The latest data from the Federal Reserve Bank of New York shows the smallest in increase in consumer borrowing in eight months. Borrowing in March was a seasonally adjusted $2.81 trillion—an increase of $8 billion. The slight rise is attributable entirely to student debt and auto loans, not credit cards. School and car loans were up $9.7 billion for a total of$19.6 trillion.
Credit card debt fell by $1.7 billion to a total of $846 billion; that’s 17.2% lower than when it reached its highest point almost five years ago. In July 2008, just before the economic crash, credit card debt set a record of $1.022 trillion. Since then consumers have become more cautious about taking on additional debt.
Economists say that the increase in Social Security taxes could be partly behind the current consumer reluctance to charge purchases to their cards. The change in tax law has reduced take-home pay for many Americans, who are still in recovery from the recession. An individual who earned $50,000 last year would have to pay about $1,000 more in taxes this year than last, due to new tax regulations.
Back to school
When it comes to taking on debt, Fed data indicates that many people are choosing to apply for student loans rather than credit cards, hoping that going back to the classroom will result in a better job with increased earning power.
The Fed lumps student loans in with car loans, so it isn’t possible to say for sure how much of March’s $9.7 billion increase in that category went toward student loans. But at least one economist has estimated that nearly 80% of that amount went to student debt, not car financing.
Quarterly data from the Federal Reserve indicates that student loan debt has been the fastest growing category of consumer borrowing since June 2009. But now that employment is rebounding, school enrollment could slow down as people return to work. In April, the U.S. economy added 165,000 jobs and the unemployment rate was at a four-year low of 7.5%.