Since I mentioned Sallie Mae, I'll set up the situation here (and ignoring the big players who are moving out of private student loans [0]): -Sallie Mae (SM) c

Since I mentioned Sallie Mae, I'll set up the situation here (and ignoring the big players who are moving out of private student loans [0]): -Sallie Mae (SM) completes its corporate split (Fed loans in one company, Private in the other) [1] -People buy shares of SM, and get paid dividends every quarter (or w/e their terms are). -As of today, 40% of Federal loans payments are being made, with $118+ billion Fed loans in their portfolio of $1+ Trillion outstanding Fed loans (so SM is probably the most statistically correlated to the total compared to others individual companies) [1][2] -As interest rates go up on loans [3], and cost of tuition goes up [4], less people will afford to make payments (regardless of if they are in school, dropped out, or un/employed) -As less people can afford to make payments, the current 40% making payments will go down (as it has untill this point under the current circumstances). -Less people making payments means less money to go around to pay dividends -lower dividends on shares means people try to sell shares. -In attempts to raise capital to pay dividends (and stabilize share value), SM will accept cash/credit in exchange of secured student loans (delaying the issue of not being able to pay dividends due to market forces in response to status quo policies) -If/When x amount of the secured loans become non performing, SM has to pay in full for the amount disclosed in the CDS deal. Rinse, wash, repeat… [0] http://www.americanbanker.com/issues/177_63/us-bank-student-lending-cfpb-1048016-1.html http://www.americanbanker.com/issues/177_63/us-bank-student-... [1] http://www.bloomberg.com/news/2013-05-31/sallie-mae-split-marks-bet-on-much-abused-private-student-loans.html http://www.bloomberg.com/news/2013-05-31/sallie-mae-split-ma... [2] http://www.cbsnews.com/8301-201_162-57597232/study-half-of-$1-trillion-federal-student-debt-unpaid/ http://www.cbsnews.com/8301-201_162-57597232/study-half-of-$... [3] http://www.reuters.com/article/2013/07/31/us-usa-studentloans-rates-idUSBRE96U1G220130731 http://www.reuters.com/article/2013/07/31/us-usa-studentloan... [4] http://money.cnn.com/2012/10/24/pf/college/public-college-tuition/index.html http://money.cnn.com/2012/10/24/pf/college/public-college-tu...