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As Student Loan Borrowers Prepare to Resume Payments, Some Borrowers’ Abilities to Pay May Be Limited

07/27/2023
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As Student Loan Borrowers Prepare to Resume Payments, Some Borrowers' Ability to Pay May be Limited

A TransUnion study — Implications of the End of Pandemic-Era Student Loan Forbearance — revealed with student loan payments resuming in October 2023, many borrowers may find themselves facing the challenge of managing these payments amidst a more expensive monthly debt portfolio.

As of May 31, 2023, 40.6 million consumers possessed student loans (totaling $1.6 trillion in balances); the vast majority (nearly 90%) owning federal student loans. Borrowers within this overall consumer group opened new credit products throughout the federal student loan payment pause (defined as being opened on or after March 31, 2020 to May 31, 2023), specifically: credit cards, retail cards and auto loans, as seen in Chart 1.

Chart 1:

bar chart


With these additional credit products, alongside those already in student loan borrowers’ wallets, their average minimum monthly payments due have increased since the start of the forbearance period (defined as after Q1 2020). When payments resume in October 2023, an additional debt obligation will be layered onto those higher minimum payments for the ~26.8 million consumers expected to begin repaying their federal student loan debt totaling $1.1 trillion. It’s these consumers who are expected to experience a payment shock: More than half will have payments over $200 a month, and about one in five over $500. (Note: This analysis cannot account for U.S. Department of Education income-driven repayment plans or other accommodations).

The study also looked at indicators of the payment shock population’s abilities to pay their federal student loan debt — finding them to be limited. When looking at the aggregate excess payment (defined as total payment amount minus total minimum payment due) among consumers expected to have payment shock: 48% are making payments $300+ over the minimum due (as of May 31, 2023), and only 20% are not paying above the minimum due. When the pause ends and federal loan payments are accounted for, that excess liquidity is expected to be depleted for some borrowers with nearly half of consumers having an excess payment of $0 or less on their debt, as seen in Chart 2.

Chart 2:

bar chart


While the study indicated a portion of federal student loan borrowers may not have enough liquidity to handle the resumption of their loan payments, borrowers will be getting an on-ramp or transition period. The U.S. Department of Education has directed student loan delinquencies not be reported to the credit bureaus for 12 months (until Sept. 30, 2024), helping protect consumers’ credit as they manage these new payments.1

TransUnion can provide useful insights into student loan borrowers during this on-ramp period. Through a Custom Consultative Analysis, lenders will to be able to assess which consumers haven’t demonstrated the capacity to pay their expected student loan monthly payments. Click here to learn more.

Beyond a custom analysis, TransUnion can provide trended credit data institutions can incorporate throughout consumers’ credit lifecycles to identify patterns in borrowing behaviors, specifically:

  • TruVisionTM Premium Student Loan Attributes — This set includes information on type of student loan (private or federal), as well as balance, payment history, payment due and more to help lenders identify impacted consumers. 
  • TruVision Trended Usage Algorithms — This series of algorithms indicates if the consumer is making the minimum payment (or payments in excess of or less than the minimum) to understand shifts in payment behaviors for student loans and other credit products, even if delinquencies are not reported.
  • TruVision Trended Liquidity Algorithms — This set of algorithms tracks changes in consumers’ liquidities over 3, 6 and 12 months to help lenders differentiate risk levels based shifts that may result from additional debt burden when federal student loan payments resume.

Learn more about these and other TruVision™ offerings.

1 FACT SHEET: President Biden Announces New Actions to Provide Debt Relief and Support for Student Loan Borrowers, June 2023

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