. The middleman position is being typically removed by probably the most recently-passed student loan bill. You will find some questions if the federal government is going to continue selling these bundled financial products? At least if it does, the taxpayers will see the benefit this time.
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