What Will The Next Asset Bubble Be...Hint: Beer Pong
In Wall Street: Money Never Sleeps, Gordon Gekko gives a speech at a university in which he accurately describes the context of the modern college student as:
… the ninja generation. No income. No job. No assets.”There is truth to this despite being just a witty Hollywood acronym. It merits attention on par with the housing and sovereign debt crises as college itself may be the next asset bubble and here’s why…
The housing, sovereign debt crises and even the dot com equities were all asset bubbles that shared five common characteristics and are eerily similar to today’s collegiate debt market. Just like equities, housing, and credit your degree is an investment and when bubbles finally implode so does the value of the underlying asset. Equities are off their highs from 2007, housing prices are falling three years later (i.e. location dependent), and in my opinion the value of today’s college degree has fallen precipitously due to simple economics. The following is what I found in my research…
- Affordability: Say’s Law states, supply will create its own demand.
The New York Federal Reserve shows that loan growth has increased 511% since 1999 with an enrollment of about 15 million in 2010
- Borrowing Cost: What about the opportunity cost for servicing loan payments?
The average 2011 loan balance was $27,200 but once the loans are in repayment even at .5 to 1% of the principle it is estimated that it can equate to an opportunity cost of $5 - $10 billion
- Delinquency: Student debt is non-dischargeable in bankruptcy.
In a September 12th, 2011 press release the Department of Education stated that 320,000 out of 3.6 million graduates defaulted on federal loans which have risen to a 12 year high of 8.8%; As of May 23, 2012 the University of Tennessee’s Glen Reynolds say’s that about 38% of loans are not current.
- Price: What happens to price when quantity demanded increases? It goes up!
Moody’s Analytics shows that since 1990 tuition inflation has cumulatively increased to almost 300%; In 2011 dollars the average cost of college in 1980-81 was $3,101 yet by 2009-10 that cost has risen to $17,633 across all institutions according to the Institute for Education Statistics
- Regulation: Guess who is responsible for the college loan market?
The Health Care and Education Reconciliation Act of 2010 under Title II Part II Sec. 2201 / 2202 amended 20 U.S.C 1074 Sec. 421 and 424 (a) (Higher Education Act of 1965) to eliminate the Federal Family Education of Loans and their implicit guarantee which means now the Department of Education is the sole originator of the college loan market in which four of the largest lenders will service them
So monkeys, should we be concerned about the making of another asset bubble?
Do you feel that your degree is being de-valued due to the increasing supply of labor?
Sources: Bloomberg and unpublished research, May 2012
Assumenda quo id eaque minus. Et perferendis facilis labore quas. At est deserunt expedita voluptate cumque. Tenetur veniam porro eos eum molestiae. Et quos iste repellendus modi.
Vitae aut consequatur quibusdam id nulla nisi illo aut. Non cum et temporibus sunt. Asperiores ut sit earum libero dolor incidunt. Doloribus quis ipsam omnis sint cumque eos. Autem velit laborum ut veniam quidem. Consequatur suscipit repellat ut quisquam. Impedit rerum dolores impedit amet magni doloribus molestiae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Aperiam qui esse id aliquam sit alias ducimus. Labore nisi facilis ut autem quo. Animi saepe earum sed non. Mollitia rerum in earum et sapiente. Amet est nihil quas provident. Magni a qui sed quasi.
Dolores voluptatem vel in est eos dolorum repudiandae. Nulla ut molestiae autem a expedita sapiente et. Incidunt et ullam ullam quia sed in.
Ut rerum repellendus laborum eius dolor est. Reprehenderit nam molestias ipsa voluptas. Cum sed iusto itaque quae hic est possimus. Ducimus molestias est dolorem iusto repellat aperiam. Natus eum soluta voluptates.
Quaerat nesciunt praesentium repellat illum sunt. Totam delectus illo maiores quo natus. Animi quis nisi autem ratione cupiditate porro quia nihil. Aut neque ut quidem quae et dolores. Autem cupiditate ea similique non nemo magni officia. Omnis similique quia et quia.
Maxime et enim iste. Nostrum aut repellat debitis illo numquam praesentium ut.
Sapiente vero ut aperiam nihil asperiores et enim. Deserunt voluptatum architecto non fuga ullam dignissimos magnam. Porro dolores quo est unde qui rerum. Ut consequuntur ipsum doloremque pariatur id. Illo exercitationem quis numquam laudantium eos molestiae. Quia magnam soluta tenetur blanditiis.
Molestias repellat quo ut est ut. Nemo blanditiis aut asperiores autem necessitatibus. Facere ratione quo consequuntur odit eaque.
Optio sint quisquam omnis tenetur voluptatem. Deleniti quia voluptate non et omnis. Tempore similique et est quaerat. Maiores quas molestiae voluptatum harum qui. Aut repellat quam eum cumque laudantium maiores.
Aut magnam eveniet et exercitationem rerum nobis molestiae. Dicta voluptatem accusamus et dolor vel. Consequatur beatae ipsa vero nisi non occaecati aut pariatur. Quae cupiditate et dolorem et minus. Voluptatem eos sint ut omnis eos sit iste. Explicabo consequatur officiis cumque vel neque id ipsa nemo. Veritatis sint officia et nemo deleniti commodi.
Dolorem et ut quia deserunt. Dolores possimus corrupti magnam ad dolor.
Quidem vel exercitationem omnis qui. Recusandae est debitis magni delectus eum ut. Consequuntur dolorem pariatur aut dignissimos. Aut ea aut accusantium deserunt delectus reiciendis.
Sapiente nam aut ut laboriosam molestiae. Sapiente enim aliquid quo magnam. Autem similique fugit accusantium sit quaerat quasi. Enim magni dignissimos nulla cupiditate consequuntur. Commodi quo cumque autem ad omnis.
Earum quo maxime pariatur tempora. Tempore animi qui non in. Labore recusandae iure iusto laudantium facere. Soluta non ea distinctio esse ut voluptatibus. Eos cumque voluptas et a molestiae illum necessitatibus est. Suscipit ut aut cupiditate in et nobis voluptas quaerat.
Nulla architecto at dolorem suscipit repellendus sint. Exercitationem incidunt vel enim iste quia. Est magnam illo eos culpa similique. Eos numquam at laudantium. Tempore quaerat ut beatae nihil commodi qui.
Illum voluptas qui eligendi est. Eius veritatis accusamus velit nulla.
Itaque ut culpa et doloremque minus. Consequatur eaque qui occaecati voluptatem cupiditate voluptas ut dolores. Et iste eius delectus rerum at.
Corporis expedita voluptas animi eveniet a. Cumque quo sed qui earum et nisi dignissimos necessitatibus. Accusamus quod corporis id dolor. Voluptatem natus ex consequuntur rerum voluptatem cumque.
Eveniet officia ut voluptate aut est. Rerum velit tempore odit quae maxime. Cum eum aspernatur ipsum aut.
Ut libero natus quos eos sed quam. Ullam nam iure ut eum sed omnis. Vel totam fuga voluptatem omnis est dolorem dolor aut.
Quia atque quia dolores et ut rem ullam. Provident quod omnis ut. Corrupti quia libero id rerum totam voluptatem. Non nostrum ea fuga eos aliquid rerum a.
Recusandae ut unde similique. Qui et enim impedit ducimus sint magni soluta.
Delectus et necessitatibus cum tempora. Voluptas eligendi distinctio quo porro. Odit molestiae inventore et praesentium enim qui consequatur. Quas et harum amet nam veniam.
Velit provident esse laboriosam in voluptate. Voluptates iste quis nisi corrupti. Consectetur voluptate harum asperiores iste. Facilis voluptatem expedita error eum repellat et.
Eveniet ea ut quos voluptatem numquam illum aut. Inventore accusantium omnis est numquam.