The student loan market in the US has grown to over $1.7 trillion in outstanding debt, which has led to the development of a market for student loan asset-backed securities (SLABS) that are bought and sold by major investors. SLABS involve bundling student loans into a pool, which is then placed into a special purpose trust that issues securities to investors. The securities are rated and sold to institutional investors. While some experts worry that SLABS could pose a systematic risk to the American economy, others argue that these assets are not a cause for concern because they are underwritten by some of the biggest banks and corporations in America. However, recent developments, such as the pause on federal student loans and initiatives to relieve student debt, have sent shockwaves through the SLABS market. As the student loan market faces a period of change, the securitization market must also change and adapt to continue to support financing of higher education in the United States.
1. The US has over $1.7 trillion in outstanding student debt.
2. The cost of education has grown significantly in the past 10-20 years.
3. SLABS (student loan asset-backed securities) are securities built around student loans that are packaged and sold as assets to investors.
4. SLABS refer to both federal and private student loans.
5. SLABS pose a risk to investors and may potentially result in a systematic risk to the American economy, similar to how subprime mortgage-backed securities contributed to the 2008 financial crisis.
6. Private credit has always been used to supplement the federal loan program, and that's likely to continue.
7. More transparency and education about SLABS is necessary for the healthy contribution of SLABS to the financing of the nation's student debt.