The Baltimore Investing Examiner
Higher Education Bubble: The Next Bubble To Burst
written by Ian Cooper
Monday August 10, 2009
It's every investor's dream: buy into a theme before any one else has caught on; ride it all the way up until it gets bubbly; sell to the suckers who bought at the top.
It's like buying housing names in 2004 (as we did), only to sell and go short in 2007 (as we did). . . or oil prior to the rise to $147 (again, as we did). . . or even dot-coms before the bubble burst.
Yep, we've become all too familiar with the term "bubble" in recent years — that unsustainable phenomenon pumped full of irrationality and over-valuation only to burst and trigger monumental downturns.
We've seen it happen in Treasuries, financials, commercial real estate, autos, and credit. We watched in tortured silence, as an over-extended housing bubble popped, triggering a seismic credit meltdown.
And pretty soon we'll have bubble bubbles, where our heads explode over the financial chaos.
And now. . . unbeknownst to many, as we deal with banking and housing issues. . .
Higher Education will be Next
So say Joseph Marr Cronin, secretary of education in Massachusetts, and Howard E. Horton, president of Boston's New England College of Business and Finance.
And there is a fear of mergers, closures. . . even bankruptcies of colleges that took on too much debt, based on a unbalanced system of student loans paying for rising tuitions.
And we agree. The next bubble to burst will be higher education.
No doubt about it.
You see, higher education is big money for institutions and lenders alike. . . and they're in big trouble.
What most people who are not involved directly in higher education fail to understand is that these institutions and lenders are in the same sinking boat that banks and other financial companies are in. Assets are drowning. And debt and costs are rising.
Under-capitalized colleges are staring down threats to solvency, too (just as banks are), as penny-pinching students and parents go for cheaper alternatives (community college, online colleges, etc.) and sources of funds dry up.
Worse, Cronin and Horton comment:
The middle class, which has paid for higher education in the past mainly by taking out loans, may not be precluded from doing so as the private student loan market has all but dried up. In addition, the endowment cushions that allowed colleges to engage in steep tuition discounting are gone.
Consumers that once questioned whether it is worth spending $1,000 a square foot for a home are now asking whether is is worth spending $1,000 a week to send their kids to college.
Yep, when you think about limited access to credit — no more using your house as a piggy bank — coupled with higher college costs, we could end up with students finding college simply out of reach.
The Lenders Could Get Crushed, Too. . . by Two Things
One: The education bubble, fueled by easily-lent money and over-borrowing, has created yet another bubble: student loans. The student loan market has been, is, and will be riddled with trouble. Expect higher default rates, as students can't pay back these loans. Still, we'll look to profit from their demise.
Two: As President Obama urges an end to government subsidies for student loan providers, a number of education stocks could swan dive.
Higher Education Bubble: The Next Bubble To Burst
written by Ian Cooper
Monday August 10, 2009
It's every investor's dream: buy into a theme before any one else has caught on; ride it all the way up until it gets bubbly; sell to the suckers who bought at the top.
It's like buying housing names in 2004 (as we did), only to sell and go short in 2007 (as we did). . . or oil prior to the rise to $147 (again, as we did). . . or even dot-coms before the bubble burst.
Yep, we've become all too familiar with the term "bubble" in recent years — that unsustainable phenomenon pumped full of irrationality and over-valuation only to burst and trigger monumental downturns.
We've seen it happen in Treasuries, financials, commercial real estate, autos, and credit. We watched in tortured silence, as an over-extended housing bubble popped, triggering a seismic credit meltdown.
And pretty soon we'll have bubble bubbles, where our heads explode over the financial chaos.
And now. . . unbeknownst to many, as we deal with banking and housing issues. . .
Higher Education will be Next
So say Joseph Marr Cronin, secretary of education in Massachusetts, and Howard E. Horton, president of Boston's New England College of Business and Finance.
And there is a fear of mergers, closures. . . even bankruptcies of colleges that took on too much debt, based on a unbalanced system of student loans paying for rising tuitions.
And we agree. The next bubble to burst will be higher education.
No doubt about it.
You see, higher education is big money for institutions and lenders alike. . . and they're in big trouble.
What most people who are not involved directly in higher education fail to understand is that these institutions and lenders are in the same sinking boat that banks and other financial companies are in. Assets are drowning. And debt and costs are rising.
Under-capitalized colleges are staring down threats to solvency, too (just as banks are), as penny-pinching students and parents go for cheaper alternatives (community college, online colleges, etc.) and sources of funds dry up.
Worse, Cronin and Horton comment:
The middle class, which has paid for higher education in the past mainly by taking out loans, may not be precluded from doing so as the private student loan market has all but dried up. In addition, the endowment cushions that allowed colleges to engage in steep tuition discounting are gone.
Consumers that once questioned whether it is worth spending $1,000 a square foot for a home are now asking whether is is worth spending $1,000 a week to send their kids to college.
Yep, when you think about limited access to credit — no more using your house as a piggy bank — coupled with higher college costs, we could end up with students finding college simply out of reach.
The Lenders Could Get Crushed, Too. . . by Two Things
One: The education bubble, fueled by easily-lent money and over-borrowing, has created yet another bubble: student loans. The student loan market has been, is, and will be riddled with trouble. Expect higher default rates, as students can't pay back these loans. Still, we'll look to profit from their demise.
Two: As President Obama urges an end to government subsidies for student loan providers, a number of education stocks could swan dive.
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