Finance Professor Featured on CNBC

Professor Xu speaks to CNBC about SLABS.

Xiaoqing Eleanor Xu, Ph.D., CFA, professor of finance, in the Stillman School of Business, was asked in an interview with CNBC to share her expertise around a heatedly debated topic in the financial world today. Fears of another securities market bubble have been building around the potential systemic risk to the American economy concerning billions of dollars in student loans that have been packaged and sold to investors as student loan asset-backed securities, commonly known as SLABS.

CNBC inquired if SLABS would be the catalyst for the next big financial bubble or trigger the next financial crisis.

Professor Xu said, "My Answer is no, absolutely not." She explained, "While US student loans outstanding has reached an alarming $1.76 trillion, it is crucial to note that 90 percent of these loans are federal direct student loans without securitization. The market for SLABS, or student loan asset-backed securities, has an outstanding size of less than $150 billion, which means that less than 9 percent of the outstanding student loans have been securitized. There is often confusion between student loans, which have a staggering $1.76 trillion outstanding, and SLABS, a relatively smaller market with less than $150 billion outstanding. Given its current size, both in absolute and relative terms, the SLABS market is considered too small to pose any systemic risk to the broader financial market."

In fact, Professor Xu conducted in-depth research on a similar topic and published a research article titled "Student Loan Asset-Backed Securities: The Next Market in Crisis?" in the Fall 2020 issue of the Journal of Fixed Income. The study examines the details of SLABS security structure, pool characteristics, and performance. The research showed that the strong internal credit enhancements, in the form of excess spread, overcollateralization, and subordination, and external guarantees that have been put in place aggressively for SLABS after the subprime mortgage crisis of 2007-2008 have substantially reduced the systemic risk of the SLABS sector. 

"In the CNBC interview, I emphasize that asset securitization, such as mortgage-backed securities (MBS) and student loan asset-backed securities (SLABS), originally emerged as a positive financial innovation aimed at enhancing the efficient channeling of credit from those who have surplus to those who are in need. I also acknowledge that there is a lot more to be done to enhance market transparency and promote financial literacy and education among borrowers and investors to ensure the healthy contribution of securitization to the financing of our nation’s private student loans."

Professor Xu told CNBC viewers:

"I think to say this SLABS market is going to be the trigger of the next financial crisis is really overstated," explaining that following the 2007-2008 global financial crisis, increased credit enhancement was put in place to protect against that exact scenario. She said, "Even if there are substantial charge-offs, they're mostly going to be absorbed within the internal and external credit enhancement measures that have been put forth very aggressively after the financial crisis."
 
Professor Xu's latest research includes exchange-traded funds, fixed income, cryptocurrency, sustainable investing, emerging markets, hedge funds and risk management. She has taught undergraduate and graduate courses in Investment Analysis, Security Analysis, and Fixed Income Analysis, while also publishing more than 40 research articles in highly respected, peer-reviewed finance journals. She chaired the Finance Department from 2008 to 2010 and has been directing the CFA university affiliation programs since 2013. Prior to joining Seton Hall University, Dr. Xu taught at the Chaifetz School of Business at Saint Louis University. She received her Ph.D. in Finance from Syracuse University.

To learn more about SLABS news, video, and research highlighted in this article, please visit:

CNBC News: "Here's why some economists are concerned student loans may cause the next big bubble"

CNBC Video: "How Student Loans Are Sold To Wall Street"

Xiaoqing Eleanor Xu and Miki Ortiz-Eggenberg, "Student Loan Asset-Backed Securities: The Next Market in Crisis?" The Journal of Fixed Income, Volume 30, Issue 2, pp. 22-43, Fall 2020.

For links to Professor Xu’s insightful research on mortgage-backed securities that provided guidance to investors and financial market participants on the risk and return of residential and commercial MBS even before the 2007-2008 global financial crisis, please visit:

"What Moves the Mortgage-backed Securities Market?" Real Estate Economics, 33(2), 397-426, June 2005.

"What Drives the Return on CMBS?" Journal of Portfolio Management, 33(5), 145-157, September 2007.

Categories: Business