Big lender.

Photographer: Timothy A. Clary/AFP/Getty Images

What Consumers Owe Uncle Sam

Mark Whitehouse writes editorials on global economics and finance for Bloomberg View. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was previously the founding managing editor of Vedomosti, a Russian-language business daily.
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U.S. consumers have long had an impressive propensity to get into debt. Lately, though, one lender has been playing a much bigger role in enabling them: Uncle Sam.

Total U.S. consumer credit -- which includes credit cards, auto loans and student debt, but not mortgages -- stood at $3.54 trillion at the end of March, according to the latest data from the Federal Reserve. That's the most on record, both in dollar terms and as a share of gross domestic product.

QuickTake Student Debt

What's really unusual, though, is the source of the money: The federal government accounted for almost 28 percent of the total. That's up from less than 5 percent before the 2007-2009 recession, thanks in large part to the government's efforts to promote education by making hundreds of billions of dollars in student loans directly, rather than going through banks. Here's how that looks:

To some extent, the government's growing role makes sense. Amid a deep economic slump and slow recovery, it was best equipped to satisfy the demand for credit among Americans looking to improve their job prospects through education. Without the government's involvement, consumer credit as a share of gross domestic product would still be well below the pre-recession level (all else equal). Here's how that looks:

That said, the government assist has helped push total student debt to a record $1.3 trillion, much of which has been spent on rising tuition costs or on courses that didn't do much to improve people's earning potential. Because student debt is extremely difficult to discharge through bankruptcy, it will weigh on the borrowers -- and on the U.S. economy -- for many years to come.

The Barack Obama administration has sought to ease the burden, for example with a plan that limits payments to 10 percent of a borrower's income. Ultimately, though, the government may have to write off a lot of the debt -- at taxpayer expense.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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Mark Whitehouse at

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