Greg Schlichter, Director, Research and Consulting, Public Sector
12/21/2022
Report
Of the federal Office of Child Support Enforcement’s (OCSE) reported $117.7 billion in child support arrears, approximately 70% of the outstanding debt was more than 10 years old in 2021.[1,2] This pattern of sustained nonpayment among many delinquent parents highlights challenges facing case managers tasked to enforce court-ordered child support. A new TransUnion analysis found 95% of parents with six consecutive months of missing child support payments will continue. Of the children with a parent living outside their household, roughly one third live in poverty.[3] And with the proportion of custodial parents intended to receive support but going without consistently increasing,[4] child support agencies and case managers are stretched more than ever to alleviate the gap in child support order enforcement.
This is our impetus for wanting to better understand what drives noncustodial parents to engage in serial noncompliance for the first time, what warning signs exist and how child support agencies can provide targeted and timely outreach to mitigate risk. Using delinquent child support accounts reported to TransUnion, we conducted an analysis identifying leading indicators of child support payment delinquency risk. These indicators highlight the need for a holistic approach to child support payment risk assessment.
Key findings:
The pattern of regularly missed child support payments is a difficult one to break once it begins. The odds of payment recovery decreases each month of arrears. Case managers need quick intervention once a parent misses the first payment — before nonpayment becomes habitual. More importantly, case managers can attempt pre-emptive interventions to better serve families dependent on child support payments.
There are many predictive factors of whether a parent is likely to begin missing child support payments. Agencies often rely on a traditional credit score to evaluate the risk of possible non-payment because of its broad predictive value. In many instances however, solely relying on credit scores may not be the most effective tool for intervention strategies.
Based on five-year’s worth of TransUnion anonymized credit data analying the credit characteristics of first-reported child support delinquencies for noncustodial parents, TransUnion evaluated the relative value of individual, credit-based trends to identify new approaches to predict non-payment risk prior to child support payment delinquencies.
Child support agencies already use financial data to evaluate noncustodial parents’ ability to pay support orders and prioritize collections for parents in arrears. However, our analysis found solely relying on traditional credit scores may have limited value in predicting future payment delinquency in this context. Data that goes beyond static credit scores can better pinpoint what precipitates nonpayment of child support and what risk indicators are present in parents’ credit files.
Analyzing anonymized TransUnion credit data of delinquent parents and their overall financial behavior before and after a first-reported delinquency uncovered opportunities to better predict nonpayment risk.[5] This analysis found traditional credit scores alone aren’t powerful predictors of child support compliance risk, and neither are delinquencies on other lines of credit (e.g., a credit card). However, while these immediate data points may not support a proactive child support enforcement strategy, three patterns in consumers’ trended credit data are associated with a higher degree of near-term nonpayment risk:
Around 84% of delinquent noncustodial parents had below-prime credit scores in the month before a reported child support delinquency, signaling high nonpayment risk on debt obligations. Consistent with national trends during this time, many of these parents saw scores increase between the start of the observation period and the month before child support delinquency. This is counterintuitive and highlights the limited value of risk mitigation derived from traditional credit scores in this context. While a credit score provides strong directional guidance on child support payment delinquency risk for some consumers, the possibility of false negatives increases in higher score tiers. Additional data helps better identify and manage payment risk.
Figure 1. Credit score (VantageScore 4.0) distribution of consumers in study population
During the observation period, less than half (44.4%) of parents in our analysis had some other delinquency reported before child support payment delinquencies compared to those who had no other missed debt payments prior to child support noncompliance (55.6%). Only one third of parents (33.6%) had no reported delinquencies other than their child support, despite having other open credit trades.
Figure 2. Sequencing of child support and other credit delinquencies (% of consumers)
Notably, more than half of parents in the risk tiers above subprime had their child support payment delinquency reported before other delinquencies during the observation period. As many parents do not miss other payments before becoming seriously delinquent on child support obligations, it’s clear risk management strategies cannot rely solely on credit score and recent credit delinquencies.
Figure 3. Payment delinquency behavior by credit tier (as of month prior to child support delinquency being reported)
Nearly a third of parents (31.7%) had another credit delinquency prior to their child support. These ‘early warning’ delinquencies were most frequently associated with auto loans and personal installment loans. Also, there was an average of just under 11 months between their first delinquency and nonpayment of child support. The gap varied somewhat by product — consumers who allowed their mortgage to go delinquent first had the largest average ‘lead times’ between that and their child support delinquency.
Figure 4. % of consumers with a trade of type X that had a delinquency during the observation period prior to their child support delinquency
Figure 5. Median number of months between a consumer’s first delinquency in the observation period and their child support delinquency, based on product type of that first delinquency
When determining how wide of an intervention window exists for mitigating child support nonpayment, it’s important to remember many child support accounts are reported to credit reporting agencies after retaining a pastdue balance for many consecutive months. For example, for the median parent with an auto delinquency, they would’ve likely missed their first full child support payment within six months of their missed car payment.
Most parents (65.3%) had no other delinquencies in our observation period following their child support delinquency.
The remaining parents (34.7%) had delinquencies on other credit lines after a child support delinquency. The timing of other credit delinquencies could indicate financial hardship precipitating the missed child support payment. In fact, half of these parents went into nonpayment on another trade within 6 months of their child support becoming seriously delinquent — 73% within 12 months.
Figure 6. % of consumers with delinquent credit trade after child support became seriously delinquent
Uncover more findings from our analysis, including leading risk indicators:
1 Office of Child Support Enforcement, FY 2021 Preliminary Data Report and Tables, Table P-89
2 Elaine Sorensen, September 2, 2021, Most Arrears Were Submitted to OCSE More Than Five Years Ago
3,4 United States Census Bureau, Custodial Mothers and Fathers and Their Child Support: 2017
5 The “observation period” for this analysis was January 1, 2020 – June 30, 2022. See appendix in report for more methodology details.