Feb 26 2008
Housing Slump Affects Education
Student loan rates may rise soon. The reason: the sub prime mortgage crisis. Some states, including Utah, securitize student loan funding in an effort to raise the capital necessary to provide loans for all the students desiring them without having to raise taxes. UHEAA, provider of loans to students in Utah, has long held a AAA bond rating, meaning it has one of the highest credit rankings around, providing for a low interest rate payout on the bonds. This low interest rate is passed along to students, lessening their overall financial burden to receive a higher education.
This, historically has been a fantastic idea, but the problem is the bonds are insured by a company called AMBAC, which has in recent years taken into insuring subprime mortgage bonds. Their balance sheet is now comprised of about 70% subprime mortgage bonds. The fear is that the shakey subprime industry with out of control foreclosures may soon cause a cash flow problem for AMBAC, causing them to lose their AAA credit rating.
Such a drop in the credit rating would cause the Student Loan interest rates to rise considerably. Nearly every facet of the economy has been affected by the subprime mortgage crisis, and now the crisis may affect the long term economic outlook with marginally fewer people finishing their education.