A reader who is a professor does not necessarily believe that the dramatic falloff in applications at the troubled, PC-harried University of Missouri is because people don’t want to deal with the Social Justice Warriors and the administration they have wrapped around their finger (as I claimed yesterday). He writes that it could be a sign of a broader collapse:

Though I agree that there would be some karmic satisfaction in seeing the university pay for its spineless capitulation to agitators, I’m wary of making this an overly simple story. The world of academia has been sitting on an enormous bubble for longer than housing during the last business cycle, and I think that incidents like this are an early indicator that the bubble is about to be popped. There are already plenty of reports of financial trouble in other states (Wisconsin, Louisiana, Illinois), and while the state governments shoulder a lot of that blame, the point is that five years ago, state cuts weren’t view as the kind of existential threat to the system that they are today. And sure, negative publicity probably hastens that unwinding process along. But the real problem is consumer demand.

This chart by the St Louis Fed shows how debt has turned parabolic since 2010, in a pattern that simply can’t be sustainable for more than another year or two. I’d say that 2016 is roughly equivalent to 2006 in the housing crisis cycle.

Here’s the stall pattern my own university finally admitted in public this month, resulting in a round of budget cuts (at an institution that’s totally immune to this kind of SJW nonsense):

1. Spend heavily on facility development in anticipation of a growing student body, while telling the faculty that this kind of expansion is “the only way” to remain solvent.

2. React with confusion when hopelessly optimistic expansion targets prove to be unattainable due to unprecedented economic headwinds.

3. Lower admissions standards to admit a larger fraction of applicants (including community college transfers) in order to kick the can down the road for another year or two, then feign shock when retention rates fall off a cliff. (My university went from about 81% to 59%, freshman class.)

4. Give up and grab the axe.

Last month our own administration begged the faculty to make personal calls to prospective students (basically, anyone who so much as clicked on our website) to convince them to come. I’ve been teaching ten years, and this is the first time I’ve ever been asked to do unpaid work as a telemarketer, but I gamely acquiesced to the request. One of our top departmental applicants, a guy who should have been in line for multiple scholarships in a good year, said he didn’t think he’d be able to attend without financial assistance. For whatever reason, millennials are incredibly reluctant to go deeply in debt in order to finance education. It’s almost as if the formative years of their youth witnessed some kind of similar cycle.

Keep your eyes on asset-backed security issuance rates for repackaged student loans. The loan market is technical, but it sends off all kinds of advanced warning signals in the form of flagging demand. As of now, I’d say the trend is turning over. And yes, with a 1.2 trillion loan market suddenly facing rising delinquencies and having more trouble marketing fresh debt to a new generation of dupes, this will snowball. As banks can’t find ways to sell debt, they’ll issue less of it, which means fewer applicants, which means that universities will be forced to swallow the depreciation cost of all the improvements they’ve been making under the early rush of new money from the education bubble, for years to come.

Student debt assets were, at last count, making up something like 50% of the US government debt portfolio. They aren’t dischargeable in bankruptcy, so there’s no way to cut the rope. If I know the recklessness of the ABS market like I think I do, you can count on it taking the rest of the economy for a ride, maybe in time to shake up in the election this fall.