A Borrower Will Be 114 When Bonds Backed by Her Student Loans Mature. Billions in bonds wouldn t be paid off in time, so issuers extended maturities by decades to avoid downgrades.
Julie Chinnock is 50 years old and owes about $250,000 in student loans. She was happy to get a new payment plan that lowered her monthly bill, but the holders of two bonds backed by her loans were probably less cheerful.
The two bonds were due in 2043 and 2054, but Ms. Chinnock and other borrowers were paying less each month under a new government plan that tied debt payments to income. Because borrowers were taking longer to pay off their loans, there was a risk the bonds backed by the loans wouldn t be paid off in time. Bond-rating firms were watching and getting ready to downgrade the highly rated bonds, potentially causing losses for investors.
The issuer of the bonds and the investors who owned them hatched a plan to avoid the downgrades. Their solution: make sure bonds were paid off in time by extending their maturity dates by decades. The bonds that include a big chunk of Ms. Chinnock s loans now mature in 2083, when she will turn 114.
Today, the bonds are rated triple-A. Altogether, issuers have extended maturities on about $11.5 billion of outstanding bonds backed by mostly older-vintage student loans, extending maturity dates by as much as 54 years.
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Altogether, Americans owe about $1.5 trillion in student loans, a small slice of which is held by investors who bought bonds backed by the loan payments. The standoff between investors and ratings firms over the bonds potential defaults shows how long it will take some borrowers to pay off their debt. It also shows the potential burden faced by the federal government, which guarantees most of the investor-held loans and owns the majority of the remainder.
This means that soon a majority perhaps of people who went to college will owe massive debts to our federal government. There should be a word for this sort of regime of debtors to the government. Would the government use the power at its disposal to manipulate the political preferences of its debtors? If we get socialism in the US, I bet this will be why.