Do student loans bear any similarities to mortgage loans, which lay at the heart of the 2008 economic crisis? The short answer is yes. Student loan asset-backed securities (SLABS), much like residential mortgage-backed securities (RMBS), are loans bundled and packaged into securities available for purchase by investors. Bearing ominous resemblance to the precursors to the 2008 financial crisis, the number of student loan borrowers, as well as the average balance per borrower, continues to rise every year, while most recent college graduates are unable to find jobs allowing them to pay back their loans.
According to members of Congress, the U.S. is already in crisis over growing student loan debt. The House Committee on Financial Services held a hearing on Tuesday, September 10th entitled “A $1.5 Trillion Crisis: Protecting Student Borrowers and Holding Student Loan Servicers Accountable.” A five-person panel warned the Committee that there is currently $1.5 trillion in outstanding student loans, from about 44 million borrowers, with approximately 11% of those loans more than 90 days delinquent.
At the hearing, Ashley Harringston, Senior Policy Counsel for the Center for Responsible Lending, testified that 70 percent of 2016 graduates had student loan debt. The crisis is impacting not only low and middle-class families: even students from high-income families are borrowing to attend college, perhaps choosing to attend higher-ranked and more expensive schools. The executive director of the Student Borrower Protection Center, Seth Frotman, called the student loan crisis a “trillion-dollar blackhole in our financial markets.” But with nine pending pieces of legislation aimed at tackling rising student debt, members of Congress disagree on how to handle this crisis. Time will tell whether Congress – and the American people – have learned from the 2008 financial crisis, or whether history is doomed to repeat itself.