Student-loan borrower woes are spilling over into the bond market.
An increasing share of federal student-loan borrowers are entering into repayment plans that allow them to make smaller payments than they actually owe on the loans, according to new data out Friday. Some of these plans allow borrowers to make no payments.
The trend has become an area of concern for a pool of federal loans that were originated by banks and other private lenders until 2010. Borrowers are still paying down these loans, and nearly $159 billion of them back bonds, according to the data from research firm Measure One
As more borrowers enter into reduced payment plans and others put off making payments for years on end, ratings firms are reviewing tens of billions of dollars of these bonds and are starting to downgrade some of them. The concern, which they flagged last year, is that borrowers might not pay off the loans by the time some of the bonds mature.
The loans at issue were originated by private lenders under the Federal Family Education Loan Program, or FFELP, which the federal government ended in 2010. Since then, all federal loans are originated by the Education Department, which doesn’t securitize the loans.