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[Syriel]

Americans have now borrowed more money than they did at the height of the credit bubble in 2008, just as the global financial system began to fall apart.

The Federal Reserve Bank of New York said Wednesday that total household debt had reached a new peak — $12.7 trillion — in the first three months of the year, another milestone in the long, slow recovery of the United States economy.

The growing debt level shows that many of the millions of Americans who struggled during the recession have sufficiently repaired their credit to qualify for loans. Italso speaks to growing optimism among banks and other lenders about economic growth.

Debt can fuel consumer spending, which accounts for nearly 70 percent of all economic activity in the United States.

“This is not a marker we should be superexcited to get back to,” said Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth, a liberal think tank. “In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”

Student loan debt, driven by soaring tuition costs, now makes up 11 percent of total household debt, up from 5 percent in the third quarter of 2008.

By comparison, mortgage debt is 68 percent of total debt, down from 73 percent during the same time period.

Student borrowers today owe $1.3 trillion, more than double the $611 billion nearly nine years ago. About one in 10 student borrowers is behind on the loans — the highest delinquency rate of any type of loan tracked by the New York Fed’s quarterly household debt report.

“It is not an existential threat to households and the economy,” Mr. Zandi said. “It is an area where there is some stress.”

More broadly, the economic picture looks much less precarious than it did in late 2008. The amount of monthly income that Americans have to spend paying down their debt is smaller, and employment is flush.

Having seen the devastation that the mortgage collapse inflicted on the economy, Ms. Swonk said she was surprised it took so little time for borrowing to return to its peak.

“Given how hard our credit machine was hit, you would expect it to take even longer to restore,” she said.

tl;dr - Debt is good if managed well. It can drive the economy. Problems occur when people outspend their means. Biggest issue is with people spending six figures on college degrees.

Source:
https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html?_r=0

 

[Fenderputty]

“In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”

That statement seems silly since the article spends most of its time talking about student debt and mortgage debt. Nether of those things are items ANYONE can afford without a loan. 2008 happened because the housing debt was bad debt that should have never been offered. Not only are we lower as a percentage at this point, but how much of the currrent housing debt is bad comparatively?

 

[M-PG71C]

I do have long-term fears over student loan debt. Tuition is not getting cheaper and borrowing costs are going to go up as the years go on.

 

[Angelus Errare]

I do have long-term fears over student loan debt. Tuition is not getting cheaper and borrowing costs are going to go up as the years go on.

Look on the bright side, when the bubble bursts it will be one for the books.

 

[Laevateinn]

Half of that is my student loan.

 

[darkstar0155]

That statement seems silly since the article spends most of its time talking about student debt and mortgage debt. Nether of those things are items ANYONE can afford without a loan. 2008 happened because the housing debt was bad debt that should have never been offered. Not only are we lower as a percentage at this point, but how much of the currrent housing debt is bad comparatively?

You are on the money. The housing bubble burst not because of too much debt, it was because too many people took out mortgages that they couldn't afford due to balloon payment riders, and lenders/brokers not caring if they people could afford the mortgage payment in 5 years, which created tons of foreclosures, which had a cascading affect.

Many many many people who never should have bought a house, were able to get one at like a 300$ monthly payment, and then once the balloon payment riders kicked in 3-4 years later that $300 suddenly became like $700

 

[KingK]

This is going to keep happening as long as wages remain stagnant for the majority of America while standard costs (housing, education, healthcare etc.) continue to rise faster than inflation. It doesn't really take an economics degree to recognize that's unsustainable.

 

[tokkun]

Wouldn't per-capita debt or debt / income ratio be a better measure than total debt? I mean, the population has grown in the last 8 years.

 

[Baron von Loathsome]

Look on the bright side, when the bubble bursts it will be one for the books.

One for the very, very overpriced books.

 

[johnny956]

My wife when she graduates will have about 75k in student debt. It's indeed a huge burden but her degree is in a high income field so not concerned with paying it off. I did community college and online school (3k a semester) for my degree so mine is paid off

 

[Fenderputty]

Wouldn't per-capita debt or debt / income ratio be a better measure than total debt? I mean, the population has grown in the last 8 years.

At the very least these should be mentioned.

The student loan debt bubble is real. Will that burst be 2008 bad though? Student that are in debt for loan aren't net contributors to the economey anyway.

Beyond that, the other thing this article makes me think is that the government should have taken on more debt rather than the public. Loan forgiveness and more federal and state funding to keep public college tuitions down

 

[HariKari]

Stagnant wages can't go on forever while costs rise. Everyone is joking about millenials buying too much avacado toast but they're basically the canary in the coal mine. If home ownership stops being a realistic option for an entire generation, things are fucked.

 

[Foffy]

Can't wait for the house of cards to start falling.

 

[Nyoro SF]

Stagnant wages can't go on forever while costs rise. Everyone is joking about millenials buying too much avacado toast but they're basically the canary in the coal mine. If home ownership stops being a realistic option for an entire generation, things are fucked.

Not when the Chinese can buy all the houses that the millenials can't buy!

 

[Fenderputty]

Not when the Chinese can buy all the houses that the millenials can't buy!

This seems to be a state by state basis?i know California prices are high due to this.

I've been told prices will plateau and drop for at least a year or more. It's always because "these prices aren't sustainable" but that comment seems to ignore why prices are high.

 

[Zoe]

That statement seems silly since the article spends most of its time talking about student debt and mortgage debt. Nether of those things are items ANYONE can afford without a loan. 2008 happened because the housing debt was bad debt that should have never been offered. Not only are we lower as a percentage at this point, but how much of the currrent housing debt is bad comparatively?

This was my first though upon seeing the title. Especially in hot housing markets, the average home loan now is definitely going to be higher than it was almost a decade ago.

 

[Netherscourge]

Gonna get ugly if interest rates keep rising.

Another housing market crash in the works with foreclosures galore.


On the upside: lots of cheap, vacant houses for sale! -in empty neighborhoods.

 

[timetokill]

Easy economy boost: Allow for bankruptcy protection for student loans 5 years after graduation.

MEGA economy boost: Student loan forgiveness.

2008 happened because the housing debt was bad debt that should have never been offered.

Let's be real -- that's exactly what student debt is right now. The only reason they give so much in student loans is because it's all guaranteed by the government and it's also essentially impossible to get rid of. There's literally no risk to give out those loans.

 

[Ron Mexico]

Gonna get ugly if interest rates keep rising.

Another housing market crash in the works with foreclosures galore.


On the upside: lots of cheap, vacant houses for sale! -in empty neighborhoods.

I think there's a correction coming but I don't think you're going to see it in terms of a spike in foreclosures. In response to '08, lenders tightened the belt so tightly that it squeezed out a lot of the B and C tier borrowers (in terms of FICO score). Those that are in mortgages originating post-2008 I would wager will have a notable decline in foreclosure rates.

What I do think will happen is the correction will be driven by a domino effect started by the inevitable rate increases. Rates go up, sellers looking to buy expect their existing home values to go up to compensate for the difference in interest, demand drops off after 1st time buyers can't get up to speed there, demand slips, market has more of a glut and downward pressure comes from there.

Let's be real -- that's exactly what student debt is right now. The only reason they give so much in student loans is because it's all guaranteed by the government and it's also essentially impossible to get rid of. There's literally no risk to give out those loans.

The reason why they're near impossible to get rid of is because they're not tied to any collateral and you would otherwise never see an unsecured loan apprach anything close to where student loan rates are.

Sucks, but reality.

 

[timetokill]

The reason why they're near impossible to get rid of is because they're not tied to any collateral and you would otherwise never see an unsecured loan apprach anything close to where student loan rates are.

Sucks, but reality.

No, because student loans didn't have that problem originally. Congress started freaking out about the mere idea that you'd have kids learn to become doctors and then declare bankruptcy immediately and get out of it, so they originally made it take like 4 years before you could do it, then 7, and now pretty much never.

All of this ignoring that the people doing this were like sub 1% and that bankruptcy isn't something you can just order like on Amazon. Not to mention the penalties that come with bankruptcy. It's the same faux reasoning behind the GOP wanting to drug test people on food stamps or require Voter ID for the "massive" voter fraud that doesn't actually exist.

The reality is that the student loan system right now is a massive scheme to draw money out of millenials' (and beyond) future earnings in order to enrich boomers right now. Tuition rates are spiking because there's no reason not to charge more, students won't get rejected for massive loans because it's free guaranteed money for lenders, and students can't avoid applying for them because you need a degree just to get an interview at Starbucks.

 

[Clockwork]

Easy economy boost: Allow for bankruptcy protection for student loans 5 years after graduation.

MEGA economy boost: Student loan forgiveness.

Why shouldn't you have to pay back money you borrowed regardless of timeframe?

 

[timetokill]

Why shouldn't you have to pay back money you borrowed regardless of timeframe?

So should bankruptcy just like... not exist at all for any debt?

And because these lenders are acting in a predatory manner. As a country we don't think an 18 year old is responsible enough to drink alcohol, but we think they're responsible enough to take out a $40,000 loan? And again at 19, 20, 21?

 

[Aces&Eights]

I've got $243.00 left on my student loans. I took them out when I was 24. I'm now 43.

Spoiler

fuck student loans

 

[Hari Seldon]

It won't cause a collapse as long as they are treating the debt properly and not doing shenanigans like repackaging risky debt as non-risky debt.

 

[Hari Seldon]

Easy economy boost: Allow for bankruptcy protection for student loans 5 years after graduation.

MEGA economy boost: Student loan forgiveness.



Let's be real -- that's exactly what student debt is right now. The only reason they give so much in student loans is because it's all guaranteed by the government and it's also essentially impossible to get rid of. There's literally no risk to give out those loans.

If you did what you are saying, no one except the 1% would get any loans at all lol.

 

[pretty done]

But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.

So true. I'm in debt trying to pay for dental work, which my income obviously doesn't support since I'm not a millionaire.

 

[ElRenoRaven]

Not shocking. People don't learn from the past. Hence we're gonna repeat it again and this time it's gonna be even worse.

 

[Ron Mexico]

No, because student loans didn't have that problem originally. Congress started freaking out about the mere idea that you'd have kids learn to become doctors and then declare bankruptcy immediately and get out of it, so they originally made it take like 4 years before you could do it, then 7, and now pretty much never.

You do know we agree here right? They're afraid of bankruptcy because they have nothing else securing the debt and otherwise you would never see loans as high as they are.

Also, as a former employee of an institution that offered student loans, to say it's guaranteed money is a bit of a misnomer, at least from the standpoint of the lender. With 10% default rates, lenders are going to get squeamish.

Again, I'm being as crystal clear as I can here-- I believe the system is fundamentally flawed. I do. Especially when it concerns your last paragraph. A college degree is priced in the job market as if it were free and costs as if it were a giant leap ahead. That's a fundamental flaw if I ever heard one. What I'm trying to illustrate is the nuts and bolts of the paper. It's great to argue philosophically, but these issues need to be tackled on paper first. And to do so, it's important to understand the fundamentals.

 

[TangoAlphaLima]

So should bankruptcy just like... not exist at all for any debt?

Bankruptcy for most other debts is a bit different. Most large debts are secured transactions. So say a mortgage on a house, or a car loan. The lender can recoup some or all of what it loaned to the borrower merely by taking possession of the real or personal property. The lender forecloses on a house, repossesses a car, etc. The lender then legally owns that property and can sell it to recover losses.

A lender can't do that with student loan debt. There is no way to recoup a loss if the debt is erased through bankruptcy. That's one reason why student loan debt is protected from bankruptcy proceedings in the vast majority of scenarios (the exception being extreme hardship).

 

[timetokill]

If you did what you are saying, no one except the 1% would get any loans at all lol.

Not really. Again, this worked before, the skyrocketing cost of tuition is fairly recent. If there was a lower cap on student loan offerings then tuition would have to drop in response.

Or hey we could just look at, you know, thinking maybe we want an educated populace and we shouldn't have to mortgage our future to do so. Maybe then we could buy houses AND avocado toast.

 

[YuriLowell]

Student Loans are going to be the next crisis in 10 years.

 

[Arrogant Bastard]

Student Loans are going to be the next crisis in 10 years.

Student loans and sub-prime auto loans imo.

I'm exceptionally grateful that my wife and I our relatively debt free. We have two payments left on my car, zero CC deb, and I have a 'modest' 25k in student loans.

We have a 200k house loan but I don't really think that is typically considered traditional debt.

 

[timetokill]

You do know we agree here right? They're afraid of bankruptcy because they have nothing else securing the debt and otherwise you would never see loans as high as they are.

Also, as a former employee of an institution that offered student loans, to say it's guaranteed money is a bit of a misnomer, at least from the standpoint of the lender. With 10% default rates, lenders are going to get squeamish.

Again, I'm being as crystal clear as I can here-- I believe the system is fundamentally flawed. I do. Especially when it concerns your last paragraph. A college degree is priced in the job market as if it were free and costs as if it were a giant leap ahead. That's a fundamental flaw if I ever heard one. What I'm trying to illustrate is the nuts and bolts of the paper. It's great to argue philosophically, but these issues need to be tackled on paper first. And to do so, it's important to understand the fundamentals.

I get you. But even with default rates like that, you have companies that offer student loans that ALSO run the collection agencies that the loans get passed to in default. So they get a second bite of the apple.

But anyway, I'm arguing that bankruptcy protection should be there to add risk so that they don't offer practically uncapped loans. If the money supply is reduced then schools can't keep raising tuition at a ridiculous pace like they are now.

Bankruptcy for most other debts is a bit different. Most large debts are secured transactions. So say a mortgage on a house, or a car loan. The lender can recoup some or all of what it loaned to the borrower merely by taking possession of the real or personal property. The lender forecloses on a house, repossesses a car, etc. The lender then legally owns that property and can sell it to recover losses.

A lender can't do that with student loan debt. There is no way to recoup a loss if the debt is erased through bankruptcy. That's one reason why student loan debt is protected from bankruptcy proceedings in the vast majority of scenarios (the exception being extreme hardship).

I understand that, but my point is that by removing essentially all lending risk, there's no incentive for lenders to consider whether giving the money is a good idea for each student, and definitely no incentive for schools to keep tuition at a reasonable level because they know if a kid has to take out $30,000 this year instead of $25,000, well, the lenders won't even blink.

 

[Hari Seldon]

Not really. Again, this worked before, the skyrocketing cost of tuition is fairly recent. If there was a lower cap on student loan offerings then tuition would have to drop in response.

Or hey we could just look at, you know, thinking maybe we want an educated populace and we shouldn't have to mortgage our future to do so. Maybe then we could buy houses AND avocado toast.

So you are going for the starve the beast strategy on lowering tuition? You have my ax sir lol.

 

[Angelus Errare]

One for the very, very overpriced books.

Just take out a loan to buy the books!

 

[Disxo]

Fascinating, this student loan seems so otherworldly for me, my loan is just about 1000 dollars, and thats going to last me a year :l

 

[Ron Mexico]

I get you. But even with default rates like that, you have companies that offer student loans that ALSO run the collection agencies that the loans get passed to in default. So they get a second bite of the apple.

But anyway, I'm arguing that bankruptcy protection should be there to add risk so that they don't offer practically uncapped loans. If the money supply is reduced then schools can't keep raising tuition at a ridiculous pace like they are now.



I understand that, but my point is that by removing essentially all lending risk, there's no incentive for lenders to consider whether giving the money is a good idea for each student, and definitely no incentive for schools to keep tuition at a reasonable level because they know if a kid has to take out $30,000 this year instead of $25,000, well, the lenders won't even blink.

See, from there, I could make the case that Dodd-Frank (unintentionally?) killing the little guy made it so the only ones who remained viable were the megabanks which just happened to be large enough to run the collections for the second bite of the apple, but that's getting to another layer of this onion.

And the lenders will blink, just not in the way you'd hope. They know costs are going to be higher, which means the loans will be larger, meaning the likelihood of delinquency is higher, which means their exposure is higher, which means the rates are higher for everyone. It just spirals on and on. And since there's no competition from the smaller guys, why not make sure our margins are locked in first and base all our numbers from there?

As I said, you can even go further and further but the gist is there.

 

[Hickbilly Deluxe]

No lie, I hope the housing market does tank again. I would love it when I move next year if I could just buy a house for cheap instead of renting an apartment.

 

[Deepwater]

Why shouldn't you have to pay back money you borrowed regardless of timeframe?

yeah why didn't those pesky borrowers just pay back those sub prime loans and then we wouldn't of had the biggest recession of the millenia

 

[timetokill]

See, from there, I could make the case that Dodd-Frank (unintentionally?) killing the little guy made it so the only ones who remained viable were the megabanks which just happened to be large enough to run the collections for the second bite of the apple, but that's getting to another layer of this onion.

And the lenders will blink, just not in the way you'd hope. They know costs are going to be higher, which means the loans will be larger, meaning the likelihood of delinquency is higher, which means their exposure is higher, which means the rates are higher for everyone. It just spirals on and on. And since there's no competition from the smaller guys, why not make sure our margins are locked in first and base all our numbers from there?

As I said, you can even go further and further but the gist is there.

Yeah, I get where you're coming from.

I just don't think there's a way out of this without a bailout (again), and this time the bailout should be going to the people, not the banks.

 

[tokkun]

I
I understand that, but my point is that by removing essentially all lending risk, there's no incentive for lenders to consider whether giving the money is a good idea for each student, and definitely no incentive for schools to keep tuition at a reasonable level because they know if a kid has to take out $30,000 this year instead of $25,000, well, the lenders won't even blink.

Ideally the disincentive would be that price-conscious students / parents would not go to that school.

I think this is the real problem in the system. Students do not think about the consequences of having to pay back those loans (and really, with 18-year-olds, that is not unexpected). Parents have been conditioned to think that there kids should go to whatever school they want and are afraid to do the responsible thing and tell them that it is too expensive.

 

[Fenderputty]

So the student loan bubble collapses ... What happens? Students cant drop the debt and can't find jobs while lagging the economey? So like just another day?

 

[Arrogant Bastard]

No lie, I hope the housing market does tank again. I would love it when I move next year if I could just buy a house for cheap instead of renting an apartment.

Pretty shitty attitude to be quite honest.

 

[Deepwater]

Yeah, I get where you're coming from.

I just don't think there's a way out of this without a bailout (again), and this time the bailout should be going to the people, not the banks.

well I'll see you in 20 years when we do this rodeo again because we know that's not going to happen

 

[YuriLowell]

No lie, I hope the housing market does tank again. I would love it when I move next year if I could just buy a house for cheap instead of renting an apartment.

You don't want this.

 

[timetokill]

well I'll see you in 20 years when we do this rodeo again because we know that's not going to happen

Haha yep, and I'll still be paying my student loans then too

 

[tokkun]

So the student loan bubble collapses ... What happens? Students cant drop the debt and can't find jobs while lagging the economey? So like just another day?

https://en.wikipedia.org/wiki/Jubilee_(Christianity)

We do have existing programs for voiding student debt after a certain amount of time, though.

 

[SwiftDeath]

Student Loans will come to a head at some point although I don't know if it will play out the same as 2008. Government is already invested in a lot of those loans, they can't be discharged from bankruptcy and there's no collateral.

Feel like an entire generation of Americans will simply get their credit destroyed and still have loans to fight off.

 

[CCS]

The student loan market collapsing wouldn't cause a financial crisis. It would be messy, but not the end of the world.

 

[Ron Mexico]

yeah why didn't those pesky borrowers just pay back those sub prime loans and then we wouldn't of had the biggest recession of the millenia

There's plenty of blame to go around for the subprime mess but I'm not going to hold the borrowers completely blameless. Scandalous I know. But hear me out.

You had a perfect storm of circumstances in the early '00s. Relatively low rates, a promising economy, plenty of reason for optimism.

So the lenders get foolishly greedy and enamored with the profits to be made on stated income mortgages among other subprime varieties. More "risk" on paper means they can charge more and they didn't think the paper risk was anywhere near as real as it turned out to be. Greed.

But in order to acquire those mortgages, you need home sales. Enter the developers (and the famed McMansions) and real estate agents more than happy to earn their shares of these commissions. After all, they could give a flying fuck what became of the mortgage after the sale was complete. They grab their check and it's off to the next one. As a result, they influenced the buyers, especially those with stars in their eyes, into properties that were otherwise an unwise investment. Greed.

And then for the borrowers. You're in all likelihood never going to make a larger purchase in your life. To not have the capacity to think critically and even ask "what if..?" as you sign your name to a 5 year ARM? There's some willful blindness at best without question there.

Now, do I think the borrowers deserve the lion's share of the blame? Hell no. They were sold a bill of goods that turned out to be horseshit. But do I think there's a nonzero piece (even if overwhelmingly small in the grand scheme of things) of the blame for the borrower? I do.