News

Student Loan Debt Is Now as Big as the U.S. Junk Market - Bloomberg

U.S. student loan debt now equals the size of the $1.3 trillion U.S. high-yield corporate bond market, presenting investors with a whole different range of risks, Bloomberg News reported. “Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note on Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.” While the trend of rising defaults on student loans doesn’t pose “systemic financial risks,” it does impact household behavior, as the debt load itself hurts home ownership rates, Young and Karoui said. The share of student loan debt that is securitized, meaning it’s backed by assets and known as asset-backed securities, is about $190 billion, according to Goldman Sachs. Of that, about $150 billion is linked to loans where the repayment of the principal is guaranteed by the U.S. government.

Back to News »