Your Student Loan Could Be Backed by Sovereign Funds

Opportunity Cost Model

The search for yield in an environment of low interest rates are pushing institutional investors such as U.S. pensions and wealth funds indirectly into the U.S. student loan market. These public investors have allocated swaths of capital to alternative investment firms like Apollo Global Management LLC through credit-related investment mandates. For credit managers seeking yield, student loans seem attractive, especially high-quality consumer borrowers.

Backing these Apollo funds are sovereign wealth funds, life insurance companies, endowments and pensions.

The U.S. student loan market has mushroomed in size, as more young people attend university and tuition cost continues to increase. As of October 2014, the U.S. student loan market amounted to US$ 1.3 trillion which counts private loans without government guarantees. Hammered at nearly every point in the American education system, students are getting loans because vast studies have shown a correlation between university education and upward economic mobility. To compound the issue, traditional banks are losing territory in traditional lending to “investor-backed” direct lenders, as Dodd-Frank Act and other financial institution regulation, mandate higher capital totals they must possess relative to their assets.

Peer-to-Peer Lending or Institutional-to-Peer Lending

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