Cezary Podkul
speaker
149 appearances
3 recordings
1 series
first heard Mar 2018
last heard Jan 2020
Cezary Podkul’s voice in public audio — every appearance, attributed to the second.
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WSJ Your Money Briefing · Some Bonds Tied to Student Loans Won't Mature Until the 2070s · 9 Jan 2020
podcast
And to make room for that repayment, what Navient, the issuer, did was they extended the legal maturity date of those bonds.
Originally, they were going to be 2043.
They moved back to 2083, and another bond was 2054, moved back to 2083, when she will turn 114 years old.
Right, exactly.
Because investors don't like holding bonds that get downgraded.
And this was a way for them to avoid a downgrade by basically pushing out that due date on those bonds so far into the future that it was guaranteed to be repaid one way or another because...
Either the borrower will have repaid it, or if they don't, they'll be forgiven, or if they unfortunately die, then the federal government picks up the tab on those guaranteed loans.
So one way or another, decades from now, they were going to be repaid for sure.
So what's interesting is if you contrast, you know, how some of these student borrowers whose loans are packaged into these deals, how they're faring with the bonds, what you see is, you know, they're clearly struggling to make these payments.
But the bonds themselves, you know, if anything changes in the deal structure and it remains AAA, that doesn't impact the students, right?
The students, if they're struggling, you know, that doesn't, you know, or if they're an income-based or payment pendant, it doesn't change anything about the way their individual loans are structured.
But what it does do is it helps investors, you know, avoid some turbulence in their portfolio because they remain AAA.
We're talking about bonds that are guaranteed by the federal government under this federal family education loan program.
So under that program, yeah, if borrowers die, the government does make good on that repayment.
And so, again, over a long enough time horizon, obviously, we're all going to die.
And so by extending these bonds, you know, very, very, very far into the future, you know, it assures that, you know, no matter what, people will get repaid by whatever final maturity date they pick.
Money has to come from somewhere.
And what's interesting about this is it's a very quirky situation that you, again, don't see very often in the bond markets.
And what's interesting about it is what does it say about student loans in this country in general?
And it clearly shows that it's going to take a long time to repay them.
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