SLM Corp (SLM), Nelnet, Inc. (NNI), Discover Financial Services (DFS): College, the American Dream, and Wall Street

However, for once, size isn’t the main issue. The most critical (and potentially damaging) issue is the increasing delinquency rate on student loans.

Investors are rushing into SLABS head first. I’m fearful that to satisfy demand lenders may repeat the same mistakes they made pre-financial crisis and go bottom feeding. Equifax reported that banks wrote off $3 billion of student loan debt the first two months of 2013. That’s an increase in write-offs of more than 36% from the previous year. Of course those loans were far past due, but the market isn’t that big – after all, weren’t SLABS sales only $5.6 billion those same two months? In other words, SLABS sales growth underperformed write-offs by 6%.

The size of student loan debt is by no means comparable to the 2007 mortgage market. But, increasing delinquencies in a major market is a problem. And as long as would-be college students finance dreams of grandeur with debt from Uncle Sam or private lenders, Wall-Street will ensure that the student loan asset backed securities market flourishes.

This article was written by Santiago Rodriguez and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned. Marie Palumbo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article College, the American Dream, and Wall Street originally appeared on Fool.com and is written by Marie Palumbo.

Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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