Student Loan Relief May Shrink the Education-Debt Bond Market
- An extension may lead to faster prepayments in FFELP ABS
- Public workers are moving away from older bank-held debt
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The U.S. has taken several steps to relieve borrowers of their federally-held student-loan payments. Now, those measures may have a ripple effect on the bonds that bundle other kind of student debt.
Earlier this month, the government extended the pause on the payments and accrual of interest on student loans held by the federal government for the sixth time, providing some relief to the 43 million Americans who struggle with the outstanding debt. But the allure of the moratorium and other Covid-related relief programs for borrowers who don’t have federally-held loans could lead some to switch their older debt for new loans that do qualify for the benefits, said Theresa O’Neill, strategist at BofA Securities, in a phone interview.