Here is an interesting comment on reddit in response to someone asking how they could profit from a mass student loan default scenario: You bring up a really i

Here is an interesting comment on reddit in response to someone asking how they could profit from a mass student loan default scenario: You bring up a really interesting point, my buddies and I have been mulling this over. Three important distinctions between student loans and mortgages: Mortgages are backed by an underlying asset (the house) for which there is a liquid market and transparent price discovery, so it's easy to determine when the borrower's position is insolvent (i.e.; loan balance > home value; negative equity) For many student loans, the Federal government assumes the risk of default; also, Sallie Mae dominates the secondary market, and shorting them entails political risk (you're betting against a bailout) While painful, defaulting on a mortgage is a realistic option for borrowers: declare bankruptcy, give up the house keys to the bank, have shitty credit for 7 years, and you're out from under it; by contrast, student loans survive bankruptcy (and the principal keeps growing) Student loans are far more insidious precisely because it is difficult for the market to take a natural short position and put downward pressure on prices. What would a bubble 'pop' look like? For housing, the slow-down/decline in home prices simultaneously bankrupted hundreds of thousands of over-leveraged owners. It's hard to imagine a scenario where a significant portion of student loan borrowers simultaneously stop paying, and even if they did the loan owner can chase them through bankruptcy and garnish their wages. That looks like a recipe for a long, slow, toxic drag on the economy. https://www.reddit.com/r/finance/comments/3y39x2/just_saw_the_big_short_what_if_someone_shorted/ https://www.reddit.com/r/finance/comments/3y39x2/just_saw_th...