Market Overview

Student Loan Bubble Could Hurt These Stocks


Reuters published a study today stating that four out of five bankruptcy attorneys are reporting a major jump in student loan debtors seeking help and that this is boosting fears of next mortgage-style debt threat to the United States.

According to the article, the same experts who were warning of the mortgage crisis are now becoming cautious of the student loan problem. The problem is also affecting the parents who co-signed these distressed loans, which might be leading to a severe financial burden on many elderly Americans who are approaching the retirement age.

The NACBA study found that “Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year. Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year loan repayment period.”

Investors should pay attention SLM Corporation (NYSE: SLM), which is the largest private student loan creditor in the United States. A systematic default on the student loans could lead to a Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) type of event. In addition, for-profit education stocks, such as, Corinthian Colleges (NASDAQ: COCO), Apollo Group (NASDAQ: APOL), and DeVry (NYSE: DV) could suffer if the student loan bubble bursts.

You can follow me on Twitter @TuomoKallio.

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