Office of Research Blog: Update on Student Loan Borrowers During Payment Suspension
In April, we published a report on the credit status of student loan borrowers during the pandemic and identified the types of borrowers who may face problems after the end of the federal suspension of payments. Inflation has risen since the release of this report arrears and arrears increased for consumers through credit products. These events may signal or contribute to potential repayment difficulties for borrowers in the future.
At the same time, the federal government extended the suspension of payments until the end of 2022 and announced a a new plan to provide one-time targeted student loan debt relief this will reduce the burden on many student loan borrowers and eliminate loans entirely for some borrowers. For borrowers with an individual income of less than $125,000 ($250,000 for households), the plan provides up to $20,000 in federal loan debt relief for Pell Grant recipients and up to $10,000 for other borrowers with federal student loans.
In this post, we present updated data showing that student loan borrowers are increasingly struggling and may face difficulties once their monthly student loan payments resume. We also show how student debt cancellation could significantly reduce the number of borrowers at risk when the moratorium ends in January 2023.
Growth in non-student loan delinquencies
Using the CFPB’s Consumer Credit Panel (CCP), a de-identified sample of credit records from one of the nation’s consumer reporting agencies, we screen for consumers who should have scheduled loan payments at the end of the suspension, but we exclude consumers who have fully paid off their loans — or had their loans forgiven — since the last report.1 We also exclude borrowers in default on their student loans because they will not have regular scheduled payments after the suspension ends unless their loans are rehabilitated. However, many borrowers with delinquent loans may have their loans cancelled. For example, 39 percent of defaulted student loan borrowers at CCP have balances under $10,000, and 23 percent have balances between $10,000 and $20,000.2
At the beginning of the pandemic, some policy measures likely helped student loan borrowers avoid delinquency on other loan products, but as those programs ended, delinquencies began to rise. The figure below shows that as of mid-2021, an increasing share of student loan borrowers are 60 or more days delinquent on their non-student loan accounts. As of September 2022, 7.1 percent of student loan borrowers who were not in default on their loans at the start of the pandemic were struggling to repay other debts, compared to 6.2 percent of those borrowers at the start of the pandemic. The delinquency rate rose even more for borrowers in default on student loans, rising from 9.8 percent at the start of the pandemic to 12.5 percent as of September 2022 (not shown). If this trend of rising delinquencies doesn’t change, more borrowers could face problems as they face additional payments each month.
Figure: Percentage of student loan borrowers in the sample who are more than 60 days delinquent on other loan products
Source: CFPB CCP.
While delinquencies overall have increased, many borrowers may have up to $10,000 (or $20,000) in canceled balances under the debt relief policy announced in August. While we cannot determine which borrowers are eligible for this relief, this new policy will likely reduce the number of student loan borrowers who will be in trouble when the moratorium ends.3 Borrowers with smaller balances are somewhat less likely to fall behind on other debts than those with larger balances, but 25 percent of those who are not delinquent on their student loans have a student loan balance of less than $10,000. Another 19 percent of those borrowers have balances between $10,000 and $20,000. This means that many student loan borrowers who are currently struggling to pay off other debts may no longer have student loan debt when the moratorium ends. As noted above, an even greater share of borrowers with outstanding student loans have balances below debt cancellation thresholds. And many other eligible distressed borrowers may face lower monthly payments even if they haven’t enrolled in an income-driven repayment plan because of their reduced balances.
Monthly payments on loan products have increased
Not only has the share of student loan borrowers delinquent on other debt increased since mid-2021, but more student loan borrowers are facing higher monthly payments on non-student loans. In our previous report, we found that as of February 2022, 39 percent of student loan borrowers in our sample had scheduled monthly payments on all loan products except student loans and mortgages, which increased by 10 percent or more relative to the start of the pandemic.4 As seen in the table below, as of September 2022, the share of student loan borrowers has grown to 46 percent.
Auto loans, the highest-balance credit product after mortgages and student loans for many borrowers, accounted for most of the increase, but overall, average monthly payments on non-student loan debt increased 15 percent for student loan borrowers across the nation. pattern since the beginning of the pandemic.5 While those higher payments may be affordable for borrowers whose incomes have risen during the pandemic, others may be left behind, as evidenced by the rise in delinquencies shown in the figure above.
Note: All statistics are calculated for student loan borrowers who may have loan payments after suspension ends and who had outstanding student loans in February 2020. Scheduled payments include all minimum scheduled monthly payments on all loan products except student loans and mortgages. Previous student loan delinquency is defined as a February 2020 student loan that is 90 days or more delinquent, while those who have never defaulted report no previous payments as of February 2020. Census tract categories are defined as adults in tracts with family income below 200 percent of the federal poverty threshold; “Low” income is 40 percent or more of adults, “middle” income is 20 percent or more but less than 40 percent of adults, and “high” income is less than 20 percent of adults. Source: CFPB CCP.
The increased risk for many student loan borrowers can be reduced by debt cancellation
In our April report, we also focused on five potential risk factors that indicate student loan borrowers could face problems when the moratorium ends: pre-pandemic student loan delinquencies, pre-pandemic student loan repayment assistance, multiple student loan servicers loans, delinquencies on other credit products since the start of the pandemic, and new non-medical fees during the pandemic.
After that report, delinquencies on non-student loan products increased even more, as discussed above. There was also a slight increase in the proportion of borrowers with new non-medical charges on their credit histories (not shown). Overall, this led to an increase in the number of borrowers with two or more risk factors from 5.1 million to 5.5 million student loan borrowers.
However, one-third of borrowers with two or more risk factors may have their balances canceled entirely. Specifically, 19 percent of these borrowers currently have a balance of less than $10,000, and 16 percent have a balance between $10,000 and $20,000 (not shown). So, despite the overall deterioration in credit scores, the cancellation of some student loan debt means that fewer student loan borrowers are likely to be at risk of payment problems when federal student loan payments resume in January 2023. than would otherwise be the case. And for many borrowers with multiple risk factors who still have outstanding balances when payments resume, it is possible that they will decrease in the future.
In addition, at-risk borrowers with outstanding credit after discharge can avoid payment difficulties by by enrolling in an income-driven repayment plan . Currently, many borrowers can qualify for plans that cap their monthly student loan payments at 10 percent of their discretionary income each month. A the proposed new plan would lower that limit to 5 percent while classifying more income as non-discretionary. Before the pandemic, borrowers with larger balances were more likely to be enrolled in an income-driven repayment plan, so they may have more experience navigating the process. But they were also more likely to have defaulted on a student loan or other loan product and still have significant loan balances even after any debt cancellation.
The Office of Research will continue to monitor student loan borrowers as scheduled payments resume and these new rules are implemented.
Approximately 0.8 million borrowers with outstanding federal or private loans in February 2022 no longer have student loans as of the end of September 2022. This is in addition to the 4 million borrowers who had their loans fully repaid (or forgiven) between March 2020 and February 2022. Our analysis does not include consumers who first took out student loans after February 2020 or whose loans were not delinquent as of March 2020. For more information on student loan borrowers excluded from this analysis, see the April report.
This estimate does not include all borrowers in default on federal student loans, as some loans are more than seven years past due and no longer appear on the borrower’s credit history.
Our data does not include information on income or whether consumers received Pell grants, which is necessary to determine eligibility for debt relief. Additionally, some loans included in this analysis are not eligible for debt cancellation (such as private student loans).
In the April report and here, we exclude mortgage payments from this calculation to make comparisons between homeowners and renters more consistent.
Several factors likely contribute to this increase, including the aging of borrowers in the sample and comparable rates of overall price and wage growth over the period (Bureau of Labor Statistics, available at https://data.bls.gov/cgi-bin/surveymost?bls ).