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Student Debt, the New Home Equity Loan

Student Debt, the New Home Equity Loan
Illustration by 731 Lexington, Photo: Getty Images

Consumer credit is on a tear. In January (the latest data available), consumers borrowed $17.8 billion, bringing outstanding consumer debt to $2.51 trillion. That’s the biggest three-month gain in more than a decade. Greater borrowing could be a good sign, showing that consumers are more confident—the magical emotion that can spur spending and help the economy rebound. But Dan Alpert, managing partner at Westwood Capital, a boutique investment bank, says not to start welcoming the “confidence fairy” yet. As he reads the numbers, something more troubling is going on.

While retail sales are slightly up, Alpert says that if the borrowing binge were driven by confidence, people would be spending at much faster rates. “You see this enormous growth in credit but you don’t see enormous pick-up in consumption,” he says. New data today from the Conference Board show that consumer confidence slipped slightly in February and is around the same level as a year ago, despite the big increase in borrowing. Alpert says people don’t have many reasons to be optimistic. Unemployment is still above 8 percent. And when people do get new jobs, they often don’t earn as much as they did before they were out of work—or even much more than they received from unemployment benefits.