USA Today has an interesting article today by Dennis Cauchon. The article claimed that student loan debt had not only exceed aggregate credit card debt but that it also exceeded $1 trillion. He indicated it might be in the “bubble zone,” by comparing it to the rise in mortgages during the housing bubble. Of course, as the articles goes on to explain, lenders nor taxpayers will have to worry about student debt directly. Student debt is not a debt people can discharge easily, even after bankruptcy. Cauchon does note that a large amount of society saddled with student debt would reduce spending, and consumer demand, which would lead to a reduction in economic growth. This is a valid point if student debt had hit a critical point, which Cauchon seems to indicate was the $1 trillion mark.
However, $1 trillion did sound oddly high, as I remember reading in 2009 that student debt was closer to a $400 billion number. It would be odd for student debt to have skyrocketed to over $1 trillion during economically uncertain times. Also, considering that in 2009 a WSJ article made a big deal about student debt rising by 25% or $75 billion, I wanted to check his numbers in the evening. (After my “little” MBA corp fin examination).
Alas, Felix Salmon, a finance blogger for Reuters, also thought this was weird and decided to pull the data from the New York Fed. He beat me to the punch. Salmon went directly to the N.Y. Fed’s website. It seems that Cauchon’s article had a cite to the N.Y. Fed that returned a “404 error” (page not found error), which was ironic because his $1 trillion claim seems to be a “404 error” as well.
Salmon, runs the data in excel and comes up with a simple graph that doesn’t come near $1 trillion. In fact, student debt is sitting at $550 billion AND it is also below aggregate-credit card debt. Did Cauchon make an arithmetic error? Or, was he trying to (1) sell a story, or (2) cause worry and awareness in the public eye. Hard to know, but as of this evening, the article remains unchanged (and uncorrected) on his site. I suppose he is sticking to his arithmetic error – or figuratively, sticking to his “math-guns.”
Cauchon’s article though, really attacks this “student bubble” based on this $1 trillion number. I’d like to see how his article and analysis would change once he corrects his numbers. Unless, that is, he had a preconceived notion on this issue. If so, rather than be critical on his math, perhaps we can accept that he was predisposed to accept such an outrageously high number. This idea is possible because he would have written the article with a conclusion already settled, instead of analyzing the topic against the numbers first.
Either way, for now it seems there is no student debt bubble. That is not to say, that there are not some legitimate concerns with both the rising costs of higher-education and the steady increase in outstanding student loans. But we are far from the $1 trillion number that Cauchon seemed to stress as a critical milestone.
Here is Salmon’s Excel Chart: Chart’s are always so illustrative!
*Update: made some sentence structure changes. However, the material is the same.