ReliaMax Surtety Co., Liquidation: A Sign of Trouble Ahead as Student Loan Defaults Climb?

More than 1 million student loan borrowers default on their loan repayments each year. Default is generally defined as when a person has not made a payment toward their debt in roughly a year, triggering it being sent to a third-party collection agency. According to a study conducted by the Brookings Institute, nearly 40% of student loan borrowers are expected to default on their student loans by 2023.[1] 

Until this past June, ReliaMax Surety Co., offered insurance to lenders to help offset losses from student loan defaults. Founded in 2006, ReliaMax provided insurance to banks and other lenders in the private student loan industry. By 2014, ReliaMax insured $2 billion worth of student loans. Although ReliaMax announced in 2014 that its line of business was expanding, behind the scenes there were problems.

In June, the South Dakota Division of Insurance filed a petition in Hughes County Circuit Court to move to liquidate the Sioux Falls, South Dakota based ReliaMax arguing that the company is insolvent. That petition was approved. The Order from the Hughes County Circuit Court allows the Division of Insurance to take possession of the ReliMax’s property and conduct business in the interim while winding down ReliMax’s affairs.

Division of Insurance Director Larry Deiter was appointed as the liquidator and receiver of the ReliaMax estate, and the process of notifying policy holders, claimants, and other interested parties of the liquidation and the process for filing claims has begun

This rising tide of student loan defaults could spell trouble for companies, such as ReliaMax that seek to insure these repayments, and while it is impossible to predict the future it is certainly worth keeping an eye on the student loan industry as a whole in the near future.

[1] https://www.brookings.edu/research/the-looming-student-loan-default-crisis-is-worse-than-we-thought/