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Student Debt: List of Education Stocks Being Dumped by Big Money Managers
11/14/2011 8:23:00 PM
(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)
The issue of growing student debt has made its mark on the presidential debates, prompting President Obama to action.
Last week, Obama proposed his new “Pay As You Earn” plan to help relieve the debt burden of students. Under the plan a person’s loan payments would be capped at 10% of discretionary income and begin to take effect in 2012.
Indeed, the weight of student loans has been highlighted by studies that have shown some alarming figures.
For starters, 67% of students are graduating with student loan debt. The average amount of student debt at graduation went up 5% in 2011.
In all, some 26 million Americans are currently burdened by federal student loan debt. (via Business Insider)
What’s equally alarming is that the amount of money owed in federal student loans has surpassed $1 trillion, which is more than the total amount that Americans owe on their credit cards. This debt cannot be absolved in bankruptcy.
College tuition fees have increased more than 400% since 1982, during which time medical care costs went up 200% but median family income increased by less than 150%.
According to Business Insider, 26% of student loan borrowers who started repayment in 2005 have become delinquent on their loans, and 15% have defaulted on their loans in the same period. This can be partially attributed to graduates finding themselves unemployed or underemployed.
Without the means to pay debts off, an increasing number of Americans are defaulting on their student loans. That’s bad news for schools mostly populated by students that use federal student loans to pay the tuition fees. And it implies a significant amount of political risk inherent to the revenues of these for-profit education companies whose stocks have soared in recent years.
With student loans piling up, it should come as no surprise that education stocks might take a knock.
For that reason, we wanted to find the education stocks that appear most vulnerable to a correction.
For ideas, we collected data on institutional money flows, and identified a list of 9 educational stocks that have seen significant outflows over the last quarter.
Institutional investors think these education stocks are in trouble. Will rising student debts drag them down further?
Analyze These Ideas (Tools Will Open In A New Window)