Remember when you were a kid and your folks made you wait patiently before tearing into a pile of presents that were just beyond your reach? How you rubbed your hands together so quickly that your palms heated up and the skin-on-skin sound you made could be heard in the next room?
Well, imagine a bunch of blue-suited, white-shirted, red-tied, black-shoed lenders doing the same thing as they not-so-patiently wait for a new administration to divest some or all of the roughly $1 trillion of student loans that currently reside on the federal government’s books and supplant the Federal Direct student loan program with a modern-day version of the one that enriched them years ago.
According to a recent Wall Street Journal article, the banks and other lending institutions that were once the middlemen of choice for the government-guaranteed Federal Family Education Loan program have good reason to believe that the incoming Trump administration — in tandem with a Republican-controlled House and Senate —will move to resurrect what the Obama administration discontinued in 2010 because of cost. (The Trump transition team did not respond immediately to Credit.com’s request for comment on this possibility.)
When that happens — and in all likelihood it really is a matter of when more than if — we can expect a triumphant resurgence in the secondary financial markets as securitization after securitization of government-guaranteed education loans are flogged out to an investment community that’s clamoring for an opportunity to earn more than 1% on a virtually risk-free gambit. At the same time, though, we should also worry about what that portends for the tens of millions of financially distressed borrowers who may well find themselves at the mercy of loan administrators that are more concerned with the interests of their benefactors (the aforementioned investors) than they are them or the taxpayers who will be left holding the bag when they default.
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