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Wednesday, April 13, 2016

US College Age Population & Student Debt...Another Look

Zero Hedge ran the latest in the story of US student loan debt (and potential forgiveness).  ZH story HERE.  I just thought I'd offer a slightly different perspective or viewpoint on the topic. 


I believe most of what ails us is being driven by demographic changes.  Student loans, lower interest rates, and student debt is a prime example.


First, note that as the Fed has driven rates lower, universities and students have responded to the cheaper credit by taking on greater debt (chart below).

Next, notice the US Census estimates for the population growth among the US college age population (18-24yr/olds).  The chart below is the population estimates from the Census prior to and after the 2010 Census.  A steadily growing population among the college age population over previous decades came to a halt...and the Census sees no growth among this population for at least the next 20 years.  With interest rates on the rise (lol) and a flat to declining population of students...perhaps the situation is far worse than acknowledged or understood?

The chart below highlights the change in US college age population (by 5 year increments).  The revised Census estimates are shockingly lower juxtaposed against an oversupply of colleges and universities coupled with an inability / unwillingness to control higher education costs.  Something has got to and will give.
The chart below shows that the Federal government has nearly entirely taken over the student loan machine as rates have fallen and issuance accelerated.  Private sources of student loan debt have been thoroughly replaced the Fed's as uncollateralized loans with little premium make little to no sense to anyone but politicians and the government.

And just in case you're unsure of how significant the demographic challenges we are facing are, review the below charts showing the near stall of the 0-5yr/old population vs. the soaring 75+yr/old population.  These are not %'s but total populations.  Without the population growth, there will not be adequate economic growth to pay down or even service the huge debt loads. 

And the last chart again shows the 0-5yr/old global population vs. the 75+yr/old global population.  This is not simply a student loan or US debt problem...not even an advanced nation issue.  This is global and student loan debt is simply another symptom of the much deeper issue we seem unwilling to face.

1 comment:

  1. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) altered the treatment of student loans in bankruptcy, essentially eliminating the ability to discharge private or federal student loans without showing undue hardship.

    The Health Care and Education Reconciliation Act of 2010 enabled 100% direct lending effective in 2010.

    https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=4cwX

    This image shows household debt. Auto and student loans above their 2007 levels, but mortgage debt and revolving credit are not. I am curious if there are any economic papers showing the flow through effect of increased student loans on GDP, monetary aggregate, and monetary velocity. Student loan debt increases flow through to universities, professors, housing/rental units, textbook manufacturers, food services, ect. I wonder what the monetary multiplier effect is for student loans since 2010. This seems like a regulated way to ensure positive household credit creation, without the risk of NPLs, with hidden default rates through PAYE/PSLF/IBR/deferments.

    I'd appreciate any links/analysis on the flow through effect of student loan growth since 2008.

    Thanks!

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