Thursday, January 12, 2012

More student loan paranoia

So the student loan asset backed securities (ABS) market is roughly one fifth the size of the home mortgage ABS market. Arguably, that means that a collapse in the student loan market would necessarily have less deleterious effects than what we saw in the mortgage crisis. However, I suspect that a large portion of the student loans issued have co-signers who have mortgages (ie, their parents). If this is true, a collapse in the student loan market should put further strain on the mortgage market, as co-signers who are legally required to pick up the slack in their co-signee's loan payments become less able to afford their mortgages. In that light, the un-expungebility of student loans takes on a new, darker tone. 

Actually, I don't know the law on that subject: if a student has a co-signer on their student loans, and the student declares bankruptcy (or even dies), does the co-signer become responsible for the loan? I would imagine that they do. What if the co-signer also declares bankruptcy? Based on the logic of student-loans, I would expect both parties are still on the hook. This hasto have already been played out in court, what has been the result? It's now that I wish I had a clan of loyal followers and commentators who would dig up the answers to such questions, as seems to happen on popular econ blogs.