Finally, we have some (arguably) good economic news: Americans’ credit levels have returned to their pre-recession peak of $2.58 trillion. This is usually a good sign for the economy. Higher credit means more consumers are shopping, more banks are lending, and confidence in general is up.But as the Wall Street Journal points out, this news comes with a caveat, and it’s a big one.Sstudent loan debt accounts for nearly one-third of that figure and is now second only to mortgage debt as the leading form of debt held by Americans. This seriously undercuts the otherwise good economic news, as student loan debt provides a considerably smaller boost to the overall economy than other forms:
Shorter term, however, student loans don’t juice the economy in the same way as increases in credit-card debt. Exclude student debt from the Fed’s consumer-credit data and the total is actually down more than 15% from its 2008 peak.Looked at that way, consumers aren’t really borrowing and spending as much as the headline consumer-credit figure would suggest, says Ken Safian of Safian Investment Research. This dovetails, he adds, with personal-income data showing that while incomes are going up, expenditures are flat.
But the short-term economic impact of student debt pales in comparison to its long-term effects on those who hold it. As we’ve said before, higher ed costs continue to be a major drag on the lives of young people, preventing them from taking important risks and delaying major life decisions. We need to make college more relevant and more affordable.