Resuming Student Loan Payments Will Affect Consumer Credit Risk

Resuming Student Loan Payments Will Affect Consumer Credit Risk

A recently released white paper from BCG and TransUnion explores the impact that resuming federal student loan payments will have on consumer credit markets and provides lenders with guidance to mitigate the increased risk.

“How Resuming Student Loan Payments Will Affect Consumer Credit Risk” (November 2023), presents a detailed analysis of the impact of federal student loan payments resuming on consumer credit markets. It utilizes pre-Covid data and a consumer survey to model the effect of payment increases on credit risk, particularly focusing on the probability of consumers becoming seriously delinquent (defined as 90 or more days past due on one of their credit products within 12 months).

The study anticipates that the resumption of student loan payments will noticeably increase credit risk for student loans and other consumer credit products like credit cards and personal loans. It estimates that 500,000 to 1.4 million consumers will become seriously delinquent on one or more credit products due to the resumption of student loan payments, which represents a 1.2x to 1.7x increase in the odds of becoming seriously delinquent.

The paper also discusses the potential mitigating effect of the government’s new Saving on a Valuable Education (SAVE) program, yet highlights that lenders, especially those heavily exposed to consumers with student loans, must urgently adjust their loss forecasts, underwriting strategies, and account management strategies.

Implications for the Student Loan Debt Sales Market

This study is significant for the market for student loan debt as it underscores the increased risk and the need for lenders and servicers to prepare for a more challenging credit environment, especially in light of factors like inflation and higher interest rates that compound the impact of resuming student loan payments.

For more on the subject of consumer debt in America, watch EverChain’s recent webinar on the State of the Debt Sales Market with a macroeconomic update from TransUnion.

Download TransUnion’s white paper here.

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