Despite receiving some bad press of late, securitised US student loans originated by the right counterparties are providing decent returns to investors, according to HSBC.
Speaking to Mortgage Business, HSBC senior portfolio manager Andrew Jackson said that securities backed by student loans make up between 1 per cent and 2 per cent of the bank’s US$12 billion structured credit portfolio.
While HSBC is avoiding the subprime section of the US student loan market, the more robust part of the market is “actually performing quite well”, Mr Jackson said.
“The performance has been quite good. They are collecting. The students have got jobs and they are paying their loans off,” the manager said.
US student and auto loans have been the subject of plenty of bad press in recent months, Mr Jackson said, adding that he believes the auto sector has “all the ingredients” for the next global financial crisis (albeit at a smaller scale).
There is US$1.4 trillion (A$1.78 trillion) in student loans currently being paid off, he continued, and most of which is now being directly issued by the US government.
“There's a lot of press comment about [student loan] collection methods and what have you — and I think that may well be genuine — but we'll just wait for that to transpire.”
One of the more innovative student loan providers in the US, Social Finance (SoFi), is currently preparing to enter the mortgage market in Australia.
SoFi’s peer-to-peer model is being replicated by Melbourne-based start-up Study Loans, which is looking to become the first company to securitise student loans in Australia.
Study Loans has raised A$5 million in debt equity to distribute for the first tranche of loan applications, with help from investors Simonds Family and RMY Corp.
The company also completed an additional seed round of A$2 million equity to get the business off the ground.