Student Loan Margins Soar

The student loan asset backed securities market is finally functioning, although it is certainly not as robust as it was as recently as in 2007.

Whereas a National Collegiate Student Loan Trust (NCSLT 2007-2) from 2007 offered tranches with a weighted average interest rate of LIBOR plus 5.13 percent, today’s are much higher.

Student Lending Analytics is showing that recent offerings are as much as LIBOR plus 11 percent.  Its a factor of the lack of liquidity, and or the lack of investor confidence in markets. It is also a product of the increased costs that lenders are paying on the funds that they borrow.

That does not bode well for students who go to private student loans. Granted, LIBOR has dropped some.  Nonetheless, these are very high prices for debt. For a student with $25,000 in private loans upon graduation, monthly payments on a 15-year loan would be as much as $350.  With a LIBOr plus interest rate of 15 percent, a student would spend $62,000 over the life of that loan to pay back their debt.