I understand that the current admin and congress wishes the program of subsidizing loans made by private lenders to end and future loans to be made directly by the govt. But I don't understand what will happen to the outstanding loans SLM already has on the books and is currently collecting. Even if SLM is out of the new loan business, wouldn't a skeleton staff still continue to collect the loans and apply that revenue against SLM outstanding debt (bonds issued)?
Assuming that the bulk of the PAR value of SLM issued bonds was converted to student loans, wouldn't collecting 50% or so of those loans result in being able to redeem outstanding bonds at about today's market value? That is, SLM stock might go to zero since there is no ongoing business, but wouldn't there be ongoing revenue from collecting existing loans to service debt, at least to the extent that the govt allows them to continue collecting their already outstanding loans?
Or better, might the govt, under it's new program, buy the outstanding SLM loans paying SLM and then collecting from the borrowers?
I'm optimistic that even if/when the govt puts SLM out of the ongoing student loan business, the value of already outstanding loans will be applied to debt and we'd receive some percentage of PAR at maturity. This is different than the GM case where bond holders got totally screwed.
Comments on my optimistic specualtion?