CFPB highlights borrower risk as suspension on student loans nears end

Federal Issues CFPB Consumer Finance Student Lending

On June 7, the CFPB released updated figures on risks facing student loan borrowers when payments paused during the pandemic are set to resume 60 days after June 30. Examining a deidentified sample of credit records, the Bureau studied roughly 32 million borrowers whose federal student loans will soon start accruing interest again. Findings found that:

• “More than one-in-thirteen student loan borrowers are currently behind on their other payment obligations. These delinquencies are higher than they were before the pandemic, despite a small seasonal decrease in the most recent data.”
• “About one-in-five student loan borrowers have risk factors that suggest they could struggle when scheduled payments resume.”
• “Median scheduled payments on other debt obligations have increased by 24 percent for student loan borrowers likely returning to repayment. In percentage terms, these increases are especially large for younger borrowers (252 percent, or $65 to $229).”
• “More than four-in-ten borrowers in [the] sample will return to repayment with a new student loan servicer.”

Bureau researchers found that the ebb and flow of the percent of delinquencies can be linked to the pause on student loan payments, pandemic stimulus payments, and other policy interventions. Attributing the slight decrease this March to an expected seasonal trend, the Bureau said the percentage is again rising as pandemic relief is expiring. This increase in delinquencies is not only specific to student loan borrowers, but also to all non-student loan borrowers, especially in the age range of 30-49, the agency reported. The research further found that “while borrowers in moderate- or higher-income Census tracts are less likely overall to have a non-student-loan delinquency than borrowers in lower-income Census tracts, these delinquencies grew faster for borrowers in higher-income areas over the last several months.” Without enrolling in income-driven repayment plans, the Bureau said it expects student loan borrowers with large balances relative to their income to have a higher risk of struggling to resume their payments.

The Bureau also explained that student loan borrowers’ non-student loan debts (which have increased by at least 10 percent) could also complicate the transition to repayment for millions of borrowers. Another concern flagged by the Bureau is that more than 44 percent of student loan borrowers will have to work with a new servicer as many servicers exited their contracts with the Department of Education over the past three years. The Bureau noted it plans to continue to monitor whether these risks materialize into financial distress.