Does the best advice for students come from hedge funds?

The WSJ has an interesting piece on how knowledge of student loans gives hedge funds some keen insight into the world of education and students’ futures:

Investors like Mr. Ades have a unique view on the future for America’s job-seekers. Their investments depend on accurately predicting young people’s ability to repay their loans, which means they obsess about everything from employment rates by profession to the long-term earning potential of young graduates.


This analysis translates into some surprising insights for students and policy makers. For example, in the current economy, it may make more sense to enter a technical college than to go to law school.


Failure to graduate is the single most important predictor of whether a student will default on loans, which stands to reason since the unemployment rate is 8% for Americans between the ages of 20 and 24 with four-year college degrees, compared to 21% for those without.

Just as important is finishing on time. Investors in bonds backed by student loans hate to see perpetual academics in their portfolio, chronically changing majors or stopping and starting school, adding years of tuition to their debt load.

When you see a guy in a loan made in 2005 that is still in school, you throw that away,” said investor Rubin Bahar, of Eagle Asset Management.


Law school, on the other hand, can end up a sucker’s bet in periods of high unemployment, experts in student loan-backed bonds say.

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