How angry would you be at your broker if he/she sold you one of these?

(For some reason, the Bloombeg links get truncated on M* and don't work.  So I broke the link into parts.  To make it work, you have to put it back together without spaces).

http://www.bloomberg.com/apps/news

?pid

=20601087

&sid=

aMBg8H6crmSI&refer=home

Auction-Bond Flops Stick Student-Loan Holders With 0% (Update1)

By Michael B. Marois and Jeremy R. Cooke

April 25 (Bloomberg) -- More than $9 billion of auction- rate bonds sold by student-loan agencies in U.S. states from Pennsylvania to Utah have trapped investors in debt that's not paying interest.

Rates on Pennsylvania Higher Education Assistance Agency bonds backed by student loans were set at 0 percent April 4 after auctions to determine interest costs attracted too few bidders. The same occurred on more than 10 percent of the $86 billion of student-loan debt, as failures triggered provisions in bond documents that limit the interest agencies must pay, according to data compiled by Bloomberg.

Content removed for violation of Terms of Use (Copyright Content) - M*_Casey 

Well, it could be worse....the bond pools could be forced into liquidation if the interest owed on the leveraged student loan bundles Plus middleman expenses exceeds the interest collected. Subsequent fire sales and the associated transaction costs would likely deplete the original investor's value to some low level.

But if this continues for any period of time, I suspect there's going to be few private student loans available, with increased reliance on Stafford, Perkins and Plus loans

Collateralized anything is having a rough time right now...with the exception perhaps of hard assets, although in the face of a slowing economy, even those may be facing some form of devaluation, potentially putting the squeeze on current distributions.

BruceM

But if this continues for any period of time, I suspect there's going to be few private student loans available, with increased reliance on Stafford, Perkins and Plus loans

[/quote]

I think this is a good thing for students in general.  Too many of them get talked into mortgaging their lives to go to an expensive school when there is a perfectly fine state university they could attend for far less money.

If you are mortgaging your life to go to Harvard, fine, but I see kids taking on huge loans to go to some private, liberal arts college no one has heard of when they would get just as good of an education at a state school and be much less in debt when they got out.  Some private liberal arts college no one has heard of charging $30k a year in tuition won't get the kid a better job, won't give him/her a better education than a state school.

I think some of these schools may have to go out of business if private loans dry up, which is a good thing IMO.

K.Callie:

Your hypothesis is happening. Antioch College (I believe in Ohio) has announced it is going out of business. Antioch was fairly well-known at one time but declining enrollment and small endowment is doing it in.

All colleges have been increasing tuition far faster than inflation. I believe the ready availability of college loans has contributed to this trend.

Sam

K.Callie:

Your hypothesis is happening. Antioch College (I believe in Ohio) has announced it is going out of business. Antioch was fairly well-known at one time but declining enrollment and small endowment is doing it in.

All colleges have been increasing tuition far faster than inflation. I believe the ready availability of college loans has contributed to this trend.

Sam

[/quote]

I so agree with you that federal loans are what keep these small colleges in business.  Kids aren't well served by going far into debt to go to a school like that.  If mommy and daddy have money and can pay for it all, then fine.  But to finance an education from a school like that with loans is not a smart move.

Well considering

> My Last Neice graduated and most of her classes where tought by Studen Teachers and the " Tenure Porfessor was never there... Probably out playing Indiana Jones

> She paid enough to own a KFC Franchise

> she has $30k in Student Loans now

> And has gotten Married  to  a guy she dated in college and is expecting her first Child.. and going to be a stay-at-Home /Soccer mom...

> Her Husband ( God Bless Him) paid off her Student Loan..he helps run Daddy's Business making over $150k yr now..and many other Benefits..

Mission Accomplished for the Parents....LOL

her 4 yr older sister did the same thing..has 3 kids now and living in the Rich N. Suburbs of Chicago...

and her Older Brother? Is a  Salesman for AMD, making his $100+ k yr after Grad. and paid off his Student Loans..and Buko Stock Options and Benies...( Mercedes SUV, etc)

All came from Blue Collar parents ( My Brother is an Electrician)  and she is a RN..

So, I guess it's just what you put into it , that counts if it's worth it or not..