Wednesday, May 9, 2012

Take Out Student Loans and There is No Rebound in Consumer Credit Since the Great Recession Ended

James Bianco at the Big Picture:
...As shown above, student loans have gone parabolic thanks to a 2009 government mandated cut in student loan interest rates that expire July 1st.

How important are student loans to overall consumer credit growth?  The next chart below shows total consumer credit in the top panel (the series that gets reported and analyzed), student loans in the middle panel (same series as in the chart above) and consumer credit less student loans in the bottom panel.
Take out government-owned student loans and there has been virtually no rebound in consumer credit since the Great Recession ended. Restated, the consumer has not been borrowing since the Great Recession has ended.  Rather, students took advantage of below-market rates on loans provided by the government starting in 2009.

What happens to these student loans next?  From the story above:

The rate on student loans is set to double on July 1 without action by Congress. The rate increase would affect about 7.4 million students, according to the White House, adding an average of $1,000 a year in payments on college loans.

President Barack Obama last week sought to keep pressure on Congress to freeze the interest rate on federally subsidized student loans, saying a higher education can’t be an unaffordable luxury for middle-income Americans.

Some economists were concerned the jump in educational lending reflected a poor job market.
“Most of the improvement in credit is a function of the explosion student loan debt,” said Neil Dutta, an economist at Bank of America Corp. in New York. “The reason student loan debt is exploding? Because the youth population is having difficulty finding work. Hardly a good reason for credit extension.”


HT: Real Time Economics