Also notice that unlike our government, US households began cutting back on personal debt in 08. Additionally, many Democrats suggested the way out of the recession was to get people to spend. However, with the current administration’s pushing anti-business policies, people are now saving as much money as possible to weather this period of uncertainty. It’s almost like the President’s actions had the exact opposite effect that he had hoped to change.
I think “cut back” is the wrong verb for student loans. How about “written off”? The face value of student loan debt will naturally be devalued as graduates fail to pay the loans back as they fail to get jobs that allow them to pay. The reckoning of non-dischargeable debt might muddle this for generations.
It’s kind of ironic that many colleges have created “sustainability committees” to deal with environmental issues but few are addressing the unsustainable increase in tuition. Tuition has been increasing at greater than twice the rate of inflation for many years. That is unsustainable, and anything that can’t go on forever won’t. It’s quite likely that many of today’s colleges will no longer exist 10 – 20 years from now. They will have priced themselves out of business.
The WP-bot thought my comment was “too spammy” (and there were no links). So let’s try this one criticism at a time.
I don’t even understand the chart. What is being plotted? It looks like a percentage increase over some 1999 baseline, maybe (debt-base)/base, but why show household debt and student loans with the same “zero” and on the same percentage scale?
Why not tell us what the baselines are? Why are the series labeled “cumulative growth” and not “current”?
What happened in 2002? Did a bunch of people pay off their student loans all at once? And then in 2003 they took out a bunch of loans all at once? And then in 2004 took out another bunch of loans? This seems unlikely. More likely is that the definition of “student loan” has changed from time to time.
The point of the chart seems to be that “Cumulative Student Loan Growth”, whatever that means, has reached 500% relative to some baseline. So what? What it doesn’t tell us is whether that’s a big number relative to household debt. Just looking at the jaggies in the student loan line suggests that the relative numbers are quite small, which might explain the sudden jumps.
Sorry to post this way, but when those questions were all in one post the spambot snapped.
bbbeard, I think (not certain) that the numbers are associated with this publication. I don’t know if it will help, and it does suggest the above chart is misleading, as credit card debt still outpaces student loan debt if I read page 4 correctly.
I’m curious what caused the drop in credit card debt between 2008 and 2009. I thought it might be the bankruptcy laws regarding credit cards that changed, but those changed in 2005. Still, I note a tendency for consumers to cut debt at a time when the government was supposedly getting us to spend money we didn’t have stimulating the economy.
Rand, your spam filter is nuts. I typed a one paragraph response and it said it was spammy. It then threw away what I typed so I have to type it again. I guess it’s seeing mention of debt and thinks that’s spam.
Credit card debt is likely going down for two reasons. One, a lot of people are actively reducing their debt by reducing consumption and paying down their balances. This is good. The other reason is that a lot of people have escaped their debt through bankrupsy. Not so good.
Student loan debt can’t be escaped by bankrupsy. It’s increasing in part because of increases in college costs and also because a lot of kids are staying in school longer because they can’t get jobs.
Since the chart design was so crappy, I was a little hesitant to criticize it, in case Rand had thrown it together. Sorry to suspect you, RS. I knew you were better than that, really.
Following the link at the Atlantic led to the source data at the Fed, though you have to click on “Household D*bt and Cr*dit” and scroll through a few charts (I can’t find a permalink for the right chart “Total D*bt Balance and Its Composition”). That chart is a lot less scary since its clear that student l*an d*bt is still a small percentage of the total (5%). You can download a spreadsheet with the numbers used to generate the graph. One reason the student l*an d*bt is so jaggy is that most of the quarterly shifts are in the last decimal place that the Fed tracks. For example the student l*an data start at 0.09 and drop to 0.08 the very next quarter (an 11.1% drop!!!). The number reaches 0.10 by the fourth quarter of 2000, where it stays for awhile and then jumps (20 percent!!!) to 0.12 in the third quarter of 2001.
I still haven’t found a reason for the sharp drop in 2002 (from 0.12 to 0.07) or the sharp jumps in 2003 (from 0.08 to 0.14) and 2004 (from 0.15 to 0.22). It makes me suspect the data quality, though.
The scary thing about the Fed chart, though, is the units. All the dollar amounts are in trillions. So student l*an ind*btedness has jumped from 90 billion in 1999 to 550 billion in 2011. On a per-household basis it’s not that large (roughly $5500 per), though obviously the d*bt is concentrated in households with recent college graduates. OTOH, the interest rate is artificially low, whence the popularity of this form of ind*btedness.
The category on the Fed chart which has seen the largest percentage growth since 1999 is home equity l*ans. Given the recent bust in the housing market, as people who were not credit-worthy blew town, one does have to wonder what makes college students worth the risk…..
Okay, I had to puts stars in the words the spam filter was catching in order to post that last message….
Make that “f***ing spam filter”….
one does have to wonder what makes college students worth the risk…..
Two things to remember here. First, college l*ans are much harder to get out of so default risk is currently lower than for other l*ans of that amount. Second, Uncle Sugar pays in a number of generous circumstances, including if the lendee defaults anyway.
I paid off my student loans, but the bachelor’s degree still isn’t getting any ROI.
The dip in 2002 before the rocketing up reflects the clearing out of non-performing loans before the privatization of Sallie Mae in 2004 (it’s listed on the NYSE) and the resulting aggressive marketing of loans by them often in conjunction with For-Profit Colleges.
Too bad there isn’t a way to short student loans.
Also notice that unlike our government, US households began cutting back on personal debt in 08. Additionally, many Democrats suggested the way out of the recession was to get people to spend. However, with the current administration’s pushing anti-business policies, people are now saving as much money as possible to weather this period of uncertainty. It’s almost like the President’s actions had the exact opposite effect that he had hoped to change.
I think “cut back” is the wrong verb for student loans. How about “written off”? The face value of student loan debt will naturally be devalued as graduates fail to pay the loans back as they fail to get jobs that allow them to pay. The reckoning of non-dischargeable debt might muddle this for generations.
It’s kind of ironic that many colleges have created “sustainability committees” to deal with environmental issues but few are addressing the unsustainable increase in tuition. Tuition has been increasing at greater than twice the rate of inflation for many years. That is unsustainable, and anything that can’t go on forever won’t. It’s quite likely that many of today’s colleges will no longer exist 10 – 20 years from now. They will have priced themselves out of business.
The WP-bot thought my comment was “too spammy” (and there were no links). So let’s try this one criticism at a time.
I don’t even understand the chart. What is being plotted? It looks like a percentage increase over some 1999 baseline, maybe (debt-base)/base, but why show household debt and student loans with the same “zero” and on the same percentage scale?
Why not tell us what the baselines are? Why are the series labeled “cumulative growth” and not “current”?
What happened in 2002? Did a bunch of people pay off their student loans all at once? And then in 2003 they took out a bunch of loans all at once? And then in 2004 took out another bunch of loans? This seems unlikely. More likely is that the definition of “student loan” has changed from time to time.
The point of the chart seems to be that “Cumulative Student Loan Growth”, whatever that means, has reached 500% relative to some baseline. So what? What it doesn’t tell us is whether that’s a big number relative to household debt. Just looking at the jaggies in the student loan line suggests that the relative numbers are quite small, which might explain the sudden jumps.
Sorry to post this way, but when those questions were all in one post the spambot snapped.
bbbeard, I think (not certain) that the numbers are associated with this publication. I don’t know if it will help, and it does suggest the above chart is misleading, as credit card debt still outpaces student loan debt if I read page 4 correctly.
I’m curious what caused the drop in credit card debt between 2008 and 2009. I thought it might be the bankruptcy laws regarding credit cards that changed, but those changed in 2005. Still, I note a tendency for consumers to cut debt at a time when the government was supposedly
getting us to spend money we didn’t havestimulating the economy.Rand, your spam filter is nuts. I typed a one paragraph response and it said it was spammy. It then threw away what I typed so I have to type it again. I guess it’s seeing mention of debt and thinks that’s spam.
Credit card debt is likely going down for two reasons. One, a lot of people are actively reducing their debt by reducing consumption and paying down their balances. This is good. The other reason is that a lot of people have escaped their debt through bankrupsy. Not so good.
Student loan debt can’t be escaped by bankrupsy. It’s increasing in part because of increases in college costs and also because a lot of kids are staying in school longer because they can’t get jobs.
Actually, I found the original chart at http://www.theatlantic.com.
Since the chart design was so crappy, I was a little hesitant to criticize it, in case Rand had thrown it together. Sorry to suspect you, RS. I knew you were better than that, really.
Following the link at the Atlantic led to the source data at the Fed, though you have to click on “Household D*bt and Cr*dit” and scroll through a few charts (I can’t find a permalink for the right chart “Total D*bt Balance and Its Composition”). That chart is a lot less scary since its clear that student l*an d*bt is still a small percentage of the total (5%). You can download a spreadsheet with the numbers used to generate the graph. One reason the student l*an d*bt is so jaggy is that most of the quarterly shifts are in the last decimal place that the Fed tracks. For example the student l*an data start at 0.09 and drop to 0.08 the very next quarter (an 11.1% drop!!!). The number reaches 0.10 by the fourth quarter of 2000, where it stays for awhile and then jumps (20 percent!!!) to 0.12 in the third quarter of 2001.
I still haven’t found a reason for the sharp drop in 2002 (from 0.12 to 0.07) or the sharp jumps in 2003 (from 0.08 to 0.14) and 2004 (from 0.15 to 0.22). It makes me suspect the data quality, though.
The scary thing about the Fed chart, though, is the units. All the dollar amounts are in trillions. So student l*an ind*btedness has jumped from 90 billion in 1999 to 550 billion in 2011. On a per-household basis it’s not that large (roughly $5500 per), though obviously the d*bt is concentrated in households with recent college graduates. OTOH, the interest rate is artificially low, whence the popularity of this form of ind*btedness.
The category on the Fed chart which has seen the largest percentage growth since 1999 is home equity l*ans. Given the recent bust in the housing market, as people who were not credit-worthy blew town, one does have to wonder what makes college students worth the risk…..
Okay, I had to puts stars in the words the spam filter was catching in order to post that last message….
Make that “f***ing spam filter”….
one does have to wonder what makes college students worth the risk…..
Two things to remember here. First, college l*ans are much harder to get out of so default risk is currently lower than for other l*ans of that amount. Second, Uncle Sugar pays in a number of generous circumstances, including if the lendee defaults anyway.
I paid off my student loans, but the bachelor’s degree still isn’t getting any ROI.
The dip in 2002 before the rocketing up reflects the clearing out of non-performing loans before the privatization of Sallie Mae in 2004 (it’s listed on the NYSE) and the resulting aggressive marketing of loans by them often in conjunction with For-Profit Colleges.