The College bubble 2.0



On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable.  As we recently noted, students and former students across the country owe more than $1.2 trillion in college loans – doled out by our government in the name of helping high school graduates further their education, and as Bill Ackman so eloquently put it earlier this year, “there’s no way they’re going to pay it back.” But at this point, extra funding is backfiring. Half of young graduates are either unemployed or only working part-time, which is a startling sign that the jig is up. In conjunction with the poor economy, new technology, developing markets killing jobs, and the massive increase in applicants with degrees, the value of college degrees is drastically falling in the economy of today. College is in a bubble, and it is going to pop soon…

The following video should open a few more eyes to the startling crisis facing today’s young adults and the American higher education system…

And as we recently noted, one hedge fund is attempting to take advantage of that, hoping for the next “Big Short.”

These worries showed up earlier this year when Moody’s put billions in student loan-backed ABS on review for downgrade. Many of the deals in question are sponsored by loan servicer Navient, which was spun off from Sallie Mae in 2014.

Now, one Boston-based hedge fund is building a short position on what it says is “runaway inflation in post-secondary education” by shorting the likes of Navient and other names tied to to the student loan bubble.

  Here’s Bloomberg with more:

FlowPoint Capital Partners, the $15 million hedge fund co-founded by Charles Trafton, is betting against companies such as student-loan servicer Navient Corp. to profit from what it calls a college bubble bursting in slow motion.

The Boston-based firm is building positions against stocks of textbook publishers, student lenders and real estate companies that focus on college housing, Trafton said in an interview.Changes in the more than $1 trillion student loan market could hurt companies such as Navient, Sallie Mae and Nelnet Inc., according to a July investor letter from the firm.

Businesses “levered to runaway inflation in post-secondary education are susceptible to growth and margin shocks,” the firm wrote in the letter.



So there, ladies and gentlemen, is one way to trade the bubble if you believe expecting the nation’s graduates to somehow fork over $1.2 trillion is unrealistic in a job market where landing a gig as “head bartender” is sometimes the best one can hope for if you happen to have majored in anything other than petroleum engineering.

We wonder how many hedge funds are hard at work with Wall Street creating customized deals full of the worst student loan credits they can find with the sole intention of betting against them.