
US Household Debt Surpasses 2008 High - kcorbitt
https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html?_r=0&hn=true
======
manacit
I don't know if it's a "bubble" (I am not qualified to say that), but I can't
imagine that the current trend with student loans will continue. Looking at
the numbers for someone entering college in 2017, it feels nearly predatory
what a good portion of private and out of state colleges are charging. Even
with financial aid, $30-40k a year for 4-5 years is insane.

I was fortunate enough to have parents who made saving for my college a
priority, but watching them go through the same dance with my younger brother
makes me wonder how most people get it done.

There's a huge value in going to higher education, but the ever increasing
cost and amount of debt people are taking on is setting everyone but the top
10% of graduates up for a life of being in debt, which is kind of horrifying.
Especially since they are debts that are impossible to shed through
bankruptcy.

~~~
lz400
I truly don't understand the USA sometimes. Don't you guys know that in Europe
higher education is free? Well where I'm from there was a very low nominal
cost but my father was a public servant so cost was waived, I literally
studied CS for 0 cost. And these countries are able to afford it all! Magic!

I don't understand how people in USA are not aware of this and literally
rioting in the streets. At the very least swing public opinion and voting.
Don't even start talking about the we are americans we don't like taxes BS,
you really think being a young adult with a 200K student loan and a $6K
deductible for healthcare insurance is better than an extra ~5-10% of tax?
It's truly mind boggling.

~~~
Teknoman117
I don't understand why the cost of higher education has gone up so much. My
grandparents paid for college via a job they only held in the summer and my
parents paid for college working part time during the school year and full
time in the summer - both of those jobs paying a little better than minimum
wage. Yet I'm looking at 5 years of debt with a tech industry salary.

Having to paying for higher education wouldn't even be such a problem if it
still cost what it did when my parents attended.

Although, maybe this whole thing is that the military budget has gone up by
80% since my grandparents attended college and education spending by the
federal government has gone down 10 times. Also with the fact that there are
five times as many Americans attending college than when my grandparents did,
I definitely agree it's time we sat down as a nation and discussed whether we
as a nation should pay for our children to be educated to the level necessary
to excel in the modern economy.

I don't think the tax hike would even be that extreme. The reason tuition is
what it costs right now is that it pays for the people who are getting free
rides for various reasons. We got a letter from University of California once
that among other things stated that only about 40% of tuition for someone who
is paying to attend actually goes to education that student, the other 60%
goes to paying for people the UC gave grants and scholarships to. [Warning -
Napkin Math] If it actually cost something like $10k per year per american
college student, of which there are 20.5 million students attending both
public and private universities, we would need something like an addition $210
billion in tax revenue per year, or an addition 6.4% revenue. So your 25%
federal tax bracket would turn into 26.6%. That's not all that much when you
think about it. Or, the government renegotiates their military contracts to
stop being price-gouged in order lower the defense budget. Then use the
savings to help fund education...

~~~
jellicle
Universities are doing price discrimination. They want to charge rich kids a
lot, middle class kids something, and poor kids nothing. That requires a high
sticker price for the tuition, plus discounts.

It's hardly a perfect system but the basic idea is not unreasonable. And
remember, if one pumps money into the system from the government side (which,
IMHO, should happen) the counterintuitive result is that rich kids are likely
to be the first ones to benefit.

~~~
thatwebdude
Possibly, but talent-based scholarships (supposedly) are not discriminative.

------
ryandamm
An alternative view, and one I happen to subscribe to: a balance sheet
analysis shows that US debt _must_ go up over time to support exogenous
capital flows.

Whether US debt grows in the housing sector, student loans, revolving debt,
etc is a function of internal, domestic dynamics (including laws, local
economic structure, etc). But the total capital flow into the US exceeds the
outflow; that money ends up on a balance sheet somewhere.

It's sort of the flipside to our conventional notion of trade balance, that
the capital account must be equal and opposite. The difference is that capital
flows are now 4-5x what's necessary to account for trade, so it's really
capital movements wagging the trade dog.

The net effect of inbound capital flow into the US is people must consume more
than they produce, to absorb the additional capital. That is debt. And that
debt ends up somewhere, either on the government's balance sheet, in the
corporate sector, or households.

Major hat tip to Michael Pettis for his work describing this. His writings are
dense but very digestible
([http://carnegieendowment.org/chinafinancialmarkets/](http://carnegieendowment.org/chinafinancialmarkets/)).

[edited a typo]

~~~
ced
I'd like to understand this better. There's two villages. A businessman from
village B comes to village A and buys a store from Bob for 100$. Bob keeps the
money for a rainy day. Where is debt increasing?

~~~
kcanini
In this case, the net capital flow is zero. $100 is transferred from B to A,
and a business worth $100 is transferred from A to B.

~~~
ryandamm
There's merely a transfer of liquidity if the two villages share a currency.
But that's a delicate equilibrium; to wit, the Euro area, where capital flows
can't be balanced by the exchange rate mechanism, so they're balanced by
unemployment.

Pettis does a better job of explaining (my previous, insanely-long-winded post
is exhibit A), but the net result of unbalanced capital flows is typically an
increase in debt, which is often manifested in the unemployment rate for an
open economy. That's basically the story in peripheral Europe right now;
Greece suffered more from a fixed exchange rate with Germany than from
corruption and tax avoidance. At least, if you subscribe to the balance sheet
analysis.

------
thinkling
$600B additional student debt over 10 years sounded high to me, so I did the
ballpark check.

$600B over 10 years is $60B/year.

There are about 20 million college students [1].

That means $3000 per student per year on average.

If loans are paid back over 10-20 years, this really says that students are
borrowing $3000 more per year than they were 10-20 years ago.

The article suggested that borrowing was about $600B total, 10 years ago, so
essentially it has doubled. FWIW, CPI inflation over the last 20 years is
~50%, the other 50% is either real increase in borrowing or due to the fact
that college tuition rates have been increasing faster than inflation.

[1]
[https://nces.ed.gov/fastfacts/display.asp?id=372](https://nces.ed.gov/fastfacts/display.asp?id=372)

~~~
Spellman
Tuition and Room and Board are increasing way faster than inflation.

[https://inflationdata.com/Inflation/Inflation_Articles/Educa...](https://inflationdata.com/Inflation/Inflation_Articles/Education_Inflation.asp)

CNBC has a fun infographic interactive from 2014 to look at where those
increases are going.

[http://www.cnbc.com/2015/06/16/why-college-costs-are-so-
high...](http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-
rising.html)

------
omgwtfbyobbq
$13.6 trillion is a ton of debt (literally?). At the same time, I think debt
versus net worth is a more descriptive metric.

Back in 2008, household net worth (HNW) was about $56 trillion, so household
debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+
trillion in household debt doesn't sting as much.

[https://www.federalreserve.gov/releases/z1/current/z1.pdf](https://www.federalreserve.gov/releases/z1/current/z1.pdf)

At the same time, interest rates are still near historic lows, and may assets
have appreciated because of this. I wouldn't be surprised to see real estate
drop a bit as the Fed raises rates, which would take a chunk out of HNW.

~~~
AnimalMuppet
> $13.6 trillion is a ton of debt (literally?)

IIRC, in $100 bills, $100 million is a ton. $13.6 trillion is _136,000 tons_
of $100 bills.

------
mdorazio
For those who just read the title, the cause of this new high is ballooning
student debt, not mortgages. Housing debt is still mostly declining.

~~~
libria
Why is student loan debt not dischargable in bankruptcy? If it were, banks
would be far less likely to issue them, students would find cheaper education
alternatives, and universities would be forced to provide greater assistance.

~~~
Goronmon
_Why is student loan debt not dischargable in bankruptcy?_

Because there isn't a way to take back the knowledge/skills/information
learned while in college. If you default on a home loan, then can take your
house. If you default on a car loan, they can take your car.

What can they do when you default on your student loans?

~~~
int_19h
You can still declare bankruptcy when you don't have the collateral for your
car/house loan anymore, though. For example, if your car was totaled, or your
house burned down.

~~~
theoracle101
Yes but what you are describing is essentially unsecured debt. The government
is guaranteeing your loans, why do you think student loan rates are so much
cheaper than credit cards?

The price you pay for that guarantee is that you can't declare bankruptcy. The
government is propping up this industry and it has some parallels to the US
housing before 08 (encouraging lending to subprime homebuyers)

------
rrggrr
Keep in-mind this household debt is above and beyond each household's share of
their municipal, county, state and federal debt.

If you live in LA County, CA:

\- about $4,200 in State Debt.

\- roughly another $4,000 or in LA County debt.

\- $161,000 in federal debt.

\- $16,000 in credit card debt on average.

\- Car loan, home payment, etc.

And on average your savings are minimal. Most importantly, if this isn't you,
its still someone you'll be bailing out through higher taxes and/or some other
shared burden.

Ironically, the more indebted we become the more dependent we are on our
government to address the problems widespread indebtedness creates. This may
explain why efforts to enact economic growth policies that restore 5-6% GDP
growth are met with all talk and no action in most state capitals and
Washington, D.C. Its almost as if they wish to intentionally drive the the
country over the fiscal cliff.

~~~
godtoldmetodoit
What economic growth policies could we enact that would result in 5-6% GDP
growth? From my admittedly limited understanding, that seems to be quite the
stretch.

~~~
panzer_wyrm
You have to shrink the base to get high percentage growth - a war that is
devastating have the effects of reducing labor and increase the need of labor
to rebuild infrastructure so it gives a decade or two of rapid growth...

Aside from that - nuclear fusion, space travel and colonization are the only
technologies that could possibly give this kind of sustained growth.

------
tsunamifury
This appears to be an even worse situation than 2008 because housing debt has
gone down not because homes are cheaper, but that people can't buy homes. And
other forms of debt with far smaller effect on net-wealth and GDP as well far
harsher discharge terms are eating up the difference. This makes for the same
(or more) debt load in an even riskier, more individually onerous,
combination.

~~~
slg
I don't want to say that student loans aren't a big problem or that there
isn't a bubble, but I think the panic of a potential repeat of 2008 is missing
a big portion of the mortgage crisis.

In 2008 there was a feedback loop that caused things to spiral out of control.
Every house that was foreclosed on hit the market at a lower and lower price.
This made it harder for people to refinance their existing mortgages. This was
a huge problem because adjustable rate mortgages were all the rage leading up
to 2008. The result was more foreclosures and then the loop repeated itself.

That isn't possible with student loans. If the student loan market pops, it
will be awful for banks, it will be awful for the stock market, it will be
awful for the country as a whole, but it isn't inherently going to make other
people's student loans more difficult to pay off.

~~~
downrightmike
We are kind of in the same place as the 2008 crisis, except the sub prime
mortgages have been extrapolated out a level. The comercial product being sold
today is the rent collected from the properties and the mortgage is the
collateral. So if the renter can't pay, kick them out, The market shouldn't
tank all at once, it will continue to go up 20% a year until nearly no one can
afford to live in a house period. Then crash.
[http://www.motherjones.com/politics/2014/01/blackstone-
renta...](http://www.motherjones.com/politics/2014/01/blackstone-rental-homes-
bundled-derivatives)

------
Retric
In nominal terms ignoring the ~15% inflation.

PS: Inflation only shows up once as "The household debt figures are not
adjusted for inflation" but that still renders the headline meaningless.

~~~
tantalor
Also, "per capita"?

~~~
encoderer
Also no mention of "share of GDP".

Basically, the article is rubbish.

~~~
NTDF9
Share of GDP seems important. Why is this rubbish?

~~~
sologoub
Not the OP, but I think the comment meant that without inflation adjustment
and proper ratios, you can't draw correct conclusions.

The nominal number is big, but 2008 number is today's dollars would have been
$14.17 trillion, or 11.3% higher than the current debt reported.

------
themagician
I think it's going to hit housing hard (again), but probably not anytime soon.
A lot of my friends have student loan debt that will never be paid off. They
either can't get a job that pays enough to pay it off in a timely fashion or
they choose not to grind for 5-8 years to pay it off. Instead, the plan is to
do as little as possible for the next 25 years until it's forgiven, and try to
keep as much cash off the books as possible so they can live a life worth
living. I can't say I blame them. We can probably ride the debt train for the
next decade or so, but at some point there will be too few buyers with capital
because they spent the last two decades intentionally not building assets.

~~~
thatwebdude
This is only possible in certain situations for certain borrowers who borrowed
a certain kind of loan.

Too many people think there's forgiveness light at the end of the tunnel. I
feel really bad when they realize there isn't. Except death, maybe. I bet
we'll see some of that, too.

[https://studentloanhero.com/featured/federal-student-loan-
fo...](https://studentloanhero.com/featured/federal-student-loan-forgiveness-
actually-begin/)

~~~
themagician
It's possible in most situations. Most people have federal student loans—which
are the ones that aren't easily discharged—and as long as you are on an
income-based repayment program, the loans are forgiven after 25 years.

You are basically given two choices as an average person after you hit over
$150k debt: 1) Spend 5-10 years throwing your life away to a job to try and
grind away your debt; or 2) Work a low-income job for 25 years and spend your
time more meaningfully.

Low income doesn't mean no income, it just means you don't get to participate
in consumer capitalism the way those without debt do. You can fault people for
their lack of foresight, but honestly if I was in that situation I'd probably
opt for option #2 as well.

~~~
thatwebdude
For those with private student loans, the options are much less; usually
deferment or forbearance, usually short-term.

Most people who have/had private loans did so because they didn't qualify for
FAFSA to determine that their federal loans covered room and board, but also
didn't have enough saved to offset this cost. I think a lot of people are
forgetting that, and a large group of people fall into that category.

~~~
themagician
Private loans are much easier to get discharged or reduced through bankruptcy
though. Something like close to 50% are. And in some states the statute of
limitations for collections of private student loans is under 5 years.

~~~
thatwebdude
I wasn't aware of that. I assumed the no-default rules a la Federal loans.

------
dx034
Why not go to Germany, get a degree there (many universities offer english
speaking courses) for free? You end up with much less debt (if any) and have
some additional experience.

I studied in Germany in English and there were a lot of people from all over
the world in my course (only 20% from Germany) but there wasn't a single
person from the US. Maybe the Uni wasn't as good as Harvard but certainly
better than many colleges you'd find in the US.

What keeps US students from coming to Germany and study there? It shouldn't be
a visa problem nor language.

~~~
cr1895
>What keeps US students from coming to Germany and study there?

Increasingly more Americans _are_ studying in Germany (and elsewhere).

[http://www.dw.com/en/leaving-the-us-for-a-german-
degree/a-18...](http://www.dw.com/en/leaving-the-us-for-a-german-
degree/a-18599858)

But,

I think you underestimate how difficult it is to move to another country.
Language, visas (and other bureaocracy) are indeed issues, as are uprooting
one's life and moving to a foreign place; no friends, family, familiarity. Of
course studying in Germany or the NL or another country where the education is
taking place in English is less of a barrier than moving to a place where that
isn't the case, but it is a barrier nonetheless. It can be nervewracking and
overwhelming. It's a major step; much more so than simply moving to another US
state for college, for example.

I say this as someone who left the US years ago to study. I adapted quite
well, but I recognize what a big shift it can be.

------
WatchDog
According to the public OECD data [1] the US household debt as a % of
disposable income is on a downward trend.

[1]: [https://data.oecd.org/chart/4Qct](https://data.oecd.org/chart/4Qct)

------
NTDF9
Leave it to America to make children a pseudo-slave right when they enter
adulthood.

~~~
Analemma_
It's how you can tell we have so much freedom and economic liberty.

~~~
geogra4
Freedom in capitalist society always remains about the same as it was in
ancient Greek republics: Freedom for slave owners

------
tacct142
Excellent. Which group of poor decision makers will I get to bail out soon
(oh, students, superb!) while reading my daily "The Death of the Middle Class"
article?

~~~
cyfihyfi
Why would a bunch of rich kids get the bailout we should instead give the
money to all those poor banks that put themselves at risk.

~~~
pjmorris
/s?

A bank's core function is to evaluate credit risk. If a bank can't do that,
the people running it should be doing something else.

------
thetwentyone
When looking at this in relation to the fact that the united states is bigger
than it was 10 years ago in a number of regards. See these for less dour
views:

[https://fred.stlouisfed.org/series/HDTGPDUSQ163N](https://fred.stlouisfed.org/series/HDTGPDUSQ163N)
[https://fred.stlouisfed.org/series/TDSP](https://fred.stlouisfed.org/series/TDSP)

------
nomercy400
The 100% chart is quite deceptive. Student loans take a larger share of the
debt. Is that because increased tuition fees (probably), is that because more
young people have become students (ie. higher education available to more
people), is it because young graduates won't buy a house and still live with
their parents (and thus stay in the Student Loans category instead of moving
to the Mortage category) and opt for a car instead (thus moving part to the
Auto Loans category)? Is it because houses (and thus underlying loans) are
cheaper?

Basically all this 100% chart says is that people are taking out less of a
loan for a house.

~~~
danesparza
I would disagree with your last statement. The chart is ambiguous (which is
just poor reporting on the part of NYTimes). It's unclear if auto loans have
grown, student loans have grown, the average home loan has shrunk (or just
gotten paid down since 2008), or if there is another effect in play. The
'percentage share of consumer debt' each item is isn't a useful fact on it's
own.

------
cheriot
FYI, it's not adjusted for inflation so in real terms we're likely under the
peak.

The article talks a lot about debt with no mention of the income supporting
it, which is a glaring oversight for any kind of financial analysis. All I can
find quickly are median real numbers through 2015. It's not pretty.
[https://en.wikipedia.org/wiki/Household_income_in_the_United...](https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:US_Real_Household_Median_Income_thru_2014.png)

------
jjawssd
Germany provides excellent educational opportunities in many fields for
American citizens at close to zero out of pocket expense for the student.
Google "Germany Erasmus".

~~~
pilsetnieks
Erasmus is a EU programme for student exchange between cooperating
universities for up to a year, it's not relevant in this case.

However, they should look at German universities in general because they are
practically free for anyone.

~~~
utternerd
"Free" meaning coercion via the state to fund other people's pursuits. Perhaps
we should look at why costs are rising? People need to seriously evaluate if
it's really needed for them. I reject your notion that everyone, or even most
people need a college degree. (I didn't, and I live quite comfortably thanks
to tech with a 6 figure salary)

Part of the problem is exactly that we're subsidizing many people, forcing
more scarcity and leading to higher prices. Using force to make someone else
pay for my stuff isn't something I want to condone.

~~~
jjawssd
Germans gladly accept the state taking half of their paycheck for pursuits
such as this.

------
dhf17
I work at a major state university that is claimed to be one of the most
efficient in the US. On the administrative side it is a disorganized cluster
bomb, full of frivolous spending, wasteful processes, and is years behind in
technology and software. The things I've seen people manually doing on a
computer all day... Throw on top the spending on social justice initiatives
and you have your self a fat burden to pass on to students.

~~~
thatwebdude
When was any university ever efficient?

When they wanted me to pay a parking ticket. They had that shit down to an
exact science.

------
mleonhard
The last paragraph makes the whole article seem like an advertisement:

"That made last month feel like an opportune time for Caitlin Farrell, 34, and
her husband to buy their first home, a 1,500-square-foot, two-bedroom house in
Sacramento. Ms. Farrell, who works as an education policy researcher, got her
home loan from SoFi, a start-up online lender that moved into the mortgage
market last year."

------
theprop
This page has fantastic data:
[http://www.usdebtclock.org/#](http://www.usdebtclock.org/#)

Another stunning data point is that in the wealthiest, most productive society
that's ever existed, over 40 million people are on food stamps!

------
btilly
This is very worrisome. This is ballooning student debt. And unlike other
forms of debt, you don't get to discharge student debt in bankruptcy.

So..plan a career, get higher education, have your plans disrupted, and your
life is ruined with no escape. Enjoy the 21st century.

What is really sad is that there is no evidence that colleges are providing a
better product. In fact the switch to grad students and adjunct faculty means
that the actual delivery of their education _should_ be cheaper. (Of course
universities are getting less efficient, so it isn't. But the cost of
classroom instruction time is not what is going up...)

------
batushka
From the state point huge student debt is wonderful. Fresh workforce starts
with negative balance: they are vulnerable and controllable (trying to pay out
it or begging for mercy to aid with debt).

------
dhf17
How to graduate with little to no debt and no scholarship:

\- Go to community college and live at home for the first two years

\- Work part-time even if it takes you longer to finish

\- Don't get a fracking auto loan. A well maintained 90s Japanese car will go
a long way. If you can program, basic car mechanics is easy.

\- Don't pay out of state tuition

\- If your going for an MS, get a basic full time job at a university first (A
lot of schools have tuition waivers for employees)

\- Don't YOLO on someone else's dime, if you're frugal and modest you can do
it later on your own.

------
tracker1
How is having a higher percentage (double) of student loan debt that should be
payable in a few years today any better than higher mortgages... it seems to
me, this is a bad trend in general... :-/

~~~
manacit
Considering the collateral against that student loan debt is nothing (hence
them not being dischargeable in bankruptcy), I would think it's much worse
than an increase in mortgage values. Of course, there have been other articles
on the HN front page as recently as today talking about rising home costs as
well.

America (and the world? I don't feel qualified to say that) has a very odd
relationship with debt, and it's driving all sorts of weird societal
behaviors, like taking $100k+ in debt to get a college degree. I don't forsee
it ending well.

------
easilyBored
_US Household Debt Surpasses 2008 High_

Yeah but this time is different :).

Memo to self: looks like US stock market goes from feast to famine in 10 year
cycles. Sell now and buy at 40% discount 1-2 years later. Rinse. Repeat

------
theprop
Yes, the student debt growth is unsustainable. It's up 10x in a bit over 10
years. Unbelievable!! There are only three things whose relative cost has gone
up in the past 40 years: education, health care, and housing.

It's also amazing to me is that total household debt is 12.5 trillion, while
the federal debt is just about $20 trillion.

In $12.5 trillion so many people have gotten an education and own a home. What
exactly did anyone get with that $20 trillion the federal government has
spent?

~~~
spydum
Opportunity.

------
MaysonL
The amount of debt may surpass the 2008 high, but the debt service required is
still near a four decade low.[0]

[0][http://cepr.net/blogs/beat-the-press/tell-the-alarmists-
to-c...](http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-calm-down-
the-debt-crisis-is-not-coming-back)

------
yellowbeard
Looking at the total dollar amount of debt makes a good headline, but is
simplistic. With lower interest rates, households are spending far less to
service their debt than they were in 2008. The article only mentions this
briefly near the end.

------
stillhere
"People don't own their things. The banks do." -Varg Vikernes

------
blazespin
Gee, account for inflation much

