NY Fed: Young Student Debtors No Longer Taking on Other Debt

Meta Brown and Sydnee Caldwell, “Young Student Loan Borrowers Retreat From Housing and Auto Markets,” Federal Reserve Bank of New York

At last, a New York Fed research paper that doesn’t promote perpetual debt-financed education. In seriousness, this article is quite well done, so I don’t have too much to say about it. The only line I object to is the beginning when it states:

Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012.

“Popular” isn’t the word I’d use to characterize student loan debt.

The paper principally finds that young people without student loans are buying houses and cars—and they have better credit scores—than those with student loan debt, a stunning (if you didn’t stop to think about it) reversal from several years ago. The authors state two possible reasons: (1) Young debtors expect lower future incomes, which hampers their spending, and (2) Lenders will no longer loan money to people with high debt-to-income ratios. You can guess which one I think is more prevalent.

The only other observation I’ll note is that the average 25-year-old has less overall debt than several years ago, but more if it is student loan debt. This is a big deal because if the educations they purchased (if they completed them) increased their productivity, then there isn’t a lot to worry about. If we correct a few imbalances in the economy, we will expect them to be good drones.

On the other hand, if the debt did very little for their productivity, then it’s no worse than borrowing nondischargeable money to buy a large amount of lottery tickets.


In other news, the hawk-eyed TaxProf refers us to a New York Times blog post informing us that President Obama’s proposed budget would remove the tax obligation accompanying canceled loans on IBR. So what’s the call debtors? A tax break potentially worth hundreds of thousands of dollars, or a cut to your Social Security checks that will amount to 12 percent in 40 years thanks to the wonders of chained CPI?


  1. Could the decline and aging membership of the Legal Profession.(in part) be due to younger Lawyers inability to obtain credit and/or capital . My observation is many of the older solo practitioners are over 50 and from era when tuition was more reasonably priced. What effect has lack of money and credit to new lawyers had on the Plaintiffs bar. Is it possible the loss of credit and capital and the inability (of younger lawyers) to obtain money to cover court costs such as (expert witness fees) resulted in reduction of the number and the dollar amount received by plaintiff’s. Would fewer and smaller plaintiff’s awards result in reduction of the Defense bar and contribute to the overall decline of the number of lawyers needed.

    Could you determine what percentage of the decline is the result of loss of loss capital and credit (to new lawyers) and what percentage of the decline could be attributed to other causes such as technological advances and outsourcing. Is it possible that legal educational system has cannibalized its young and contributed to the decline of the profession.

    Maybe law schools should enter the legal business and use some the student loan money to create an increased demand for legal services. The law schools have access to easy credit and capital with limited risk. Law Schools can discharge debts in Bankruptcy.

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