That could spill over into bonds backed by private student loans, as well as auto loans and credit cards, which have performed unexpectedly well over the last year as Covid stimulus and debt relief programs have helped borrowers pay their bills, or skip payments.
The March 2020 CARES Act suspended payments and collections on defaulted federal student loans, and brought interest rates down to 0%. The program covers $1.5 trillion of federal student loans, which is about 94% of the total, according to Bank of America.
“If someone has to restart their payments on high-balance federal student loans, it may put pressure on their overall finances — including their private student loans — which extends to other areas of consumer asset-backed securities, such as auto loans and credit cards,” said Theresa O’Neill, ABS strategist at Bank of America.
