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Fed Balance Sheet: Student Loans At Frightening Levels

  • Written by Syndicated Publisher No Comments Comments
    December 8, 2012

    Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset on Uncle Sam’s balance sheet?

    A) U.S. Official Reserve Assets
    B) Total Mortgages
    C) Taxes Receivable
    D) Student Loans

    .

    The correct answer, as of the latest Flow of Funds report is … Student Loans.

    The rapid growth in student debt has been a frequent topic in the financial press. One stunning chart that caught my attention illustrated the rapid growth in federal loans to students since the onset of the great recession. Here is a chart based on data from the Flow of Funds Table L.105, which shows the Federal Government’s assets and liabilities.

     

     

    As I point out on the chart, the two callouts are for Q4 2007, the quarter in which the Great Recession began (December 2007) the most recent quarter on record, Q3 2012. The loan balance has risen and astonishing 448 percent over that timeframe, most of which dates from after the recession.

    This chart only includes federal loans to students. Private loans make up an even larger amount. Earlier this year the Consumer Financial Protection Bureau (CFPB) posted an article with the attention-grabbing title: Too Big to Fail: Student debt hits a trillion.

    But back to our quiz. Student loans may be a liability on the consumer balance sheet, but they constitute an asset for Uncle Sam. Just how big? Over 36 percent of the total federal assets, about 4.5 times the 8 percent for the total mortgages outstanding and over three times the size of Taxes Receivable.

     

     

    Of course, assets are, sadly, the trivial side of Uncle Sam’s Flow of Funds balance sheet — about 1.39 Trillion. The liability side totaled 13.11 Trillion at the end of Q3.

    The current banter is all about the Fiscal Cliff, but that complex set of issues will be addressed — one way or another — before the next quarterly update of this grim quiz. However, the student loan bubble, the biggest slice in Uncle Sam’s pie, will haunt our economy for many years to come.

    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.

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