FAST FIVE: The New "Century Bond?": Student Loan Maturities Stretched To 100 Years To Avoid Default
You see, back in 2009, Congress adopted a program of income-based repayment for some federally-backed student loans.
Even though the loans are backed by the federal government, meaning that, in the event of a default, lenders should be made whole, the big ratings agencies would still consider it a technical default, and lower their credit ratings on the bonds to reflect this.
When bonds are downgraded, bondholders often end up with losses – at least on paper.
So what did the issuers do.
But will ratings agencies hold them accountable by slapping the bonds with the ratings they deserve, and finally acknowledging the unavoidable truth: At some point, Congress is going to need to make a choice: Either bail out the lenders, or risk toppling the $1.5 trillion house of cards that is America's aggregate outstanding student loan balance.