Ackman Says Student Loans Are the Biggest Risk in the Credit Market

Student Loan Interest Rate to Rise with 10-Year Treasury Note

College students in the U.S. that take out federal loans are likely to see interest rates jump -- potentially by a percentage point or more -- in the coming academic year.

Michael Nagle/Bloomberg

Bill Ackman says the biggest risk in the credit market is student loans.

“If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman, who runs $20 billion Pershing Square Capital Management, said today at 13D Monitor’s Active-Passive Investor Summit in New York.

The balance of student loans outstanding in the U.S. -- also including private loans without government guarantees -- swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve in October. The rising level has prompted investors and government officials to draw parallels to the subprime mortgage market before housing collapsed starting in 2006.

About $100 billion of federal student loans are in default, 9 percent of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released in November.

Ackman, 48, said “young people are the kind of people that protest” and predicted that one administration or another will forgive student debt.

The investor, who last year trounced other money managers with a 40 percent gain in his public fund, said at the conference he doesn’t like fixed income markets generally because of very low U.S. interest rates and that investors should be wary of aggressive lending terms.

Another panel at the event -- an annual forum used by hedge fund managers to highlight campaigns to push companies for change -- was interrupted by about 20 protesters chanting and carrying placards demanding fairer wages. Security intervened and managed to usher the noisy-but-peaceful protesters outside of the fourth-floor Broadway Ballroom.

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