Originators of private student loans can't seem to catch a break. Two years ago, the federal government stopped guaranteeing these loans, leaving them unsecured; more recently, there's been a push in Congress to make student loans dischargeable in bankruptcy. The loans are also attracting scrutiny from the recently empowered Consumer Finance Protection Bureau.
So while there would seem to be plenty of opportunity to step up underwriting - and securitizing - of private student loans, in fact the opposite is happening. Education costs continue to rise and the interest rates on government-subsidized student loans are set to rise, too. This potentially makes private student loans more attractive. Still, the ranks of originators of private student loans continue to shrink, in no small part because, as Nora Colomer details in this month's cover story, capital markets are loathe to fund them. And many of the remaining originators are banks that keep the loans on their books, rather than securitizing them.