According to this Yahoo! Finance article, the Department of Education has some analysts who attempt to estimate the value of the Department's student loan portfolio:

For years, bean counters at the department have been writing down the value of its $1.4 trillion portfolio of student debt as they adopted ever-more-pessimistic views of how much borrowers will repay. In September, the analysts made their biggest adjustment yet, valuing loans at just 82 cents on every dollar owed, down from 104 cents in 2015, records show. The debt is now worth $258 billion less than the amount outstanding.

I think I understand what it means for the loans to be worth less than their nominal value. Since the analysts believe that some of the loans won't be paid back, their estimated value is less than the current amount of the loan.

I don't understand the reported historical value: 104 cents per dollar. That seems to mean that on average each $1 in student loans (including interest, payments made, etc.) is worth $1.04 to the Department. At first I thought it was because they expected to earn more from the interest on the loans being paid off, but then I learned that the nominal value of a debt instrument already includes interest and payments to date.

So how can it be worth more than its current value?

  • 4
    I recognize that public finance questions are off-topic here, but I'm asking this because I have investments for the first time and I'm curious about how different kinds of investments and their values work. It's aimed at developing financial literacy, which I think is on topic here. Commented Jan 23, 2021 at 2:12
  • Was $1.04 the nominal value, or the face value? (The linked article does not say.)
    – RonJohn
    Commented Jan 23, 2021 at 2:38
  • @RonJohn You are right, it doesn't. Maybe that's part of the answer? I had thought it would be the nominal value, because I don't know why they would bother analyzing the face value like that. It seems strange to estimate the value of your portfolio by ignoring the activity that is increasing or decreasing it. Commented Jan 23, 2021 at 2:42
  • If I were managing the portfolio, I'd keep both sets of numbers, and report them both. Never underestimate the ignorance of a reporter...
    – RonJohn
    Commented Jan 23, 2021 at 3:01
  • "every dollar owed" sounds like principal to me and serves as a natural point from which to value the debt.
    – Hart CO
    Commented Jan 23, 2021 at 5:14

1 Answer 1


I am not very familiar with the way student loans work for Department of Education, nor can I be sure that the author of the article used accurate terms.

One possibility that the loan is valued at 104 is that the loan is Fixed Interest Rate arrangement at the beginning, and the subsequent market interest went down, causing the market value of the loan going up. This is the inverse relationship between Bond Price and Market Yield.

Imagine that you lent $100 on 1 Jan for 1 year to someone at an agreed interest rate of 3%. The next day on 2 Jan, the market interest rate went down by 2% to 1%. Suppose that you want to sell this loan contract to another lender, the lender will be willing to pay ~$102 ($101.984 to be exact) on 2 Jan, and collect $103 on 31 Dec, because 1% is the new market interest rate.

In case of a fixed rate loan of 30 years, every 1% decrease in the market interest rate expectation of the future will result in instant 14%+ increase in the value of the loan contract. The multiplier "14" is called the Modified Duration (Although the formula only applies to a bond-style instrument of interest-only payment, and 1 final payment of the principal).

  • As a side note, I don't see the author of the article used the word "nominal". Only you used it.
    – base64
    Commented Jan 23, 2021 at 15:59
  • Perfect. My loan is someone else's purchased bond. My 3.5% mortgage with little time to run, is worth more than 'face value' to a buyer, who would accept, say 2.75% for a 4 year note. Extra hat tip for using the word "duration". Commented Jan 23, 2021 at 16:31

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