As the economy enters into a deep recession phase, the global financial market is feeling the heat inclusive of the education financing sector. Student loans have become beyond the rich of everybody as anybody can hardly pay for the more than tripled price hike in the premiums available on bonds in the last one year. It somehow encourages loan investors to look out for safest assets that can return value for their investment.
As one solution to the problem, the Treasury Department in US plans to create a conduit to buy existing and new student loans from banks. To support this endeavor, the conduit will then issue asset-backed commercial paper.
During the economic crisis, the student financing market has been in turmoil. Since May, the Education Department has been lending money to banks and buying up student loans. This initiative has helped with some of the securities, but lenders have been unable to refinance the older loans.
The Treasury Department in US has taken a bold new step in an attempt to give away investor’s fear & give them reassurance that the securities that are backed by student loans will remain liquid. Once this new conduit begins functioning smoothly, it's anticipated that the Education Department's efforts, which were originally planned to be temporary, will cease.
The Education Department's program was helpful, but rather limited. It was only extended to lenders with cash on hand. Under the new arrangement, when the conduit purchases old loans, many of the lenders who had been forced out of the action will be able to return.
The previous student loans management program as run by the Education Department was useful but rather restricted. It was only aimed at to extend support to lenders with cash only. Under the new provision, when loans will be purchased by the conduit, most of the lenders who had been out of action for quite some time can get back to work further.