Democratic presidential candidates are zeroing in on the nation’s estimated $1.5 trillion in student debt as a way to appeal to younger voter bases, with some even suggesting forgiveness of much, or all, of that outstanding debt. What might happen to investors who hold securities backed by that debt remains unaddressed, as the Asset Securitization Report states this week.
Student-loan asset-backed securities, or SLABS, constitute a $175 billion market. While these candidates’ plans are considered a long shot, SLABS noteholders may still experience some damage, even if campaign promises become scaled-down policies.
“When you’re talking about forbearance and forgiveness, when you’re talking about extending maturities on loan terms, those are a lot of risks that investors can’t get their hands around,” said Principal and Senior Portfolio Manager Mike Sheldon, a member of Income Research + Management’s securitized team.