Student Debt As An Asset Class: A $1 Trillion Opportunity?

About 75% of the $1.2 trillion in outstanding student loan debt is eligible to be refinanced, and the creditworthy tranche of this debt -- the part private investors are eyeing -- totals at least $200 billion. So far CommonBond has made some $100 million in loans to current students and graduates of 109 M.B.A., J.D., M.D. and engineering programs at 50 brand-name schools. Another venture capital-backed company, three-year-old SoFi (for Social Finance), has refinanced more than $1 billion in student debt held by 13,500 graduates of 2,200 schools, making it the largest refinancer in the market. By cherry-picking the best borrowers, these fast-growing upstarts could leave the federal government with an even higher default rate on its portfolio. This year a graduate student can borrow up to $20,500 in a Stafford loan from Uncle Sam at a fixed rate of 6.21% and the balance of his school's costs in a Direct Plus Loan at 7.21%.