A good (ish) trend in US student lending Shahien Nasiripour and Ryan McCarthy both had great pieces recently about the latest trends in student lending and their potential wider implications for the economy. We also recommend this explainer from Dylan Matthews about the new jump in rates for certain kinds of student loans. Our own view has been that the ongoing growth of student lending is unlikely to represent a systemic financial risk, but it's hard to imagine that it doesn't have some damaging macroeconomic effects in the short- to medium-term. A much-cited New York Fed study shows that young people with high student loan debt are reluctant to borrow in housing and auto markets. And as Nasiripour explains, the obstacles to refinancing student loans have prevented the low interest rates of the past few years from directly helping this group of borrowers. See also this article by Mike Konczal, who rightly wonders how student loans affect the rate of household formation. An expected recovery in formations after the dramatic post-crisis fall should continue to drive demand for both new single-family homes and rentals for the next few years. But we recently came across a note from Capital Economics explaining that the annual growth rate of student lending has actually been in long-term, steady decline. And the sharp divergence with household debt in recent years, while disconcerting, has more to do with the big decline of other kinds of borrowing than any significant change in student loan borrowing. This doesn't nullify our worries, and quite a lot about the broader effects of high student debt levels remains unknown. But as it's one of the few relatively optimistic notes on the subject that we've come across, we thought it worth passing along: The latest data from the New York Fed have reignited concerns about a possible bubble in student loans. But the growth of student loans has always been faster than the growth in other types of household debt, largely because more students are going into higher education and the cost of that education has risen more rapidly than average consumer prices. See Chart 1. Student loans also weren't affected by the housing and economic downturn in the same way as other types of debt were. The lack of job opportunities pushed more people into higher education and the supply of loans was unaffected by the credit crisis since the money either comes directly from, or is insured by, the Federal government. The growth rate of student loans has been on a long-term downward trend, while the contraction in other types of household debt has eased. Both of these developments are positive. The dramatic jump in the delinquency rates for student loans is, at first glance, alarming. See Chart 2. But we suspect this jump owes more to a change in the definition the New York Fed uses to determine whether a loan is delinquent or not, which wasn't applied to the historical data. The sudden spike in student loan delinquencies in the second quarter of last year makes little sense given the downward trend in the overall household debt delinquency rate. The key determinants of delinquencies are the unemployment rate and interest rates. But the unemployment rates for 20 to 34 year olds have been trending lower and interest rates have also fallen. See Chart 3.