Student loans are the gift that keeps on taking. Not only do they burden graduates with debt loads that in many instances they have trouble repaying, or are unable to, but they have propelled the price of college faster and higher than virtually any other price in the US economy the last 48 years. From Wolf Richter at wolfstreet.com:
“One of the biggest threats to our economic outlook.”
Endless discussions of how important inflation is to the US economy, and how there hasn’t been enough of it in recent years, and how more inflation would be a godsend, has become the standard. The threat of lethal deflation is being brandished to rationalize all kinds of absurd monetary policies. And we know why: inflation is good only for debtors, in an over-indebted country.
But that’s not true either. Because a lot of debtors, particularly those who funded their education with loans, are being strangled by … inflation.
“College Tuition and Fees constitute one of the biggest threats to our economic outlook,” writes Jill Mislinski at Advisor Perspectives, which runs an excellent series of analyses and updates on the topic.
The chart below (by Advisor Perspectives) shows the Consumer Price Index sub-component for college tuition and fees (red line) going back to 1978. It also shows the price increases of autos (blue line) and medical care (purple line), “both of which pale in comparison”:
Mislinski at Advisor Perspectives:
During the decade of the 1990s, when real out-of-pocket funding declined 25%, tuition and fees rose 92%, which sounds substantial … until you compare it to the 1272% across the complete data series. For early boomers (a decade before the time frame in the chart above) paying for college was sort of like buying a car. But in recent decades, it has become more like buying a house, for which the strategy of a minimum down payment is commonplace for first-time buyers.
The annual stair-step rise in college costs seen above is probably the most dramatic visualization of inflation data we routinely produce.
In a separate analysis, Advisor Perspectives today reported on the outstanding student loan balances for the first quarter, based on federal loans to students from the Fed’s Z.1 Financial Accounts of the United States. At $986 billion, the outstanding student loan balances have soared 853% since Q4 2007, when the Great Recession began — because there was never any recession for student loans:
But it’s even worse: This chart only shows data for federal loans to students. It does not include non-federal loans to students. No hard data exists for this. The New York Fed, which tracks household debt and credit via surveys, estimates that, based on its survey results, total student loans from federal and private lenders has reached a record $1.26 trillion. And it considers 11% of the outstanding balance in default!
Which begs the questions, as Advisor Perspectives puts it, “What line item is the largest asset in Uncle Sam’s financial accounts?”
Student Loans. They’re a liability for students and former students, often for decades to come. They crimp their spending behavior, delay home purchases, and trigger credit problems. Even hopelessly indebted student-loan debtors cannot get their student loans discharged in bankruptcy. But these loans are an asset to the other side.
To continue reading: These Debt Slaves are the Government’s Largest Asset Class, and it will Haunt the Economy for Years