A Comment About The Education Bubble

On my company’s social network today, an article was posted about “The Bond Market on Education.” The article mentions that student loan bonds are a bad bet for investment firms because there are an increasing number of student loans being defaulted on and that it’s going to get worse. The company I work for is heavily involved in education software development so this is an important topic for us.

I made the following comment in that conversation:

I’m not sure about what the implications for Unicon are, it’s not in my job description to know that. :) However, there’s definitely an education “bubble” right now. Personal example: Tuition at ASU has doubled from when I left in 2007 to what my wife pays now, in the middle of “the worst recession since the Great Depression.” The biggest reason the cost of education continues to rise so quickly and that institutions like the University of Phoenix can charge so much is because of government-guaranteed student loans. It has severely distorted the market and created a bubble that is showing more and more signs of beginning to burst. When the student loan defaults begin to amass, it is a likely result that, like housing, the cost of education must dramatically come down to more realistic levels and that no matter the incentives made available to try to prop prices up, it won’t be enough. This will blindside a lot of people in the education world and will lead to a significant contraction in traditional education models. I think it’s important to be well situated to take advantage of the shifts that will happen in the market when that occurs. Any Uniconers more knowledgeable than I familiar with how well Unicon would fair in such a scenario? Is it easy to tell how much of our revenue is dependent on an ever-ending supply of guaranteed student loans?

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