Every now and then, I come across a chart that absolutely baffles me.
Today is one of those times.
After chatting with Rodney about the trillion dollar conundrum that is the student-loan market, I pulled up a familiar chart: Sallie Mae (SLM).
If you’re a Boom & Bust subscriber, you many recognize the name. I recommended betting against the lender back in January 2012. Admittedly, that didn’t go as well as I’d thought it would. We later exited the position, recording a loss, even as our conviction in the premise behind the trade had grown stronger. We had that “we’re right, just too early” feeling that doesn’t help anyone pay the bills.
We cut our losses short and it’s a good thing we did. SLM kept trading higher… and higher… and higher. In total, since bottoming out in 2009, Sallie Mae has rocketed 455% higher. It’s just insane!
At the same time, Apollo Group (APOL), which runs the for-profit University of Phoenix, has been tanking. It’s down 80% since 2009.
And honestly, this makes very little sense to me. Think about it…
Sallie Mae is either on the hook for student loans (“holding the bag” of worthless assets, as default rates steadily increase), or at risk of losing the vast majority of its business should the government decide to take on more of the market (which it did in 2012 as it wound down the Federal Family Education Loan Program, Sallie Mae’s cash cow).
Meanwhile, Apollo Group doesn’t lend a cent to students. Instead, it simply accepts students’ tuition payments and leaves the worry of repayment to others… like the students, the government and the likes of Sallie Mae.
Plus, as the job market turned soft (or dead), people flooded back to school. It kept them busy and out of the (parent’s) house. It gave them better job prospects (in theory). And, well, they got access to some cash, since it’s possible to get more in student loans than you actually need to pay tuition.
I don’t yet have a good explanation for WHY Apollo has sunk while Sallie Mae rides high. I’d think it should be the other way around.
That said, I do have some theories. But I’d like to hear your thoughts on this situation. Email me at email@example.com.