The Generational Split of Consumer Debt

Two weeks ago I looked into the uptick in consumer debt and concluded the trend was neither wholly good nor bad:

Even if we're on the cusp of an economic upswing (which is the opinion of the Organization for Economic Cooperation and Development) it doesn't make sense to start celebrating until we have a better idea of how the debt burden is allocated.

Since then, the good economic news has not abated; witness the upward revisions of fourth quarter GDP and personal income growth, and the jobless claims remaining at a four-year low. Still, the latest round of consumer debt numbers indicate the exacerbation of a generational split in the debt burden that ought to leave us reluctant to pop the champagne.

According to the New York Federal Reserve, mortgage balances have been reduced, but student loans have increased. It would be difficult to overstate how damaging this trend is for the long-term health of the country. Indeed, even in the short-term the proliferation of student loans could squelch the fragile recovery recovery of the housing market, which may have finally bottomed out:

As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4.

The picture this paints for the younger generation is ugly: It will be saddled with student loans in pursuit of degrees unlikely to provide the credentials for a decent salary necessary to pay them off. And, thanks to the damaging effect this has on credit scores, a large down payment on a home will be damn near impossible.