Calamities are of two kinds: misfortune to ourselves, and good fortune to others.
Students are taking on too much debt, with almost no hope of being able to pay it back. The student loan portfolio is set almost to double by 2025 to nearly $2.5 trillion by 2025. Already nearly 12% of individuals are delinquent on their student loans, and given the far from bright job outlook most students face after graduating; this trend will only accelerate in the years to come. The chart below seems to confirm this assertion. The cost of four-year education versus median income shows that tuition rates are increasing at a far faster pace than median income. Since 2000, the cost of 4-year education has surged by almost 65%, yet median income keeps declining; this is an unsustainable trend and eventually it will lead to another disaster.
Is there a solution?
Well, one solution would be to make it harder to qualify for loans, which in turn would cut down the number of available students willing to pay exorbitant rates for substandard education. This, in turn, would force colleges to compete for students and as we know that competition is the best way to lower prices. However, this will not happen soon. We live in an era where money is thicker than blood; the can will be kicked further down the road until there is no road. When the road ends, though, the consequences could be extremely far reaching and will most likely make the subprime mortgage crisis look like a walk in the park.
In such an environment book publishers should fare well over the long run. Some companies worth paying attention to are SCHL and AMZN. Yes, AMZN sells more EBooks than print books, and it sells a massive amount of them. If you are looking for a children’ book publisher than EDUC is quite strong; on a relative strength basis, it is stronger than both AMZN and SCHL. The overall strategy should be to wait for strong pullbacks before deploying any new funds into these companies.
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