I spent a fair amount of time futilely trying to read the underlying documentation on how the Iowa Student Loan bond I hold works, and why it wasn't paying any interest, in an effort to understand whether it might ever pay interest again (since it basically isn't going to be sellable until it is paying interest -- and it won't pay interest until it's sellable, which sounds pretty useless to me).
On _Friday_, Bloomberg described exactly that, only instead of reproducing the Max Penalty Rate and so forth, it said, "The bonds pay nothing because of a formula designed to ensure that borrowers don't pay more interest on their debt than they receive from their student-loan clients. The mechanism kicked in as rates climbed above 10 percent since February, when dealers stopped buying securities that went unsold at auctions." and further commiserates with us investors by quoting a guy on how this is hard to understand, how they could hold your money and pay you jack. Well, that's not the actual quote, obviously.
And this explains why there's no mass refinancing, the way there has been for cities, stadiums, etc.
As a result, student loan money is going to be _really_ scarce for the next school year. Parents of high-schoolers and college kids take note: with the exemption expired on the H2B visa program, there are plenty of jobs available this summer that won't be taken by migrant workers from other countries. Maybe your kid can make some money to replace the money that isn't available via loans any more. I recognize this makes me sound like a curmudgeon. On this particular subject, I am one. That's temporary, seasonal, _non_-agricultural work. Think: cleaning hotel rooms on the Cape. My sister-in-law did that in high school and/or college. I have friends who did similar, albeit sometimes in other countries.
The best (and earliest) explanation of the 0% problem on some student loan auction rate securities:
Naming the one I own, no less.