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Excited to share my latest article https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3631953, coauthored by my rock star student, Samantha Roy. We just accepted an offer to publish in the @SMULawReview. Many thanks to @Prof_Bruckner for his invaluable comments. Here’s the scoop, via a few observations: (1/7)
The student loan crisis is bad, folks. Like $1.64 trillion bad. The CARES Act is providing temporary relief for borrowers with federal loans, but it runs out in a couple months. Private loan holders get no such relief. If 2020 trends hold, many borrowers will default. (2/7)
Borrowers defaulting on their student loans is bad for myriad reasons, but one you probably didn't think of is the Student Loan Asset-Backed Securities market (~$200B). Yes, some student loans are bundled and securitized like MBSs and CDOs were in 2008 and continue to be. (3/7)
A lot of loans backing SLABS had a high risk of default pre-COVID, but the credit rating agencies often gave them absurdly high grades anyway. Now, SLABS issuers are jumping through hoops to keep from getting downgraded by the rating agencies. Like full on shenanigans. (4/7)
SLABS had always been seen as a relatively sure bet. But a lot of SLABS are backed by private loans. As such, SLABS are basically junk bonds with weirdly good credit ratings. See, e.g., pp. 34-36. (5/7)
Given that student loan borrowers may now have more luck at discharging loans in bankruptcy than ever before, if/when borrowers default/the SLABS market crumbles, it will negatively impact the economy by hurting lenders’ ability to generate new loans to consumers. (6/7)
This was my 1st coauthored paper with a student/most rewarding experience this year. Law prof friends, why is there an aversion in the legal academy for coauthored work, especially with students? It was a joy to write this with Sam. @RWULaw (7/7)
