FTDO: Student Loan Forgiveness. What could that mean for Financial Institutions?

Summary:  With the big news out of the White House last week, consider auditing your securities portfolio if you have Student Loan securities. Find out the ratio of FFELPs and other types within the portfolio if you are unsure and model out your likely near- to mid-term portfolio strategy.

Joe Biden announced he will forgive $10,000 in federal student debt for most borrowers, fulfilling a campaign pledge and delivering financial relief to millions of Americans. Mr. Biden’s action would cancel $10,000 in debt for Americans earning less than $125,000 per year and cancel $20,000 for low-income students who received Pell grants.

In his statement, Biden said that 95% of borrowers would benefit from the plan, or about 43 million people. Of those, over 60% are Pell Grant recipients. In all, nearly 45% of borrowers, or almost 20 million people, would have their debt fully canceled, Biden said. “That’s 20 million people who can start getting on with their lives,” Biden said.

If a broad-based student loan forgiveness plan is implemented, it will likely result in an increase in prepayments. While these loans would be isolated to certain pools, many pools could go through very significant increases in prepayment. If you paid a premium for these pools, it could lead to significant losses in principal.

Please get with your Financial Advisor at SB Value to guide you through this process. We offer Community Financial Institutions complementary Transparency Analysis. Now is a great time to take advantage of it -- especially if your portfolio contains Student Loan securities. We look forward to it.

As always, consider a first or second opinion from SB Value Partners by eMailing us back today.

Let SB Value help you examine all these, and other methodologies, to build out your future pathways to optimizing your success.

Questions? ASK US HOW to start a complementary analysis now. It’s a great time to get some additional clarity. Learn some additional truths on the front end. It may position your bank for added improvements in 2022 and into a better positioning for 2023. Listen to what a few thought leaders have to say who have written white papers on the topic at hand. Take a read through a few Fact Sheets on the subject that we would be happy to provide.

As fiduciaries we see quite a lot – in fact we have recently reviewed just under 14,000 data points from Community Financial Institutions – likely just like yours. We look forward to sharing with you some of what we have learned. In the meantime, we thought we would help with some general information that you and your team can consider right away to round out what you are already doing. There is a lot that’s beneficial, starting with cost savings, yield improvements, and likely better balance – even protection. To find out more please click here on our website.