Student Loan Bubble & Its Relation to College Football

With the record setting TV contracts being negotiated, one would think college football is a healthy sport. That there's no threat to seemingly solvent universities. But the casual observer does not understand a key mechanism driving the sport's growth: student loans. Take a look at this graph:

This data is from the New York Federal Reserve. For those who don't know, the Federal Reserve is actually a private institution (bank) with affiliate branches all around the country (hence Federal Reserve System). The NY Fed, and all Feds, err on the side of caution, mainly because politicians dislike bad economic news. So take the graph above with a grain of salt; the situation is likely much much worse.

So what does the graph tell us?

Well, ask yourself this: when did college football become HUGE? I know it has always been popular, but I mean dedicated networks, record TV contracts, etc huge? Around 2007, right? That's when the Big 10 Network launched. In 2008, the SEC signed a record TV contract. A lot of "casual fans" popped up around this time period, too. Why? Well, look at the graph–more student loans. More student loans = more students (previously unaffiliated with a college) enrolled and affiliated with a University. It just makes logical sense that the sport's popularity would skyrocket if more kids are going to college. Right?

Well, since around that same time period (2005-present), I have felt the sport has been in decline. I wrote about this topic in the past. My feeling back then was that there had been a rise in attendance and audience, but the quality of the product was declining. I thought this was because only 10% or so of the Universities have a chance to win the National Title, so entire fanbases were becoming disillusioned. There is definitely merit to that, and I still believe that's part of the problem. But it is clear to me now that the problem goes much deeper. This student loan bubble is a threat to college football. Let's think about this:

• College tuition is currently too expensive, only made affordable by government subsidy (loan, grant, or scholarship) or private loans. Ironically, guaranteed government loans are the driving force in Universities raising tuition.
• Thus, most students would not attend college (or tuition/enrollment would drop significantly) without assistance.
• Now imagine the student loan bubble bursts.
• Enrollment plummets, tuition decreases, professor salaries decrease.
• Government (i.e. the U.S. Treasury via the Federal Reserve) steps in to backstop the bleeding via printing currency.
• Inflationary forces soak up discretionary spending (i.e. savings accounts, wages, etc).
• Economy goes into a deeper depression.

When this bubble bursts, there will be fewer students enrolled at Oregon State, and their parents will be poorer. Oregon State will have to lower tuition to attract students. Top professors will follow the money elsewhere. College football will decline, because (a) less discretionary spending (b) less interest due to decreased enrollment, and (c) fewer networks looking to broadcast the sport (the 22mil Pac-12 deal will look like fraud), and (d) a depression–aka people spending on necessities rather than cable TV.

For the optimists, take solace in knowing a slight majority of this debt is in "for profit" college loans. I believe I read the breakdown was something like 60%/40%, and the for-profits have a 50% higher default rate. Still, not good. Coupled with the current economic climate, I believe the student loan bubble could crash the sport over the next five years (due to enrollment cycles, it will take ~3-4 years after the bubble bursts to see the impact at that level). Personally, I think it needs a reboot.