…rising defaults could have crimped the cash flow of the federally backed loans supporting the new securities, because more defaults would mean less excess, or residual, income after holders of the original loans were paid.What’s more, regulators and lawmakers have become concerned about growing levels of student debt, raising the risk political decisions could alter the bond market for student loans, said Jeffrey Klingelhofer, a portfolio manager at Thornburg Investment Management. For instance, a program that would allow borrowers to refinance their loans would reduce cash flow, Mr. Klingelhofer said.
Are student loans turning into junk bonds? With something like $1 trillion of student loan debt outstanding, investor skittishness is not good news.[Ball and chain image courtesy of Shutterstock]