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IPFS News Link • Student Loans/Debt

The New "Century Bond?": Student Loan Maturities Stretched To 100 Years To Avoid Default

• by Tyler Durden

If it sounds like the run up to the housing market collapse, well, you're not wrong. But in this scenario, we're talking about an entirely different kind of 'safe' debt: federally-backed student loans.

You see, back in 2009, Congress adopted a program of income-based repayment for some federally-backed student loans. This allowed borrowers like Julie Chinnock, a 50-year-old woman who owes roughly $250,000 in loans for two bachelors, masters and doctorate degrees, to limit their monthly payments.

This created a problem for certain lenders in a relatively small sliver of the student-debt market: loans that have been bundled into securities and sold off to investors. Investors once prized these loans since they offered higher yields than more-risky products backed by credit-card payments.