Consumer Credit Outstanding Climbs as Student Loans Continue To Rise


The Federal Reserve Board reported that consumer credit outstanding rose at a seasonally adjusted annual rate of 5.0% in September to $2.7 trillion. The over-the-month increase in consumer credit outstanding, which excludes real estate secured loans such as mortgages and home equity lines of credit, reflected a 9.2% rise in non-revolving credit outstanding, 0.1 percentage point higher than the growth rate observed in August. The September increase in non-revolving credit outstanding, which includes automobile and student loan debt, was partially offset by a 4.1% decline in revolving credit. The monthly decline in revolving credit outstanding, which is largely composed of credit card debt, reverses the 6.1% increase that occurred in August. In the third quarter of 2012, revolving credit outstanding fell by 1.6% while non-revolving credit outstanding rose by 6.6%.

Prior to a two-year decline that began in August 2008, consumer credit outstanding had experienced a long period of steady growth. However, the underlying source of growth changed during this time period. Between January 2000 and July 2008, consumer credit outstanding had expanded by 67.9% to $2.6 trillion. During the 2000 to 2005 period, growth in consumer credit outstanding largely reflected the $532.4 billion increase in non-revolving credit. Revolving credit outstanding grew by $214.7 billion over this period. However, revolving credit outstanding was the primary source of growth between January 2006 and July 2008. It also contributed to the decline in consumer credit outstanding in the two year period between August 2008 and September 2010. Between January 2006 and July 2008, non-revolving credit outstanding grew by $86.1 billion, but revolving credit outstanding widened by $198.5 billion. In the 27 months that followed, the $160.2 billion contraction in revolving credit outstanding largely accounted for the $184.4 billion decrease in consumer credit outstanding.

Since September 2010, consumer credit outstanding has resumed its upward trajectory. Over the last two years, consumer credit outstanding has grown by $338.3 billion. Consumer credit outstanding is now 7.0% above its pre-recession level and 6.0% above its July 2008 level. The increase in non-revolving credit outstanding has been the primary source of this increase. Between October 2010 and September 2012 non-revolving credit outstanding has expanded by $354.1 billion while revolving credit outstanding has declined. Part of the increase reflects a November 2010 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. However, following November 2010, the increase in consumer credit outstanding is the result of a $206.7 billion increase in non-revolving credit outstanding, while revolving credit remained generally flat.

Data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit suggest that the expansion of non-revolving debt outstanding reflects a sustained rise in the student loan debt balance. Between the first quarter of 2003 and the second quarter of 2012 the student loan debt balance rose by $673.3 billion, nearly three times its first quarter 2003 level. Meanwhile, the amount of auto loans outstanding has increased only slightly. In contrast to this dramatic increase in student debt outstanding, auto loans rose by only $109.0 billion between the third quarter of 2003 and the second quarter of 2012. After peaking at $830.0 billion in the third quarter of 2005, the auto loan debt balance remained relatively flat before it began to fall in the first quarter of 2009. Although the amount of auto debt outstanding started to rise in the first quarter of 2011, it remains 9.6% below its peak. Recent patterns in consumer credit outstanding reflect a recession-recovery cycle: declining debt associated with discretionary purchases (e.g., credit cards and auto loans) and increases in student loans as students postpone entering the workforce and workers retool their skills in a depressed economy.

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