Sandy Baum and Michael McPherson of the Chronicle of Higher Education’s blog, Innovations, pulled hair over the relevancy of comparing the $900 billion of student debt with the $800 billion of credit card debt, claiming the comparison is unhelpful. Given that both’re types of consumer debt that many Americans have (difficult) experience with and that the government doesn’t separate student debt from other nonrevolving credit, I think they’re being glib. Perhaps a little contextualization will allow us all to save some face.
Just last week those folks everyone hates at the Federal Reserve released an update on outstanding consumer credit, its G.19 Report. If you notice, starting in 2009, revolving credit drops substantially, almost 10%. Nonrevolving credit drops slightly, but note how the Fed defines it, “[A]utomobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations. These loans may be secured or unsecured.” Auto loans can be crammed down in bankruptcy, i.e. renegotiated, so I suspect that’s what accounts for the 2009 drop in nonrevolving credit. Meanwhile, we know student loans are nearly bankruptcy-proof, which must be fueling nonrevolving credit growth. As for the continuing drop in revolving debt: good job ditching that credit card debt America!
The Fed annualizes the preliminary February 2011 data to 7.7%, so this year is seeing a lot of nonrevolving credit growth that will likely add another $100 billion to the total. Let’s hope it’s in auto sales and not non-dischargeable student loans.
Note that credit card debt comprises more than half of all nonrevolving credit and more than one third of all consumer debt. Not that that’s a meaningful comparison to anything—just sayin’ though.