On Monday, we got some color on Hillary Clinton’s $350 billion plan to make college more affordable. Students and former students across the country owe more than $1.2 trillion in college loans, and as Bill Ackman so eloquently put it earlier this year, "there’s no way they’re going to pay it back."
The fact that America’s student loan bubble is the focus of what may well end up being one of Clinton’s most expensive policy proposals speaks volumes about the urgency of the problem.
Of course there are some other folks who understand how quickly the situation is deteriorating. Chief among them are Moody’s and Fitch and a few sell-side strategists who are having quite a bit of trouble figuring out how to incorporate the various IBR plans being promoted by the Obama administration into their ratings models.
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.