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The $1.3 Trillion Student Debt Bubble

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Student debt makes up 10% of the total debt

Personal debt levels have begun to show warning signs in the United States (IVV) (VOO). According to the Federal Reserve Bank of New York’s quarterly report on household debt and credit for 4Q15, student loans made up 10% of the total $12.1 trillion in total consumer debt in the United States (IWD) (IWF) (IJH). That’s been rising over the years, as you can see in the graph below.

consumer debt composition

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The $1.3 trillion student debt bubble

The share of student loans in aggregate consumer loans has risen quite rapidly. Statistics from the Federal Reserve Bank of New York suggest that the number of student loan borrowers has doubled over the past ten years. It has gone from 23 million to 43 million.

From 4.2% in 1Q16 to 7.1% in 1Q11 to 10.3% in 1Q16, the share of student loans in aggregate consumer debt in the United States has been rising rapidly. Loans have ballooned from $240 billion in early 2003 to about $1.3 trillion currently.

This rise in the outstanding balance of student debt has been driven by two long-running trends:

  1. an increase in the number of borrowers
  2. a rise in the average debt that each student accumulates

A 50% rise over five years

Aggregate student debt has risen more than 50% over the past five years. In that same period, housing debt, or mortgages, declined 2%. Auto loans have increased about 52%, credit card loans have risen 2%, and revolving debt has declined 24%.

Interestingly, over a ten-year period, only student loans have recorded a positive rise in aggregate loan amounts at 15%. All other components of consumer debt have declined in value over a ten-year period.

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