by Wolf Richter, Wolf Street:
Paying the University-Corporate-Financial Complex and the big bifurcation.
Student-loan balances jumped by 5.1% in the third quarter compared to Q3 last year, or by $80 billion, to a new horrifying record of $1.64 trillion, having skyrocketed by 120% in the 10 years since Q3 2009, according to Federal Reserve data released Thursday afternoon. Over the same 10-year period, when student loans soared 120%, the Consumer Price Index has increased 19%. Student loan balances are 7.6% the size of GDP, up from 5.1% in 2009
But the explosion of student debt is not because there is an explosion in enrollment in higher education. On the contrary: According to the latest data from the National Center for Education Statistics, enrollment fell by 7% between 2010 and 2017. But those fewer and fewer students are borrowing more and more to pay for tuition, transportation, electronic devices, and other things that the University-Corporate-Financial Complex gets rich off.
This includes “student housing,” which has become a hugely hyped asset class with its own student-housing Commercial Mortgage Backed Securities where delinquency rates are now spiking.
Everyone is trying to make money off the proceeds from these government-guaranteed loans. The students are just the money-conduit from the taxpayer to:
A whole sub-economy has sprung up to leech this money out of the educational process, and taxpayers, via student loans, are funding part of it – but not all of it. Students who work fund part of it. Parents fund part of it. Savings fund part of it. It’s a huge business. But the glaring part is the ballooning student debt.
Total auto loans and leases outstanding for new and used vehicles in the third quarter rose 4.3% from a year ago, by $50 billion, to a record of $1.19 trillion:
Over the past 10 years, since Q3 2009, auto loan balances have surged 62%, compared to the increase in the Consumer Price Index of 19% and population growth of 8%. So, on an inflation-adjusted per-capita basis, the burden of these loans has increased. In terms of the size of the overall economy, auto-loan balances have ticked up from 5.1% of GDP in 2009 to 5.6% of GDP currently.
This 4.3% rise in auto loan balances outstanding has occurred despite new-vehicle unit sales that declined by 1.6% so far this year and despite lackluster used-vehicle unit sales. It’s the result of numerous factors, including:
Outstanding balances on credit cards and other revolving credit, such as personal lines of credit – but not credit secured by housing, such as HELOCs – rose 3.6% in Q3 compared to Q3 last year, to $1.04 trillion (not seasonally adjusted). This was a record for a third quarter, and was the second highest quarter ever, below only the borrow-till-you-drop holiday frenzy of Q4 last year.
But in overall terms, as a national average, consumers have been fairly prudent by American standards, compared to the era before the Great Recession, to the consternation of lenders that milks enormous profits from credit-card debt where interest rates can exceed 20%.
Over the past 11 years since Q3 2008, just before it all fell apart, credit card balances edged up only 5.8%. Over these 11 years, the Consumer Price Index rose 22% and the population grew about 9%. So adjusted for inflation and per-capita, consumers have shed credit card debt.
In terms of the size of the economy: In Q3 2008, revolving credit amounted to 6.8% of GDP. Today, it’s down to 4.8% of GDP. So, in terms of credit cards, consumers overall as a national average have become more prudent.
Loading...