Tag: student debt
After being in place for more than three years, the student loan payment pause is scheduled to end 60 days after June 30, with payments resuming soon after. As borrowers brace for this return, there are many things that loan servicers and lenders should take note of, including: Potential risk factors demonstrated by borrowers. About one in five student loan borrowers show risk factors that suggest they could struggle when scheduled payments resume.1 These include pre-pandemic delinquencies on student loans and new non-medical collections during the pandemic. The impact of pre-pandemic delinquencies. A delinquent status dating prior to the pandemic is a statistically significant indicator of subsequent risk. An increase in non-student loan delinquencies. As of March 2023, around 2.5 million student loan borrowers had a delinquency on a non-student loan, an increase of approximately 200,000 borrowers since September 2022.2 Transfers to new servicers. More than four in ten borrowers will return to repayment with a new student loan servicer.3 Feelings of anxiety for younger borrowers. Roughly 70% of Gen Z and millennials believe the current economic environment is hurting their ability to be financially independent adults. However, 77% are striving to be more financially literate.4 How loan servicers and lenders can prepare and navigate Considering these factors, lenders and servicers know that borrowers may face new challenges and fears once student loan payments resume. Here are a few implications and what servicers and lenders can do in response: Non-student loan delinquencies can potentially soar further. Increased delinquencies on non-student loans and larger monthly payments on all credit products can make the transition to repayment extremely challenging for borrowers. Combined with high balances and interest rates, this can lead to a sharp increase in delinquencies and heightened probability of default. By leveraging alternative data and attributes, you can gain deeper insights into your customers' financial behaviors before and during the payment holidays. This way, you can mitigate risk and improve your lending and servicing decisions. Note: While many student loan borrowers have halted their payments during forbearance, some have continued to pay anyway, demonstrating strong financial ability and willingness to pay in the future. Trended data and advanced modeling provide a clearer, up-to-date view of these payment behaviors, enabling you to identify low-risk, high-value customers. Streamlining your processes can benefit you and your customers. With some student loan borrowers switching to different servicers, creating new accounts, enrolling in autopay, and confirming payment information can be a huge hassle. For servicers that will have new loans transferred to them, the number of queries and requests from borrowers can be overwhelming, especially if resources are limited. To make transitions as smooth as possible, consider streamlining your administrative tasks and processes with automation. This way, you can provide fast and frictionless service for borrowers while focusing more of your resources on those who need one-on-one assistance. Providing credit education can help borrowers take control of their financial lives. Already troubled by higher costs and monthly payments on other credit products, student loan payments are yet another financial obligation for borrowers to worry about. Some borrowers have even stated that student loan debt has delayed or prevented them from achieving major life milestones, such as getting married, buying a home, or having children.5 By arming borrowers with credit education, tools, and resources, they can better navigate the return of student loan payments, make more informed financial decisions, and potentially turn into lifelong customers. For more information on effective portfolio management, click here. 1Consumer Financial Protection Bureau. (June 2023). Office of Research blog: Update on student loan borrowers as payment suspension set to expire. 2Ibid. 3Ibid. 4Experian. (May 2023). Take a Look: Millennial and Gen Z Personal Finance Trends 5AP News. (June 2023). The pause on student loan payment is ending. Can borrowers find room in their budgets?
School’s out, and graduation brings excitement, anticipation and bills. Oh, boy, here come the student loans. Are graduates ready for the bills? Even before they have a job lined up? With lots of attention from the media, I was interested in analyzing student loan debt to see if this is a true issue or just a headline grab. There’s no shortage of headlines alluding to a student loan crisis: “How student loans are crushing millennial entrepreneurialism” “Student loan debt in 2017: A $1.3 trillion crisis” “Why the student loan crisis is even worse than people think” Certainly sounds like a crisis. However, I’m a data guy, so let’s look at the data. Pulling from our data, I analyzed student loan trades for the last four years starting with outstanding debt — which grew 21 percent since 2013 to reach a high of $1.49 trillion in the fourth quarter of 2016. I then drilled down and looked at just student loan trades. Created with Highstock 5.0.7Total Number of Student Loans TradesStudent Loan Total TradesNumber of trades in millions174,961,380174,961,380182,125,450182,125,450184,229,650184,229,650181,228,130181,228,130Q4 2013Q4 2014Q4 2015Q4 2016025M50M75M100M125M150M175M200MSource: Experian (function(){ function include(script, next) {var sc=document.createElement("script");sc.src = script;sc.type="text/javascript";sc.onload=function() {if (++next < incl.length) include(incl[next], next);};document.head.appendChild(sc);}function each(a, fn){if (typeof a.forEach !== "undefined"){a.forEach(fn);}else{for (var i = 0; i < a.length; i++){if (fn) {fn(a[i]);}}}}var inc = {},incl=[]; each(document.querySelectorAll("script"), function(t) {inc[t.src.substr(0, t.src.indexOf("?"))] = 1;});each(Object.keys({"https://code.highcharts.com/stock/highstock.js":1,"https://code.highcharts.com/adapters/standalone-framework.js":1,"https://code.highcharts.com/highcharts-more.js":1,"https://code.highcharts.com/highcharts-3d.js":1,"https://code.highcharts.com/modules/data.js":1,"https://code.highcharts.com/modules/exporting.js":1,"http://code.highcharts.com/modules/funnel.js":1,"http://code.highcharts.com/modules/solid-gauge.js":1}),function (k){if (!inc[k]) {incl.push(k)}});if (incl.length > 0) { include(incl[0], 0); } function cl() {if(typeof window["Highcharts"] !== "undefined"){new Highcharts.Chart("highcharts-79eb8e0a-4aa9-404c-bc5f-7da876c38b0f", {"chart":{"type":"column","inverted":true,"polar":false,"style":{"fontFamily":"Arial","color":"#333","fontSize":"12px","fontWeight":"normal","fontStyle":"normal"}},"plotOptions":{"series":{"dataLabels":{"enabled":true},"animation":true}},"title":{"text":"Student Loan Total Trades","style":{"fontFamily":"Arial","color":"#333333","fontSize":"18px","fontWeight":"bold","fontStyle":"normal","fill":"#333333","width":"792px"}},"subtitle":{"text":"","style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal","fill":"#666666","width":"792px"}},"exporting":{},"yAxis":[{"title":{"text":"Number of trades in millions","style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal"}},"labels":{"format":""},"type":"linear"}],"xAxis":[{"title":{"style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal"},"text":""},"reversed":true,"labels":{"format":"{value:}"},"type":"linear"}],"series":[{"data":[["Total Student Loans",174961380]],"name":"Q4 2013","turboThreshold":0,"_colorIndex":0,"_symbolIndex":0},{"data":[["Total Student Loans",182125450]],"name":"Q4 2014","turboThreshold":0,"_colorIndex":1,"_symbolIndex":1},{"data":[["Total Student Loans",184229650]],"name":"Q4 2015","turboThreshold":0,"_colorIndex":2,"_symbolIndex":2},{"data":[["Total Student Loans",181228130]],"name":"Q4 2016","turboThreshold":0,"_colorIndex":3,"_symbolIndex":3}],"colors":["#26478d","#406eb3","#632678","#982881"],"legend":{"itemStyle":{"fontFamily":"Arial","color":"#333333","fontSize":"12px","fontWeight":"normal","fontStyle":"normal","cursor":"pointer"},"itemHiddenStyle":{"fontFamily":"Arial","color":"#cccccc","fontSize":"18px","fontWeight":"normal","fontStyle":"normal"},"layout":"horizontal","floating":false,"verticalAlign":"bottom","x":0,"align":"center","y":0},"credits":{"text":"Source: Experian"}});}else window.setTimeout(cl, 20);}cl();})(); Over the past four years, student loan trades grew 4 percent, but saw a slight decline between 2015 and 2016. The number of trades isn’t growing as fast as the amount of money that people need. The average balance per trade grew 17 percent to $8,210. Either people are not saving enough for college or the price of school is outpacing the amount people are saving. I shifted the data and looked at the individual consumer rather than the trade level. Created with Highstock 5.0.7Student Loan Average Balance per Trade4.044.043.933.933.893.893.853.85Q4 2013Q4 2014Q4 2015Q4 201600.511.522.533.544.5Source: Experian (function(){ function include(script, next) {var sc=document.createElement("script");sc.src = script;sc.type="text/javascript";sc.onload=function() {if (++next < incl.length) include(incl[next], next);};document.head.appendChild(sc);}function each(a, fn){if (typeof a.forEach !== "undefined"){a.forEach(fn);}else{for (var i = 0; i < a.length; i++){if (fn) {fn(a[i]);}}}}var inc = {},incl=[]; each(document.querySelectorAll("script"), function(t) {inc[t.src.substr(0, t.src.indexOf("?"))] = 1;});each(Object.keys({"https://code.highcharts.com/stock/highstock.js":1,"https://code.highcharts.com/adapters/standalone-framework.js":1,"https://code.highcharts.com/highcharts-more.js":1,"https://code.highcharts.com/highcharts-3d.js":1,"https://code.highcharts.com/modules/data.js":1,"https://code.highcharts.com/modules/exporting.js":1,"http://code.highcharts.com/modules/funnel.js":1,"http://code.highcharts.com/modules/solid-gauge.js":1}),function (k){if (!inc[k]) {incl.push(k)}});if (incl.length > 0) { include(incl[0], 0); } function cl() {if(typeof window["Highcharts"] !== "undefined"){new Highcharts.Chart("highcharts-66c10c16-1925-40d2-918f-51214e2150cf", {"chart":{"type":"column","polar":false,"style":{"fontFamily":"Arial","color":"#333","fontSize":"12px","fontWeight":"normal","fontStyle":"normal"},"inverted":true},"plotOptions":{"series":{"dataLabels":{"enabled":true},"animation":true}},"title":{"text":"Student Loan Average Number of Trades per Consumer","style":{"fontFamily":"Arial","color":"#333333","fontSize":"18px","fontWeight":"bold","fontStyle":"normal","fill":"#333333","width":"356px"}},"subtitle":{"text":"","style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal","fill":"#666666","width":"356px"}},"exporting":{},"yAxis":[{"title":{"text":"","style":{"fontFamily":"Arial","color":"#666666","fontSize":"14px","fontWeight":"normal","fontStyle":"normal"}},"type":"linear","labels":{"format":"{value}"}}],"xAxis":[{"title":{"style":{"fontFamily":"Arial","color":"#666666","fontSize":"14px","fontWeight":"normal","fontStyle":"normal"}},"type":"linear","labels":{"format":"{}"}}],"colors":["#26478d","#406eb3","#632678","#982881","#ba2f7d"],"series":[{"data":[["Average Trades per Consumer",4.04]],"name":"Q4 2013","turboThreshold":0,"_colorIndex":0},{"data":[["Average Trade per Consumer",3.93]],"name":"Q4 2014","turboThreshold":0,"_colorIndex":1},{"data":[["Average Trade per Consumer",3.89]],"name":"Q4 2015","turboThreshold":0,"_colorIndex":2},{"data":[["Average Trades per Consumer",3.85]],"name":"Q4 2016","turboThreshold":0,"_colorIndex":3}],"legend":{"floating":false,"itemStyle":{"fontFamily":"Arial","color":"#333333","fontSize":"12px","fontWeight":"bold","fontStyle":"normal","cursor":"pointer"},"itemHiddenStyle":{"fontFamily":"Arial","color":"#cccccc","fontSize":"18px","fontWeight":"normal","fontStyle":"normal"},"layout":"horizontal"},"credits":{"text":"Source: Experian"}});}else window.setTimeout(cl, 20);}cl();})(); The number of overall student loan trades per consumer is down to 3.85, a decrease of 5 percent over the last four years. This is explained by an increase in loan consolidations as well as the better planning by students so that they don’t have to take more student loans in the same year. Lastly, I looked at the average balance per consumer. This is the amount that consumers, on average, owe for their student loan trades. Created with Highstock 5.0.7Balance in thousands ($)Quarterly $USD Debt per ConsumerQ4 Student Loan TrendsAverage Student Loan Debt Balance per Consumer27,93427,93429,22629,22630,52330,52332,06132,061Q4 2013Q4 2014Q4 2015Q4 201605,00010,00015,00020,00025,00030,00035,000Source: Experian (function(){ function include(script, next) {var sc=document.createElement("script");sc.src = script;sc.type="text/javascript";sc.onload=function() {if (++next < incl.length) include(incl[next], next);};document.head.appendChild(sc);}function each(a, fn){if (typeof a.forEach !== "undefined"){a.forEach(fn);}else{for (var i = 0; i < a.length; i++){if (fn) {fn(a[i]);}}}}var inc = {},incl=[]; each(document.querySelectorAll("script"), function(t) {inc[t.src.substr(0, t.src.indexOf("?"))] = 1;});each(Object.keys({"https://code.highcharts.com/stock/highstock.js":1,"https://code.highcharts.com/adapters/standalone-framework.js":1,"https://code.highcharts.com/highcharts-more.js":1,"https://code.highcharts.com/highcharts-3d.js":1,"https://code.highcharts.com/modules/data.js":1,"https://code.highcharts.com/modules/exporting.js":1,"http://code.highcharts.com/modules/funnel.js":1,"http://code.highcharts.com/modules/solid-gauge.js":1}),function (k){if (!inc[k]) {incl.push(k)}});if (incl.length > 0) { include(incl[0], 0); } function cl() {if(typeof window["Highcharts"] !== "undefined"){Highcharts.setOptions({lang:{"thousandsSep":","}});new Highcharts.Chart("highcharts-0b893a55-8019-4f1a-9ae1-70962e668355", {"chart":{"type":"column","inverted":true,"polar":false,"style":{"fontFamily":"Arial","color":"#333","fontSize":"12px","fontWeight":"normal","fontStyle":"normal"}},"plotOptions":{"series":{"dataLabels":{"enabled":true},"animation":true}},"title":{"text":"Average Student Loan Balance per Consumer","style":{"fontFamily":"Arial","color":"#333333","fontSize":"18px","fontWeight":"bold","fontStyle":"normal","fill":"#333333","width":"308px"}},"subtitle":{"text":"","style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal","fill":"#666666","width":"792px"}},"exporting":{},"yAxis":[{"title":{"text":"Balance numbers are in thousands ($)","style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal"}},"labels":{"format":"{value:,1f}"},"reversed":false}],"xAxis":[{"title":{"style":{"fontFamily":"Arial","color":"#666666","fontSize":"16px","fontWeight":"normal","fontStyle":"normal"},"text":"Balance in thousands ($)"},"labels":{"format":"{value:}"},"type":"linear","reversed":true,"opposite":false}],"series":[{"data":[["Average Balance per Consumer",27934]],"name":"Q4 2013","turboThreshold":0,"_colorIndex":0},{"data":[["Average Balance per Consumer",29226]],"name":"Q4 2014","turboThreshold":0,"_colorIndex":1},{"data":[["Average Balance per Consumer",30523]],"name":"Q4 2015","turboThreshold":0,"_colorIndex":2},{"data":[["Average Balance per Consumer",32061]],"name":"Q4 2016","turboThreshold":0,"_colorIndex":3}],"colors":["#26478d","#406eb3","#632678","#982881"],"legend":{"itemStyle":{"fontFamily":"Arial","color":"#333333","fontSize":"12px","fontWeight":"bold","fontStyle":"normal","cursor":"pointer"},"itemHiddenStyle":{"fontFamily":"Arial","color":"#cccccc","fontSize":"18px","fontWeight":"normal","fontStyle":"normal"}},"lang":{"thousandsSep":","},"credits":{"text":"Source: Experian"}});}else window.setTimeout(cl, 20);}cl();})(); Here we see a growth of 15 percent over the last four years. At the end of 2016, the average person with a student loan balance had just over $32,000 outstanding. While this is a large increase, we should compare it with other purchases: This balance is no more than a person purchasing a brand-new car without a down payment. While we’re seeing an increase in overall outstanding debt and individual loan balances, I’m not yet agreeing that this is the crisis the media portrays. If students are educated about the debt that they’re taking out and making sure that they’re able to repay it, the student loan market is performing as it should. It’s our job to help educate students and their families about making good financial decisions. These discussions need to be had before debt is taken out, so it’s not a shock to the student upon graduation.
The numbers are staggering: more than $1.2 trillion in outstanding student loan debt, 40 million borrowers, and an average balance of $29,000. With Millennials exiting college and buried in debt, it’s no surprise they are postponing marriage, having babies, home purchases and other major life events. While the student loan issue has been looming for years, the magnitude is now taking center stage. All of the 2016 presidential contenders have an opinion, and many are starting to propose solutions – some going as far as to call for “debt-free college.” The issue has also caught the eye of the Consumer Financial Protection Bureau (CFPB). In its 2014 report, the CFPB stated one in four recent college graduates is either unemployed or underemployed. They also stated when faced with the inability to repay their debt, students lack payment options and are unclear as to how to resolve their debt. There is a bright spot. Experian reported new findings stating that among adults 18 to 34 years of age, the average credit score of those who had at least one open student loan account was 640, 20 points higher than others in their age group. So, if paid in a timely manner, student loans can help younger people establish a decent credit history before they go on to buy things like homes and cars. Still, education is key. Today, only 24 U.S. states require some form of financial literacy to be included in their high school course work, with only four states (Utah, Montana, Tennessee and Virginia) devoting a full semester to a personal finance course. Education is needed before students start diving into the student loan scene, and also after they graduate, to ensure they understand their repayment options and obligations. The CFPB is calling on all parties (universities, colleges, private lenders, advocates, policy makers and even family members) to get involved. Providing financial education, financial literacy, repayment options, deferral methods and income calculators are all needed to tackle this growing problem. The Great Recession and slow recovery brought home the importance of a college degree in today’s economy for many Americans. Bachelor’s degree recipients fared much better than their counterparts who only finished high school. The question becomes how to fund it, and make sure students who rely on loans understand the finances attached to this milestone investment. Learn more about Experian’s student debt trends and credit education in The Increasing Need for Consumer Credit Education: A Review of Student Debt.