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Thursday, January 29, 2015

Total U.S. student loan debt now exceeds $1.3 trillion

U.S student loan debt
Student loan debt exceeds $1.3 trillion USD
Total student debt is now above $1.3 trillion per the Federal Reserve Board, and total consumer revolving credit such as credit card debt was exceeded by student debt back in late 2011 per the Federal Reserve Bank of New York. In October, 2014 revolving credit amounted to $883.1 billion indicating a debt trend.  Several economic factors have also combined to compound the negative effects of this debt. These additional variables have made student debt a problem for many new and old graduates alike.

Costs


According to the Institute for Education Sciences, total education costs at four year institutions have risen 600 percent since 1980. For example, total tuition, room and board at a public four year academic institution cost $2,550 in 1980 using current dollars, but costs $15,014 in 2010 per the IES. This large rise in the cost of tuition is partly accountable to inflation, yet when using constant dollars adjusted to the Consumer Price Index, a measure of inflation, the tuition costs still more than double over the same period of time.    

Interest


Another factor that affects the cost of student debt is accrued interest. National Public Radio states some school loans were subsidized via lower interest rates under the College Cost Reduction and Access Act of 2007. That however, will change and lead to a doubling of interest rates if those tax cuts expire. Both Republicans and Democrats in Congress have sought to extend this benefit, but under different conditions that have led to political gridlock. As a result, and if the interest rate subsidy is not extended, the cost of student debt will rise and put additional cost pressure on students and graduates.

Size


The average size of student debt has also risen. By Q3, 2011 the average size of student debt was $23,300 per the Federal Reserve Bank of New York. By  2013, that amount approached $30,000 per U.S. News. Moreover, according to AlterNet, in 1992 the average size of undergraduate debt was $9,200 less than half the $18,900 in 2002; similar trend is demonstrated by the New York Times. It is evident the size of student debt has risen along with the cost. However, the size of debt has not increased as fast as cost meaning students have been able to keep their costs down over the historical period.

Employment


Each year a vast amount of new college students attend school with the hopes of becoming trained for a career. The IES has stated 19.7 million students attended colleges in the United States in 2011. However, if the job market is tight, these former students face the scenario of little or no income with which to pay off their student loans as they become due. This causes debt to negatively amortize in some cases which only amplifies the magnitude of student debt.

Image license: Morgan/Flickr; CC BY 2.0

Financial news: January 29, 2015

• Zero Hedge: Market fear metrics do not reflect a rising level of financial risk
• AP: Home delivery businesses have benefited from falling gas prices
CNN: The recent snowstorm in the NE is estimated to cost $.5-$1 billion
NYT: Proportionate income inequality is at 100 year highs and is likely growing
DoL: Jobless claims 01/24, 265K, down 43K; average 298.5K, down 8.25K
CNBC: Goldman Sachs has downgraded the commodity sector to underweight
Bloomberg: Up to $5 billion of new sub prime mortgages could be issues in 2015
MaketWatch: U.S. oil inventories are at an 80 year high per EIA data
• BBC: Apple Inc. profits reached $18B in its Q1;  74.5 billion iPhones sold
BI: Apple Inc. may maintain iPhone sales based on low fraction of upgrades per CEO
• Reuters: Newly proposed EU sanctions against Russia could restrict refinancing

Wednesday, January 28, 2015

How college census data reflects economic conditions

U.S. college enrollment and business cycle
College enrollment is believed to be influenced by business cycles

College enrollment in the United States has dropped and is expected to continue to fall. In the 2012-2013 academic year, the amount of new students reached a level of decline not seen since the 1990s per the New York Times. What is more, over two years, the cumulative drop in enrollment amounts to 930,000 per the U.S. Department of Commerce. Moreover, since college enrollment is a measure of educational prospects, industry demand and consumer sentiment, the drop in higher education census data is also an economic indicator.

So far, the decline in college enlistment has applied mostly to older students over the age of 25. This means the correlation to the economy and clues about its meaning are more specific to that particular demographic. Nevertheless, this trend reflects what is believed to be a counter-cyclical market per an interview with Terry Hartle in The Atlantic magazine. According to Hartle, student population typically rises during recessions and declines during better economic times. Hence, the drop in college enrollment is thought to be a sign of economic improvement.

Even though past trends have linked economic conditions to student census data, this is not the only statistical relationship present. More specifically, tuition rates, student debt and the job market are also linked to school attendance. These additional variables muddy the statistical waters as an improving economy is not necessarily mutually exclusive of things like a rising cost of eduction. In other words, in terms of gross domestic product, the economy is capable of rising at the same time as average national student-loan debt is rising.

The reason why education costs are also an important variable is because they indicate other economic conditions such as government spending. For example, according to the Chico Enterprise Review, state governments cut financial support for higher education by more than 28 percent between 2008-2012. This has influenced the cost-benefit ratio that students ideally consider before choosing to apply for and attend college. For instance, with each extra dollar spent on tuition, a corresponding rise in post-graduation income must be assessed to justify the higher expense equally.

Additional consequences of rising tuition or a higher student debt burden also influence the housing market, student debt repayment and even credit ratings. On the one hand, more employed people who do not go to school are good for debt markets and economic growth. Yet, on the other had, a study published by the Consumer Financial Protection Bureau states a problem with affordable private student-loan debt negatively impacted the lending market, which itself is also linked to economic expansion.

If the decline in college enrollment is primarily due to an improvement in the job market, then the declining figures suggest a positive economic trend. This is part of the story, and the question then becomes how big a part is it? If fewer mature students means a mostly better job market and economy, then it is positive data. However, if the shrinking numbers reflect something else, then the trend might not be a repeat of past historical correlations, but rather a statistical medley of different reasons such as state funding cuts, job outlooks and higher student debt.

Financial news: January 28, 2015

NYT: Subprime auto market derivatives echo those of the mortgage industry
CNBC: Auto insurance research shows $2,000 claims can raise premiums up to 41%
Bloomberg: Oil prices below $30/barrel are possible per Goldman Sachs exec.
MW: Married millennials aged 18-34 borrow money from parents per BofA survey
CNN: Stock prices declines on Tues. partly due to lower earnings guidance
CB: Jan. consumer confidence is at Aug. '07 level highs per 13.8 pt index ↑ to 102.9
AP: The Obama admin. seeks increased trade authority from Congress
DoC: Month-over-month new home sales rose 11.6% in Dec. to 481,000 annualized
BBC: U.K. GDP growth rose 2.6% in 2014, up .9% from 2013
Reuters: Pending US-EU derivatives trading rules improve market stability
ZH: French economic data shows low interest rates fail to stimulate growth