Outstanding student loan debt recently passed over $1.5 Trillion, while auto loans are nearing $1.2 Trillion. Many worry these high debt levels will figure into the next credit downturn. Student loans have more than tripled since the start of 2006. Many, including Federal Reserve Chief Jerome Powell, worry how this may impact future economic growth saying earlier this year, “it absolutely could hold back growth.” He also questioned why student loans cannot be discharged in bankruptcy. Will Congress tackle the challenges of higher education funding? Will students begin to balk at the high price of colleges and universities and begin to instead enroll in cheaper community colleges?
Meanwhile, auto loans have been growing much faster than inflation after having fallen during The Great Recession. The average amount financed for an auto loan crossed over $30K last year and continues to rise. How far will the U.S. consumer continue to reach for their next car?
With the prospects of rising interest rates, when will these increasing debt levels begin to harm consumer spending and the broader economy?