Recent changes to a measure of U.S. household debt service

Federal Reserve Bulletin, Oct, 2003 by Karen Dynan, Kathleen Johnson, Karen Pence

Re-evaluating and Updating the Interest Rate Data

We have also re-evaluated and updated the sources of data on interest rates. In the past, we used proxies for interest rates on RV, marine, and mobile-home loans. (6) According to the SCF, however, the interest rates on these loans are similar to each other and to the Federal Reserve's series on the average interest rate offered by banks on 48-month new car loans (see table 2). Thus, we replaced the previously used proxies with this rate, which is 3 to 4 percentage points lower than the proxies we had been using.

As part of the re-evaluation, we compared the quarterly interest rates for student loans from Sallie Mae and those for personal loans from the Federal Reserve with data from the SCF. The student loan interest rate, which is the average interest rate on Stafford student loans as reported by Sallie Mae, is similar to the rate reported in the SCF. Over the past twenty years, each rate has shown only mild fluctuations around its average of 8.5 percent. (7) Interest rates on personal loans in the SCF, defined as all nonrevolving loans for purposes other than education or the purchase of an RV, a boat, or a mobile home, appear to be a bit lower than the rates offered by banks on 24-month personal loans, but this difference has been close to zero in recent years.

Adding New Sources for Student Loan Data

The DSR was broadened to account for changes in the student loan market. Specifically, the measure of consumer credit used to calculate the DSR was expanded to include student loans extended by the government and Sallie Mae. (8) From the household sector's perspective, student loans made by the government or Sallie Mae do not differ fundamentally from those made by other lenders. However, these student loans were not captured in the consumer credit statistics because information about student loans had traditionally been collected through surveys of banks. (9)

Before 1993, the federal government participated indirectly in the student loan market by guaranteeing loans made available by private lenders, a good portion of which were commercial banks. (10) In 1993, it began disbursing education loans directly to households through the congressionally mandated Federal Direct Student Loan Program (FDSLP). (11) The FDSLP expanded rapidly, and by the end of the decade, the program was responsible for one-quarter of the approximately $177 billion in student loans outstanding under federal programs. (12) Accounting for student loans extended by the federal government raised the level of consumer credit an average of 3 percent since 1994 and its annual growth rate about 1/2 percentage point each year.

Sallie Mae's student loans had not been included in the consumer credit statistics because consumer credit information traditionally had not been collected from government-sponsored enterprises. However, loans from Sallie Mae's parent company (SLM), a private corporation, will be included in consumer loans held by finance companies when statistics from this sector are re-benchmarked in 2005. To avoid such inconsistency in treatment, Sallie Mae's student loans since 1977 were added to the Federal Reserve's G.19 consumer credit statistics beginning with the October 2003 release. Their inclusion did not materially change the growth rate of consumer credit, but it has raised the level an average of 2 1/2 percent since 1977.