Auto and mortgage loans may have been affected by the subprime issue but student loans are safe, for now.

Quoted from http://www.foxbusiness.com/markets/industries/government/article/student-loans-investments-safe_396455_18.html:

Student Loans Investments Safe, For Now

Thursday, Dec. 6 2007

Analysis

Student Loans Investments Safe, For Now

Ken Sweet FOXBusiness

Fixed income investors aren’t having a good year. Subprime mortgage-backed investments have been the theme of the year, costing investors and banks billions of dollars. Now, The Wall Street Journal is reporting that auto loan default rates are rising. 

With mortgages and auto loan default rates increasing, are student loans — another major market for fixed income investors — next?

Not necessarily. But while student loans are not under the same level of duress as auto loans or mortgages, some analysts expressed concerns that the loans could become riskier investments in the future.

“We saw student loan default rates rise in recent months,” said Gary Santo, managing director of student loans at Fitch Ratings. “We are a bit concerned going into next year but at this point we don’t see it as trend.”

“So far the relationship between the subprime mortgage market and the employment rate has been pretty good,” Santo added. “However, if we see employment go down, it will directly impact how student loans perform.”

The reason analysts aren’t worried is that federal student loans are insured by the Department of Education. And while private student loans are not insured like their federal counterparts, applicants for private loans need good credit to qualify and would not be candidates for subprime mortgages.

Also, private student loan borrowers will often have a high credit co-signer, which legally can be held liable for a loan if a student defaults.

“Some students who take out federal loans could be considered ‘subprime’ in the general sense because they have little to no credit history,” explained Standard & Poor’s student loan analyst Christopher Conroy in a note. “Also, students aren’t likely to be homeowners at this stage in their lives, making a subprime spillover less probable.”

However, private student loans do have analysts slightly concerned. Students take out these loan to get an education so hopefully get a better job. If the housing market drags the rest of the economy down, it could be harder for newly-graduated students to get a well-paying career, and therefore cannot pay their student loans.

Tags Student Loans,Investments,Safe,Fox Business News

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