Kevin O’Brien authors SLABS analysis for Law360: Securitized student loans: The next crisis?
The housing bubble burst of 2007-2008 had a massive effect on residential mortgage-backed securities, sending the economy into a tailspin. While the housing market has regained its footing, another potential bubble looms on the horizon – student loan asset-backed securities or SLABS.
Investors in SLABS assume a different type of risk. Unlike residential mortgage-backed securities, there is no asset to secure a student loan obligation. While many student loans are backed by the government and are not dischargeable in bankruptcy, that is not the case for “private” student loans, which have risen in popularity along with the growth of the for-profit college market. Furthermore, default rates on federal student loans are rising.