Quick Link: Don’t Rely on the New York Fed’s Numbers

The Wall Street Journal’s Justin Lahart created a chart from the Federal Reserve Bank of New York showing the cumulative percent change in consumer debt by type since Q3 2008.

I’ve seen the NY Fed’s numbers before. Here’s the site. The WSJ took the data from the “Total Debt Balance and Composition” graph to create the chart. Reading the report, people will note that the amount of student loan debt outstanding is a lot lower than what we hear regularly from other outlets, particularly the popular Student Debt Clock operated by finaid.org. The WSJ says it’s $550 billion while finaid says it’s $934 billion. Which should we believe?

I don’t know the difference in the methodologies, but I find the NY Fed low-balls other amounts of debt, which weakens its credibility. For example, it says that as of Q2 2011, there’s $11.4 trillion of outstanding household debt. Meanwhile, the main Fed’s Flow of Funds Accounts release (Z.1) calculates $13.4 trillion household debt in Q1 2011. While I believe the WSJ calculated the percent changes accurately and in good faith, and that the NY Fed is consistent in its methodology, I don’t trust the latter’s numbers. Does that mean finaid’s debt clock is more accurate? Of course not; they could both be off. However, the main Fed branch generates the G.19 Release on consumer debt, not the NY Fed, so I’m going to trust its numbers before one of the branch’s, even if it doesn’t tell us what’s student debt and what isn’t. That said, I wish finaid cited sources and that the government would be more informative.

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One Response

  1. Study FRBNY’s sources on their web site. They buy data from one credit bureau. The credit bureau depends blindly on each creditor’s definitions of repayment, delinquency, deferment, default, etc.

    As a result, FRBNY’s data omits a lot of the outstanding federal student loan (DL and FFEL) debt. The regs only requre FFEL holders to report to one of the national credit bureaus — not all of them. While some voluntarily report to all of them, others only report to one. As FRBNY buys data from one national credit bureau, a lot of education loans are missed. A side effect is that FRBNY’s education loan universe is skewed toward private label (non-federally-guaranteed) education loans. FRBNY also notes a significant change during the past few years on whether its source credit bureau reported loans in deferment at all.

    Trends in FRBNY’s data more likely relate to idiosyncrasies in loan holder and credit bureau reporting than actual, “secular” economic trends.

    More specifically, as Direct Loan reports to all the national credit bureaus, the ongoing transition to full-scale direct lending (all new loans since 6/30/10 are DLs) will greatly exaggerate the “increase” that WSJ is noticing.

    Finally, it is odd that WSJ chose Q3 of 2008 for its trending. That was the first quarter of high levels of emergency loan sales from FFEL lenders to DoEd. Just as with Direct Loans, DoEd reports servicing data on the purchased FFELs to all of the national credit bureaus, not just one. The combination of the new data channel (DoEd-serviced FFELs) and the legislative transition (to full-scale direct lending) are “black swan events” that WSJ has either ignored or is unaware of.

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