The Securities Litigation Expert Blog

Bubble Alert - Student Loan Defaults up 36% Y/Y

Posted by Jack Duval

Mar 27, 2013 3:02:43 AM

One of the biggest bubbles in history is beginning to show signs of distress.  Reuters reports a sharp increase in Student Loan defaults.  (Reuters)  Here's your money quote:

Delinquencies have spiked in the last eight years, with about 17 percent of the nearly 40 million student loan borrowers at least 90 days past due on their repayments, a February report from the New York Federal Reserve Bank showed.

This is the sub-prime loan debacle all over again.  Lenders give loans to anyone who can fill out an application, the loans are ultimately guaranteed by FFELP, or some other government agency, creating the same perverse incentives and agency problems as with RMBS.  Which gives us the maxim of our age:

All lenders with no skin in the game eventually blow up.

For you traders out there, there is a way to short the student loan bubble.  See this Zero Hedge article on the SecondMarket platform.  (ZH)

New York Federal Reserve analysis can be found here.

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Topics: Student Loan Bubble, bubble, investments, FFELP, SecondMarket, Structured Products, fixed income

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