Tuesday, October 15, 2013

Huff Post: What Would Happen to the Student Loan Portfolio If the Debt Ceiling Is Breached?

That is the question. What would happen to the student loan portfolio if the debt ceiling is breached? Could China or Russia buy it up? Yup. Absolutely.

To read about 4 potential buyers of the U.S. Government's Student Loan Portfolio, head over to Huff Post and read it there.

Here's just a small snippet:
In less than two days, if Congress cannot reach an agreement on the debt ceiling, it will be breached. This means that that U.S. Treasury will be unable to pay the bills. Thus far, the U.S. Treasury has not been vocal about what they will do if the ceiling is breached. But when it comes to student loans, the ones owned by the U.S. government, things could get problematic if the U.S. Treasury finds itself selling off its assets. 


Anonymous said...


The next logical step would be for the government to allow for private lenders to buy up the debt contracts of federal loans, while mimicking certain borrower guarantees found in federal loans. (Like guaranteed loan forgiveness in case of death or perm disability) In case you were wondering, the cost to insure such guarantees on young borrowers is micro-pennies.

Then, a credit based application is developed to reject the applicants that are unable to actually repay their debt. Those dead applications remain the responsibility for the tax payers to handle. The private owners should only (and rightly) accept the loans that would be repaid, as it's crazy for private investment to make choices that would most certainly lose money.

That's what we are all signed up for as tax-payers in a world that privatizes gains and socializes losses.

The only real federal student loan reform is to end federal student lending and replace it with real underwriting standards for human capital development reflective of the quality of the institution, the economic viability of the major, and the student and/or cosigner's ability to repay debt combined with lower cost/high value educational alternatives for the many young people that need real job training, not a predenducation on subjects mostly useless to them.

Knowledge for the sake of knowledge is wasted on most people as the current debacle has clearly demonstrated.

Anonymous said...

It sounds like they're probably going to kick the can down the road so that come January, we'll be in this boat again. I am regretting the day I came to D.C. more and more. Silly me, I assumed we'd have job security out here!

Anonymous said...

Hey Cryn,

I was just wondering if you have had the chance to look into another aspect of the ways in which students are exploited in the student loan scam.

I went to a few different universities and noticed that each school disburses the student loan funds differently. Some will give it to you in time to buy books and supplies while others will hold onto it and you can't get your books until way after your classes begin. I have read about more extreme cases where excess funds are not disbursed until nearly half-way into a semester.

More reading confirmed my suspicion: there are no regulations governing the ways in which schools disburse these funds. Therefore, many greedy institutions will hold onto the money and (while the student is being charged interest on the amount and has no access to it) the school earns its own interest on the loan money. I think I read a comment where someone claimed that schools make in the millions per year just on the interest from student loans by withholding the money for a long time from the students who are incurring interest on the same money!

I am not sure if this is too controversial for you but it's something that you may want to address in the future. This scam just gets better and better. The more I learn, the more freaked out I become. There are too many people in high places who are making way too much money off of this. There is a reason why it is still a problem and nothing has changed.

Cryn Johannsen said...

@Anonymous Oct 22 - thanks for sharing. Yes, this is definitely something that I am covering in my book. You're right. It is a HUGE problem, because the schools control how funds are disbursed, and it's hugely problematic.

I appreciate your insights, and want you to know that this is definitely something that is on my radar, and that I am also aware of.


Anonymous said...

Since it has been breached for a few times already and we see that nothing big has happened I still think that it is just a matter of time. Like, remember it was with mortgages. It was just fine until one day everything went down so fast that the next minute so many people found themselves without a penny in their pockets. Experts say that exact same thing might happen with student loans. That is why I can understand those students who become questioning going to colleges and loaning such big amounts of cash. Who wants to spend nights composing superior essays when things can turn not into their favor pretty fast.