Is obtaining a student loan a normally primary market and a secondary market transaction?

How could a student loan evolve into a secondary market investment?

Expert Solution

Basically there are two types of market

1) primary market

2) Secondary market

1) primarey market : Here the securities or loan are issued first time by the lender to the borrower. For example : Issue of securities through IPO or listing of bonds by the comapny or issuing loan to the student

2) Secondary market : Here securities already listed by the company are traded. Here buyer and seller are generally public only. thus buying or selling securities here do not affect capital of the comapny

Now issue of student loan can be consider as primary market transaction as the bank( lender) is directly lending to the studen ( Borrower)

Many times happen that the bank ( the lender) creates pool of the similar loan ( Such as student loan) and creates a loan portfolio which is asset for the bank. Now if bank wants to liquidate this asset than it will issue securities based on these asset in the market. This is called securitisation of the asset. In this way student loan can evolve into secondary market transactiion

jeff jeffy answered 2 years ago

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