Student loan debt balances have been rapidly rising, and are responsible for a large portion of the increase in consumer credit in recent years. With all this credit expansion, we’ve now seen what could be the first cracks in the securitization market as borrowers are quickly falling behind.
As the WSJ reported late last month, Sallie Mae pulled a $225 million bond offering due to lack of interest. Investors were unhappy with the 3.5% coupon Sallie Mae was offering on the bonds, as risk in the student loan market has substantially increased. With so many borrowers late and investors beginning to shy away, it’s possible an event similar to the subprime mortgage crisis could unfold.