Banks face the student loan time bomb

Human hand with chained debt bomb holding certificate paper. Vector illustration student loan with debt concept.

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Securitization finances such large swathes of day-to-day financial activity in the United States that political risk – political decisions that will impact the viability of underlying assets or their cash flows – is often high. The subprime mortgage market has been political football for more than a decade since the financial crisis, but that mantle is now shifting to another mainstay of the asset-backed securitization deal flow – loans. students.

There is $ 1.7 trillion in student debt in the United States, of which about 92.5% ($ 1.5 trillion) is backed by the federal government. That’s a lot of money: outstanding student debt has grown nearly 14% per year for over a decade, while the cost of college tuition has risen 5.2% per year during the same period. Student loans now represent nearly 10% of the US national debt.

According to the National Center for Education Statistics, the 12-year student loan default rate at for-profit colleges in 2018 was 52%, and the Brookings Institution predicted that nearly 40% of students who took out loans in 2004 could default. by 2023.

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