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Fed Balance Sheet: Student Loans At ‘Even More Incredible Levels’

  • Written by Syndicated Publisher No Comments Comments
    March 11, 2014

    I’ve updated the quiz based on last week’s Financial Accounts of the United States (previously referred to as the Flow of Funds Accounts). Hint: The correct answer is the same as it was for the last quiz, just more incredible.

    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 quarterly data, is … Student Loans.

    The rapid growth in student debt has been an ongoing topic in the financial press. One stunning chart that continues to haunt me illustrates the rapid growth in federal loans to students since the onset of the great recession. Here is a chart based on data from the Financial Accounts 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, Q4 2013. The loan balance has risen and astonishing 531 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. See this Bloomberg article pubished last June that highlights the larger problem:

    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? It’s 44.5 percent of the total federal assets, up from 37.2 percent at the end of 2012. This is about 6.3 times larger than the 7.1 percent for the Total Mortgages outstanding and 4.4 times the size of Taxes Receivable.

     

     

    Of course, assets are, sadly, the trivial side of Uncle Sam’s Financial Accounts balance sheet — about 1.60 Trillion. The liability side totaled 15.81 Trillion at the end of Q4.

    As I type this, the S&P 500 is at its all-time high. However, the student loan bubble, the biggest slice in Uncle Sam’s asset pie, will haunt us for many years to come.


    Closing noteFor a fascinating slide set on student debt, see this presentation (PDF format) by Donghoon Lee, a Senior Economist at the Federal Reserve Bank of New York.

    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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