New York Fed's Dudley Admits Fed-Inspired Student Debt Bubble Is Headwind For Economy

Tyler Durden's picture

Having confessed to the fact that Fed "forecasts" are as useless as any other guess (and not commitments), NY Fed's Bill Dudley admitted this morning that the Fed-inspired student-loan bubble is a debt overhang that both inhibits home ownership and is a headwind to economic growth.

“If you look at the Summary of Economic Projections, it’s a forecast” and not a commitment, New York Fed President William Dudley says in New York at press conference on trends in household borrowing and student debt.

We would tend to suggest it was not even that Mr. Dudley...


But the real headlines were for the research report his PhDs had created that suggested - shock, horror - that gorging one's self on cheap credit in the short-run to get an education that is worth less each day (because any Tom, Dick, or Dufus can now get to college - because it's fair and just and right) is potentially a bad thing and could hamper the long-run economy.

No shit, we hear you cry. But let's let the PhDs explain... Student debt has more than doubled over the past decade to $1.3 trillion. But a significant minority of borrowers are defaulting on their student loans and in turn harming their credit and ability to purchase homes, the report shows.

More than 1 in 10 borrowers are at least 90 days behind on their student debt. The delinquency rate for student loans is far higher than it is for other forms of credit, including mortgages, credit cards and auto loans.


Only about 5% of student-loan borrowers owe more than $100,000. But they account for almost a third of all outstanding student debt. Borrowers on average leave school owing about $34,000, up nearly 70% from a decade ago.

Student debt appears to dampen homeownership rates among those with the same level of education, the report said.

...our analysis shows that for any given level of educational attainment, those with student debt are less likely to own a home in their early thirties than those who completed their education without taking on as much—or any—debt.


To the extent that the statistical associations we uncovered reflect a causal impact of debt on homeownership, they have important implications for the housing market and future spending behavior.


Homeownership represents an important means of wealth accumulation, with housing equity being the principal form of wealth for most households.


So, changes in the way we finance higher education, with an increased reliance on student debt, may have important implications for the housing market and the distribution of wealth. We expect to report new findings from ongoing research on this topic in the future.

So after driving down rates to 5000 year record lows to force cheap credit on the world to inspire some as-yet-unsighted animal spirits real recovery, The Fed now suddenly sees the light and realizes that burdenning people with excess debt may not be the best idea after all.

As far as Mr. Dudley's sudden discovery of the common-sense lobe of his brain, we have one word... "brilliant"

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
spastic_colon's picture

and now since student loans are considered financial WMD's they are in need of bailouts of course.......

BullyBearish's picture

fed-engineered vehicle for juicing economy by giving free money to those most likely to spend it as fast as they get it...thereby getting the fed's fake money directly to their corporate owners while making everyone feel good about it..."we have to do it...for the children"

WakeUpPeeeeeople's picture

Where does the Fed find such men?

JRobby's picture

Dudley : your best and brightest economists are like a bunch of debt ladened consumes with NO WAY OUT

Jim Sampson's picture

But my Grandfather said it's worth it, he almost punched me in the face over it.  smh.  statists...

booboo's picture

I think what he is saying is that we need to unload that debt onto the taxpayers so we can load these hairy toddlers up with more debt for homes and pussy grab parties.

QE4MeASAP's picture

Just a transfer of wealth from students and their families to the professor class.  Nothing more to see here, move on.

TheRideNeverEnds's picture

My friend the professor just bough a new Cadillac for his vacation home. Tell him how this debt is a drag on the economy...

victoriamproletari's picture

No, no, no, this time they would surely let the banks fail...

Dr. Engali's picture

Whaaaaaaaaat? We had no idea that kids with no life experience would jump at the chance to take a pile of cash and be a debt slave for life if was made so readily available. No idea at all.

ExpendableOne's picture

This is my alternative to going into an old folks home.  Enroll in college, big student loan, spring break!!!!  Hey, I'll have a phd in alternative studies within 10-12 years or so.  

DulciusExMan's picture

Just forgive their loans already.  What's the holdup?  That'll spur the economy, right Jan?  Stealth helicopter money.  I mean really, why should a feminazi have to repay its stupid loan that got it that all too important gender studies degree, right?  </sarc>

SilverRoofer's picture

And why your at it forgive my Mortgage loan as well

JRobby's picture

Debt Holiday!

"Dr. Peter Venkman: Human sacrifice, dogs and cats living together... mass hysteria!"

"Just what type of doctor are you Dr. Venkman?"

AlexCharting's picture

This whole "sharing economy" trend is a sign of a depression....

Rainman's picture

Condolences ...these here youts are graduating into the jaws of the Great Robot Hiring spree.

corporatewhore's picture

Eliminate the non dischargability in bankruptcy of student loans.  Or eliminate the student loan payment from the calculation of debt to income in order to qualify for a mortgage.  

Require all student loan servicers to place the student on the lowest payment plan available to him/her.  IMHO this simple feature would trigger greater repayment.  It is like pulling teeth to get them to disclose available options and then you have to jump through hoops to get it.

khakuda's picture

Instead of letting the market force colleges to get their costs under control, we in the government doled out zero interest rates, increased student loan levels and told the students they could default and the taxpayers would pick up the tab.  We have created a world where even mediocre colleges have enough money to build and build and build as far as the eye can see.  We are geniuses.

QE4MeASAP's picture

Take a drive through your nearest state school and you'll see brand new buildings around every corner...for the students of course.

shizzledizzle's picture

Headwind eh? Appropriately the FED will start measuring headwinds in the Fujita Scale because a F-5 headwind sounds a lot better than 200mph.

Secret Weapon's picture

Smells more like a tailwind to me.

ali-ali-al-qomfri's picture

excellent shizzzledizzle,

instead of M2 or other it should be F5+

as the velocity of money picks up so do the winds of change, or the winds of war.

Bubbette's picture

Return student loans to the private sector where people have to actually qualify for the loan.  What a novel concept.  The result would be many universities and liberal institutions that have continued to increase tuition like there is no end to the amount people are willing to pay or afford will go bankrupt.  The cost of tuition would plummet as the never ending stream of money would be cut off.  Student loans have become the modern-day form of indentured servitude.

Justin Case's picture

Chump change in the overall debt burden, at least they know where it went.

defense headquarters cannot account for a whopping $6.5 trillion allocated by Congress to protect the country. It's moar productive to find the largest debts first.

moonmac's picture

Economists blame Amazon for the all these stores closing down, but most of the clothes and shoes I buy online doesn’t even fit right. The real reason brick and mortar retailers are closing down is because half of America now shops at Goodwill. It’s the fastest growing retailer in the country. The Fed’s “Wealth Effect” was only able to manage a “Trickle Down” for hand-me-down clothing. Young Americans are starting to outnumber Mexicans in the 4 stores I pick at.

TabakLover's picture

I've got some kick-ass $3 sport coats at Goodwill. Slacks too.............. but my wife is an excellent seamstress.

Grandad Grumps's picture

Since the Fed is completely ineffective at fulfilling ANY of its mandates ... the reasons it was supposedly created for, it should be abolished and a new solution should be implemented.

How about a free market with lots and lots of competition?

crossroaddemon's picture

Naive much? The fed does EXACTLY the job it was created for, with almost perfect efficiency. 

The system works. We are simply in denial about it's purpose.

TabakLover's picture

I'd be retired by now except for the 3 kids I put through college ON MY DIME.  But, I do have 2 MDs and a school teacher. 

corporatewhore's picture

Good for you!!!!  And congratulations to the kids.

Two things--money, you can't take it with you and money, even the pigs won't eat it.  (one saying from my father and the other from my father in law).

Money well spent and will return to you in multiple ways.

ultraticum's picture

What's so f-ing great about "home ownership"?  When did that become the measure of success of this country?

Or, is it just a tool used by the debt-enslaving banking/government cabal to lure those brilliant college graduates into another form of false "ownership", where they're most certainly NOT an owner, but rather a perpetual TENANT of the government in their "own" house?  It is more like an appreciation right - and that hasn't worked out so well in about 9 out of 10 US counties over the last 20 years - in large part due to the downward pressure on values created by always higher, always arbitrary, ad valorem county taxes.

LeftandRightareWrong's picture

So that's why they aren't buying ACA policies.

Golden Showers's picture

Student loans are to ensure that there are just enough middle managers, bank managers, insurance salesmen, a few allopathic doctors, some social workers to last for ten years before they are replaced by other such types.

You can't show me the benifit of 100,000 engineers graduating because nothing has happened in my world. We're still stuck in the 19th and 20th century with everything we use as an appliance, except perhaps for our 'puters. What the fuck is that about? You know that shit is yesterday's news.

It's the 21st century and the longevity rate of americans has gone down. Loans are a surety bond. And personally, I don't want to talk to someone who graduated with loans. It's bad enough that they made it through a federally financed state school. Even less for private schools like Antioch.

If you took the entire loan sucking graduating class of 2016 and bulldozed them into the grouond you would not miss them.

Any one on here who fits that bill can kiss my ass.

runnymede's picture

Why is anyone in the lower half of the bell curve even allowed to go to college, let alone be indebted to do so?