CFPB Issues New Student Loan Repayment Study

Consumer Finance CFPB Student Lending

On August 16, the CFPB published a study of student loan repayment patterns over a 14-year period. The report, entitled “Data Point: Student Loan Repayment,” analyzed borrower balance and payment status data from the Bureau’s Consumer Credit Panel (CCP). By tracking overall repayment history for borrowers who entered repayment at different points in time, the CFPB observed borrower behavior, including delinquency patterns for those who have not paid down their loan balances. Key findings in the report include:

• Borrowers with recent repayment periods have repaid their loans fully at rates similar to those with repayment periods starting 15 years ago when the loan amount is held constant. “However, 25 to 30 percent of the borrowers in the older cohorts do not pay off their loans within the standard 10-year repayment period, and the more recent cohorts appear to be following the same trend.”
• An apparent relationship exists between the loan amount and repayment speed. Borrowers with loan amounts less than $5,000 are two and a half to four times more likely to fully repay their loans within eight years of entering repayment than borrowers with loans of $50,000 or more. Additionally, more than 40 percent of all borrowers entering repayment today have loan amounts exceeding $20,000—a 20 percent increase from 15 years ago.
• The proportion of student loan borrowers aged 35 or older doubled between 2002 to 2014, whereas the proportion of borrowers younger than 25 declined from 30 to 15 percent between 2002 to 2014. Notably, the CFPB found “remarkably little variation in repayment speed by consumer age despite potential differences in income or resources.”
• Of the student loan borrowers making loan payments large enough to reduce loan balances, recent cohorts are reducing their loan balances faster than earlier cohorts.
• There is an increase in the proportion of borrowers—particularly those with loans less than $20,000—not making large enough payments to lower their loan balances. Specifically, the Bureau claims this trend is in part due to the prevalence of income-driven repayment plans as well as borrowers who are either delinquent or in default on their loans.

The Bureau’s study further recognizes the need to understand how large loan balances could affect consumers’ access to and use of other credit products, such as mortgages. While most borrowers have continued to repay their student loans over the 14-year observation period, the CFPB has suggested that (i) delinquent borrowers may not be taking advantage of alternative repayment options such as income-driven repayment plans, or (ii) servicing delivery platforms may be inadequate for student loan borrowers.