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Shorting Student Loans: The Next Major Credit Bubble

Shorting Student Loans: The Next Major Credit Bubble

belushiSeekingAlpha.com has an interesting article today: Basically, the gub'ment (say in your best Michigan Militia accent) owns the student loan market and has been puming liquidity into the system setting up a mortgage-like bubble. How to play the coming student loan crash?

Nick Pardini, a registered investment advisor, writes: "America's debt crisis did not end with the subprime mortgage crisis. "Mortgages, may set off the trigger, but the student loan debt is an overlooked bond bubble waiting to crash.

Student loans have surpassed credit card debt for the leading type of private debt among Americans. The cost of higher education has been outpacing inflation since 1982, as the real cost of education has increased 339%."

Pardini says you can buy credit default swaps on student loan asset-backed securities. Or, easier, he says, short Sallie Mae (NYSE: SLM), the leading student loan company and a GSE. He recommends shorting for-profit colleges, such as DeVry (DV), Apollo Group (APOL), and ITT Educational Services (ESI), which he says, "have 90% of their revenues coming from federal student loan aid."

For more on how to pay for college (i.e. tricks on how bring down the cost you pay for tuition, please read our college tuition expert Lynn O'Shaughnessy, who writes on the subject monthly for Registered Rep.)

I don't know Pardini's track record but, with children approaching college age, I have been paying close attention to the ever escalating price of college tuition. Because of the gub'ment intervention (the liquidity screws up the pricing mechanism just like we saw in housing), tuition has been soaring. His reasoning strikes me as valid.

Pardini manages his own emerging markets and commodities fund called Nomadic Capital Partners. Nomadic Capital invests in stocks, ETFs, and futures to capture gains from the debasement of major world currencies, the secular growth of raw materials, and the strength of the growing emerging market consumer.

He also currently runs the online magazine Contrarian Lifestyle (http://contrarianlifestyle.com) where he writes about the markets, investing, and travel. Nick also hosts an investing podcast titled Wall Street University which can be found on his website or by searching "Nick Pardini" on iTunes.

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