Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
High Rate of Student Loan Defaults Fails to Deter Investors
Author: Joel R. Glucksman
Date: March 14, 2013
Key Contacts
Back
Student Loan Default Can not be Dismissed Through Bankruptcy
More Americans are carrying student loan balances now than ever before and defaulting on their balances at even higher rates. Despite the risky nature of this borrowing category, however, it appears that student loan securities are in high demand by investors.
The Federal Reserve Bank of New York recently reported that Americans owe roughly $970 billion in student loan debt, more than triple the amount the country shouldered eight years prior. In addition, the shaky job market, double-digit increases in rent prices, and a slowly recovering housing market have resulted in higher rates of loan default, particularly as bankruptcy law does not typically allow federally-backed student loans to be discharged during proceedings. Nevertheless, the current environment has not deterred investors from participating in the student loan securities market, and has instead led to an explosion in demand for these products.
A recent Wall Street Journal article noted that investors’ demand for this category of securities demonstrates “the lengths they are willing to go to generate returns in a period when interest rates are hovering near record lows.”
Despite the fact that more than 30 percent of borrowers are 90 days or more behind on payments, private education lender Sallie Mae recently announced it had sold $1.1 billion worth of new securities backed by student debt, according to the Atlantic. Further, there was 15 times more demand for the highest-risk, highest-return batch than there was supply, the Atlantic added.
The growing demand for risky securities is reminiscent of the market scenario that eventually led to the mortgage crisis, and many analysts are calling student loans the next “bubble” on the verge of bursting. However, other industry professionals argue that student loan securities still make up too small a market share to do considerable damage and most of the loans are backed by the federal government. Although many are speculating about the ways in which the spike in risky securities investing might impact the economy, the number of investors participating in the student loan market does not appear to be slowing down.
Related post: Cash Loans In The United Kingdom.
- Practices: Corporate Transactions & Business
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
The SEC’s Latest Guidance on Applying Federal Securities Laws to Tokenized Securities
On January 28, 2026, staff of the U.S. Securities and Exchange Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets issued a joint statement clarifying how existing federal securities laws apply to tokenized securities. The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the […]
Author: Dan Brecher
Common Legal Mistakes NYC and New Jersey Business Owners Make
Operating a business in the New Jersey and New York City metropolitan region offers incredible opportunities, but it also requires navigating a dense and highly regulated legal environment. From entity formation to regulatory compliance, seemingly minor legal oversights can expose business owners to significant risk. In our work with businesses throughout the region, our attorneys […]
Author: Dan Brecher
What Founders Can Learn From Start-up Suits
High-profile founder litigation is more than just a media spectacle. For startup founders, these cases underscore the legal and structural risks that can arise when rapid growth outpaces formal oversight. While launching a new company can be both an exciting and deeply rewarding endeavor, founders must be mindful that it also comes with significant risks. […]
Author: Dan Brecher
Corporate Governance Reviews: A Practical Guide for New Jersey Companies
Every New Jersey company should periodically evaluate its governance framework. Strong corporate governance protects directors and officers, builds investor confidence, reduces litigation exposure, and positions a company for sustainable growth. The first quarter of the year is a great time to evaluate your corporate governance practices and perform any routine maintenance needed to keep that […]
Author: Ken Hollenbeck
What to Do After Being Served with a Lawsuit: Steps to Protect Your Legal Rights
Being served with a lawsuit is one of the most stressful legal events a business or individual can face. Whether the claim involves a contract dispute, an employment matter, an intellectual property issue, or another legal challenge, the actions you take in the first few days can significantly shape the outcome of your case. Acting […]
Author: Robert E. Levy
Will 2026 Be a Banner Year for SPACs? Understanding the Risks and Opportunities
Special Purpose Acquisition Companies (SPACs) continue to gain momentum as we move through 2026. After enduring a significant contraction following the 2021 boom and the regulatory scrutiny that followed, SPAC activity rebounded sharply in 2025 and now carries forward into 2026 with real momentum. The SPAC resurgence reflects broader improvements in both market conditions and the […]
Author: Dan Brecher
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.