Tuesday, September 24, 2013

Go to college Johnny just don't blow all of your money on granite countertops and Abercrombie shirts

I've been arguing for some time that increased access to low-cost student loans and additional lending activity are the primary drivers behind today's skyrocketing tuition costs.

There is a fair amount of evidence to back this up, but it doesn't seem like anyone wants to admit this truth.  The answer to rising college costs never seems to be "hey, let's use technology to lower barriers to entry, increase the quality of the education and cut the cost".  The answer from policymakers is almost universally "hey, let's give students more debt so they can pay the higher tuition rates!!".

However, this article published yesterday raises some very real questions about another boom that is being fueled by student loan debt - commercial real estate and retail expansion.

" In a rarely reported development, the vast student-loan sector is helping prop up retail stores and travel companies in a bubble of spending around college towns across the country.
Even housing developers have gotten in on the deal, as some free-spending students are eager to spend borrowed funds on expensive housing -- fueling a property boom as new construction goes up near college campuses. Some multilevel luxury spaces aimed at students can rent for more than $1,000 a bed each month. At the University of Texas at Austin, student properties near campus go for an average of $907 a month this year, according to apartment market researcher Axiometrics."
The concept of using student loan debt to pay for housing is not necessarily new, but using that money to rent a space off-campus from a large developer with many, many units around the country, is new.

Retailers have also seemed to pick up on this trend -
"Some brands, such as American Apparel and Urban Outfitters, often play for students by renting costly storefronts on student drags rather than malls in outlying suburbs.
"There’s been a big trend in growing relevant retail into college towns, in the vicinity of the campus," said Antony Karabus, founder of Karabus Management, a retail advisory firm. "The kids aren't starving anymore. Kids are taking out large student loans, and they have fun money for clothes, electronics, whatever they want."
So, is this a direct transfer of wealth from students' loan balances to large retailers?  No, but in much the same way that every town of 4,000 people NEEDED a Home Depot or Lowe's during the housing bubble, these retailers are positioning themselves to ride the wave of students attending college.  If that conveyor belt of students gets disrupted - either by another financial crisis or by a shift in the education industry - these developers, retailers and by default, their bankers may be in trouble.

Cheers!

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