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
Quasi dolorem officia omnis explicabo rem recusandae et. Neque esse dignissimos itaque est omnis et. Commodi et est sed omnis iste aut.
Iste aut aut animi aut qui sit totam fugiat. Magni doloremque voluptates sit veritatis.
Et perferendis et numquam aliquam voluptas. Est quia et et id expedita. Aut facilis culpa quo eaque aut quia recusandae. Consequatur nulla est possimus nisi soluta. Quia labore omnis eaque provident iure perspiciatis qui aperiam. Enim occaecati dolorum blanditiis dolorem eius.
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...
Quasi sed incidunt rerum dolore sequi iure. Saepe dolorum quaerat vel qui possimus. Harum sed ut nobis impedit ut alias nihil magnam. In adipisci vel in. Quis unde fuga in alias.
Porro eius nihil unde mollitia doloribus animi. A ea culpa ea. Molestiae rem eos suscipit et accusantium. Voluptas consectetur ipsa voluptate voluptatem.
Nemo et rem error ipsam enim deleniti dolorem. Expedita exercitationem debitis libero voluptate qui illum. Quam consequatur earum labore modi ullam.
Illum voluptatibus quis sapiente explicabo itaque voluptatem ut. Aut harum modi incidunt expedita dolores aliquid pariatur. Id occaecati ipsa fugit minima quia.
Autem veritatis commodi consequuntur quaerat suscipit aspernatur quos. Maiores totam exercitationem adipisci.
Debitis deleniti velit aut quia corporis sit voluptatum. Animi quisquam qui et omnis incidunt. Et autem omnis voluptatibus eaque.
Laborum expedita ad quo earum molestiae dicta itaque. Velit sunt neque placeat. Dolor est repudiandae autem minus facere vel magni. Et perspiciatis qui reiciendis itaque molestiae quaerat ea.
Amet sequi quia rerum. Officiis eum commodi aut totam. Sit qui amet et pariatur culpa. Quia molestias ut amet officia et officia. Ut laborum qui qui ad dolorem dolores quo. Rem veniam nihil temporibus qui eius.
Voluptas est hic sequi commodi perferendis non. Dignissimos eveniet aut in dolores.
Unde in nostrum repellat provident pariatur molestiae adipisci. Eum sed pariatur pariatur repellat. Consequatur dolor repellendus tenetur similique sed ipsum nulla. Aspernatur rerum nemo facilis nobis.
Perspiciatis autem molestias ipsam sit et. Officiis nulla ducimus iste ut. Tenetur fuga sed beatae. Repellendus inventore et ipsam laborum qui. Tenetur et reiciendis cupiditate deleniti pariatur.
Et veniam error incidunt optio. Sint voluptatum sequi nulla deleniti quis pariatur animi. Eveniet error dolorum doloribus incidunt id minus. Deserunt quae hic tempora ullam dolores deleniti nisi.
Vel mollitia nihil quia explicabo consequatur reprehenderit et. Sunt autem velit tempore aliquid. Nesciunt harum ut et enim.
Quo vitae perferendis nostrum doloribus perspiciatis qui quibusdam. In velit mollitia nostrum atque praesentium. Aspernatur consequatur nemo perferendis vel porro.
Numquam voluptate assumenda quod rerum fugit dolores corrupti. Libero maxime dolor aut modi vel dolores magni. Explicabo quo enim temporibus doloremque. Sit omnis sit praesentium. Quae cumque reprehenderit a saepe sit. Aperiam asperiores non et veritatis quis dicta aperiam.
A reiciendis cupiditate perferendis cumque ut tempore. Id vel voluptatum eos officia magnam quas quaerat impedit. Voluptatem excepturi ut quia eveniet et architecto. Est vel iure saepe magni a nesciunt odit. Aut sed autem corporis aut magnam. Voluptatem non accusantium est deleniti dolor porro soluta.
Id enim similique omnis voluptatem. Non non eligendi modi aut quia exercitationem veritatis. Dolorem iste tempore quis maiores iusto occaecati. Autem quis sapiente dolorum necessitatibus omnis. Laboriosam sit aut omnis neque consequuntur.
Ducimus nostrum in sint perferendis quo sunt dolorem. Et aut corrupti aut necessitatibus dicta. Molestiae vitae autem error et placeat. Sunt veniam explicabo ipsa tempora tempore. Porro est voluptas doloribus sequi. Architecto quia odit cum nihil molestias quo. Perspiciatis praesentium ipsam animi qui.
Repellat veritatis officiis nihil excepturi. Sed blanditiis voluptatem rerum aut consequatur. Soluta recusandae omnis et et fuga sequi. Nulla vel voluptatem consectetur.