Majority of Non-Revolving Credit Held By Federal Government

Recently released data from the Federal Reserve Board indicates that consumer credit outstanding is continuing to expand. According to the release, total consumer credit outstanding increased at a seasonally adjusted rate of 5.4% in September. For the quarter overall, consumer credit rose by 5.2%. The September increase in consumer credit reflected an 8.7% increase in non-revolving credit, which encompasses student loans and auto loans. However, the growth in non-revolving credit was partially offset by a 2.9% decline in revolving credit, which is largely composed of credit card debt. Total outstanding consumer credit totaled $3.1 trillion at the end of September; 72.2%, $2.2 trillion, of this total represents non-revolving credit, while revolving credit accounts for the remaining 27.8%, $0.8 billion.

An earlier post demonstrated that student loans are major source of the growth in consumer credit. However, the underlying data also indicate that the federal government is becoming a large holder of consumer credit outstanding. As Chart 1 below illustrates, the federal government was the smallest source of consumer credit in 1990. At the beginning of that year, the federal government accounted for 2.0% of consumer credit outstanding. By September 2013, the federal government accounted for 23.6% of consumer credit outstanding.

Most of the rise in consumer credit outstanding held by the federal government has occurred only recently. Since March 2010, following the shift of consumer credit from pools of securitized assets to other categories largely due to financial institutions’ implementation of the FAS 166/167 accounting rules, the share of consumer credit held by depository institutions and finance companies has declined while the share of consumer credit held by the federal government has risen. In March 2010, the share of consumer credit held by depository institutions was nearly half, 49.2%, of all consumer credit outstanding and the share held by finance companies was nearly a quarter, 23.7%, of consumer credit outstanding. Meanwhile the federal government held 9.6% of consumer credit outstanding. By September 2013, the share held by depository institutions fell to 40.3% and the proportion held by finance companies declined to 22.4%, but the percentage of consumer credit held by the federal government rose to 23.6%.Presentation1

According to the release, the federal government only holds non-revolving credit. It does not hold revolving credit. As Chart 2 shows, the federal government has grown to become the largest holder of non-revolving credit. This was not always the case. In 1990, the federal government held a very small portion of non-revolving credit. Over the years, the decline in the share of non-revolving credit held by depository institutions coincided with an increase in the portion held by finance companies and that was securitized while the share of non-revolving credit held by the federal government remained small. However, in recent years, the percentage of non-revolving credit held by the federal government has soared at the expense of the share of the market held by depository institutions and finance companies.

According to the Federal Reserve Board, non-revolving credit held by the federal government includes student loans originated by the Department of Education under the Federal Direct Loan Program and the Perkins Loan Program, as well as Federal Family Education Program loans that the government purchased under the Ensuring Continued Access to Student Loans Act (ECASLA) that was passed in May 2008. The ECASLA provided the Department of Education with the authority to purchase student loans. The beginning of the steep increase in the share of non-revolving credit held by the federal government that began in 2009 coincided with the passage of the ECASLA and indicates that, in addition to making student loans directly, the federal government purchased student loans in an effort to facilitate market access at a time when private capital on its own grew scarce.

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